Glossary of terms
APRStands for Annual Percentage Rate. This is a calculation that includes the amount of interest you pay plus any other fees charged such as arrangement fees for setting up the loan. It also takes into consideration when and how often interest and charges must be paid. An APR figure is intended to let you easily compare products from different lenders.
Arrangement Fee This is a fee to reserve the funds for your mortgage. The arrangement fee for your mortgage may be charged separately or added to the mortgage loan.
Arrears It is important that you keep up-to-date with the monthly repayments on your mortgage. When mortgage payments have not been paid on time and/or are not made at the correct amount, borrowers are said to be in arrears.
Bank of England Base RateThe Bank of England Base Rate is set by the Bank of England and determines the cost of borrowing money.
Building Societies Association (BSA)The trade association representing interests of member societies and mutuals.
Cash Back On completion of a cash back mortgage, your lender will pay a lump sum "back" to you.
Completion This is the last stage in the purchase of a property. The legal documentation is finalised and the lender has sent the mortgage funds to the purchaser's solicitor. Once the purchaser's solicitor forwards the funds to the seller"s solicitor the property is now owned by the purchaser.
Council of Mortgage Lenders (CML)A trade association representing mortgage lenders.
Deed A Deed is the legal written document which transfers title (ownership) or an interest in real property to another person.
Early repayment charge (ERC) An early repayment charge is a fee made by the mortgage lender if you redeem your mortgage early. Not all mortgages have early repayment charges.
Equity (housing) In housing terminology, equity is the difference in the value of the property and the amount outstanding on any loan secured against it.
Exchange of Contracts (England & Wales only) This is the stage where legally binding contracts are exchanged between the buyer and the seller. After contracts have been exchanged the vendor must sell and the purchaser must buy on the terms agreed.
Fixed RateThe interest rate is guaranteed not to change during a fixed term.
Freehold The legal right to hold land/property as the absolute outright owner, free of payment or any other duty owed to another party. As a freeholder, you can then offer to rent your land/property to parties with whom you"ll have a legal agreement. In other words, you may create leaseholders.
Most houses are sold as freehold properties but most flats are sold on a leasehold basis.
Further AdvanceA further advance is sometimes referred to as a second mortgage. It will usually be secured by the existing mortgage deed.
Income MultiplesAn income multiple is used as a guide for how much a lender will be prepared to advance you on a mortgage. The value of an income multiple can vary between lenders but generally the maximum amount you are normally able to borrow to purchase a property will be three times your annual salary or 2.5 times your total income if you are getting a mortgage with a partner. Income multiples is not the only factor in establishing how much a lender will advance you on a mortgage, they will also consider the affordability of the mortgage for you.
Interest Only MortgageYou only pay interest to your lender throughout the mