Financial terminology can be confusing which is why we will always explain things in a simple and straightforward way without the jargon but here are some common terms to help you understand what they mean.
This is the term used if the borrower has suffered a poor credit history. This could include previous mortgage or loan arrears, CCJ’s or bankruptcy.
A Freehold covenant restricting the occupancy of a property to those engaged in agriculture.
The APRC (Annual Percentage Rate of Charge) is a figure that is used to compare different mortgages. Defined by law, it includes repayments on the loan plus any fees such as booking, arrangement or redemption fees. The APRC shows the true cost of borrowing, and should appear on all mortgage illustrations and quotes.
This is a fee you pay to your Lender in return for providing you with a mortgage. Usually paid on completion or with application , these fees usually apply when you take out a fixed rate, discount or cashback mortgage.
Accident, Sickness and Unemployment insurance (See also MPPI). This insurance is designed to cover the borrowers mortgage payments in case of accident, sickness or involuntary unemployment.
Base Rate Tracker
The interest rate is variable but set at a premium (above) the Bank of England Base Rate for a period or even the term of the mortgage. The biggest advantage of this type of mortgage is that, usually there is little or no redemption penalty. This also means that interest can be saved on the mortgage without penalty, by overpayments, and these savings can be quite significant.
Arrangement fees, are charged in connection with some mortgages, often they are charged in connection with a fixed or capped rate loans. The fee is normally non-refundable if charged upfront, some times it is added to the mortgage debt on completion.
Short term loan to facilitate the purchase of one property prior to the sale of another releasing funds that are required for the purchase. Professional advice should always be taken prior to considering any bridging finance as it can be a solution which is worse than the problem.
A fee charged by an intermediary or advisor for locating the most appropriate mortgage for the borrower.
This is a mortgage designed for people who wish to purchase a property to rent out to others. The ability to repay this type of mortgage is often based on the projected rental income from the property as opposed to the personal income of the borrowers.
Capital and Interest
Your monthly payments are partly to pay the interest on the amount you borrowed and partly to pay the outstanding mortgage and ongoing costs involved in a mortgage.
An interest rate charged on a mortgage where there is a guarantee from the mortgagee that the rate will not exceed a certain amount usually for a set period of 1 – 5 years but which will reduce if the standard variable rate falls below the capped rate.
A payment you receive when you take out a mortgage. It may be a fixed amount, or a percentage of the amount of the mortgage.
County Court Judgment. A decision reached in the County Court which can be for not paying debts. If you pay off the debt, the CCJ is satisfied and a note is put on your records to say this.
When the sale and purchase of the property are finalised and you become the owner of your new house.
Legally binding agreement for sale. In two identical parts, one signed by seller and one by purchaser. When the two parts are exchanged (exchange of contracts) both parties are committed to the transaction.
The legal process involved in buying and selling property.
This is a way in which a lenders assess whether you are a good risk to offer a mortgage to.
A check the lender makes with a specialist company to find out whether you have any CCJs or a bad credit record.
This is a means to repay high interest debts (such as credit cards and personal loans) by incorporating them into a new mortgage to benefit from lower interest rates and lower monthly payments. In the long term this may be a very expensive way of repaying these debts.
A legal document which is ‘signed, sealed and delivered’ not just signed. This has special significance in law. Title to both freehold and leasehold property can only be transferred by deed.
The amount of money you put towards buying your property.
A solicitors expenses for example: land registry fees, searches, faxes etc.
An interest rate which is set at a set margin below standard variable rate usually for a period of 1 – 5 years. Used as an incentive to attract potential new borrowers.
Early Redemption Charges
This a fee charged by a lender if you pay off part or all of your mortgage before the agreed date, or you move your mortgage to another lender. These charges mainly apply to fixed rate, discounted rate and cashback mortgages.
The amount of value in a property that isn’t covered by a mortgage – simply take the amount of the mortgage from the valuation to work out the equity.
You take a new, larger mortgage, or increase a mortgage you already have and use some or all of the extra money you have raised for home improvements, holidays and so on.
Exchange of Contracts
This is the point at which you and the person selling the property sign and swap identical contracts that show the price and which fixtures and fittings are being sold, as well as the date on which everything is to be completed. When contracts are signed, everything becomes legally binding and if you or the seller pull out before completion you or they will have to pay compensation.
The interest charged on a mortgage is set for an agreed period.
This type of mortgage is relatively new. The interest rate is variable but has the big advantage that it is calculated daily instead of annually. This means that any capital repayment of the loan will affect the interest charged on the outstanding balance immediately. By making regular overpayments, the interest saved on the mortgage over the term can be quite significant. Also, most lenders will allow funds to be drawn from the account up to the original mortgage balance or even allow payment holidays.
This is where you own the property and the land that it is on.
This is when the person selling the property accepts an offer and then accepts a new, higher offer from another buyer before exchange of contracts.
This is the person liable for the repayment of a mortgage if a borrower fails to maintain their mortgage payments. This is usually a parent or close family relative.
Home Buyers Report
This is a property survey which lies between a mortgage valuation and a full survey. It is a multi-page report which gives the buyer some piece of mind about the property they are purchasing.
The size of the mortgage that the lender will offer is usually worked out by multiplying your income by a set figure. Most lenders will take 3 times the gross salary of the first applicant plus 1 times the income of the second applicant or 2.5 times the joint salaries. Some lenders will allow you to borrow more than this.
Income protection insurance
This covers accident,sickness and unemployment. It provides a monthly payment if you cannot work for an extended period due to an accident,sickness or unemployment.
Interest Only Mortgage
With this type of mortgage, the borrower is only required to pay inerest on the amount borrowed during the mortgage term. It is the borrowers responsibility to ensure that enough funds will exist (either through an investment policy or other means) to repay the mortgage at the end of the term.
A mortgage broker or advisor who locates the most appropriate mortgage for borrowers and arranges the mortgage on their behalf.
Land Registry Fee
This is the fee paid to the Land Registry to register ownership of an area of land.
If you buy a leasehold property, you own the property for a set number of years but not the land on which the property is built, as opposed to freehold where you own both the property and the land indefinitely.
Local Authority Search
A check carried out by the buyer’s solicitor to check that there are no proposed developments in the area of the property such as roads, railways or other buildings. The check also includes details of the planning permission for the property and whether the council has served any enforcement notices on the property. A fee is charged for this service.
Loan to Value. This refers to the size of the mortgage as a percentage of the value of the property i.e. A £45,000 mortgage on a house valued at £50,000 would mean that the LTV would be 90%.
A loan to buy a property where you put up the property as security against you paying back the loan.
The Company or Organisation that lends you the money.
The person taking out the mortgage.
Mortgage Payment Protection Insurance (See also ASU). This insurance is designed to cover the borrowers mortgage payments in case of accident, sickness or involuntary unemployment.
This is where the money you owe on the mortgage is greater than the value of your property.
When monthly payments to a mortgage are increased so that the mortgage is repaid before the end of the mortgage term. Flexible mortgages allow overpayments to be made without penalty allowing significant interest savings over the mortgage term.
A period during which the borrower makes no mortgage payments. Normally only available to borrowers with a flexible mortgage who have previously overpaid their monthly repayments.
A term used to describe a mortgage that can be transferred between properties when you move house.
The process of paying off your mortgage either when moving house, remortgaging or at the end of the mortgage term.
Penalties levied by the lender when a borrower pays off the mortgage before the end of the agreed redemption period. These are often charged on fixed, capped or discounted rate mortgages.
The process of paying off one mortgage with the proceeds from a new mortgage using the same property as security.
Your monthly payments are partly to repay the amount you borrowed and partly to pay the interest on the outstanding mortgage. This is also known as a capital and interest mortgage.
The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.
Right to Buy
A tenant in a council owned property may purchase the property at a discount depending on length of their tenancy
This is a charge made by lenders when you repay a mortgage.
These are checks carried out during the conveyancing process. These checks are made with local authorities and other official organisations to check planning proposals and other matters that may affect the value of the property and it’s saleability in the future before making a loan.
If you’re a first-time buyer and finding it impossible to get onto the property ladder, a shared equity scheme could offer the boost you need to make it onto that first rung. Shared equity works by providing you, the buyer, with a loan which will form part of the deposit for the property you want to buy
A scheme operated by a housing association where a person owns part of the property and pays a mortgage on this, while the housing association owns the rest of the property and the person pays rent on this.
Stamp Duty Land Tax (SDLT)
This is a tax payable on the purchase of a property by the purchaser.
This is the most wide ranging check of the outside and inside of a property. This is carried out by professional surveyor and it should pick up all but the most hidden faults.
Standard Variable Rate. This is the interest rate that the lender charges. The rate goes up and down and your repayments are adjusted accordingly.
The period of years over which you take the mortgage and when you have to repay it.
This is an insurance policy designed to repay the mortgage on the death of the insured person. Level Term Assurance covers a principal sum throughout the policy term and pays out the full amount on death. Reducing Term Assurance is designed to repay the balance outstanding on a repayment type mortgage upon death. Term Assurance may also pay out early on the diagnosis of a terminal illness.
As a condition of a special mortgage deal, you may have to agree to stay with the lender for a period of months or years after the deal has ended. If you move your mortgage elsewhere during this period, you may have to pay an early redemption charge.
Documents that show proof of who owns the freehold and leasehold property.
Transfer deed This is a document that, once you sign it, transfers the ownership of a property to you.
This is where the property is owned outright and no mortgages or loans are secured against it.
A simple check of the property in order to find out how much it is worth and whether it is suitable to lend a mortgage on.
A fee paid by a borrower to cover the cost of the lender checking that the property is suitable security for the mortgage loan.
The interest rate the lender charges. it goes up and down and your repayments change accordingly.
The person selling the property.
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Fiona Conway&Associates LTD Registered office: Windsor House, Cornwall Road, Harrogate, North Yorkshire, HG1 2AW Registered in England & Wales No: 11775867.
Fiona Conway&Associates Ltd is an Appointed Representative of The Right Mortgage Ltd, which is authorised and regulated by the Financial Conduct Authority (FRN: 833707) for mortgages, protection insurance and general insurance products.
Some forms of Buy to Let mortgages are not regulated by the FCA.
The guidance and/or advice contained within this website is subject to the UK regulatory regime and is therefore primarily targeted at consumers based in the UK.
We will charge a fee of up to 1% of the loan amount for our service in relation to mortgage contracts, which is payable upon obtaining the legal mortgage offer. Our typical fee is £395. The precise amount we will charge is dependent on the amount of research and administration that is required. This will be disclosed to you during our initial appointment. This fee is payable on production of your Mortgage Offer and is non-refundable.
Mortgage and Insurance advice from Fiona Conway Mortgages in Harrogate and surrounding areas.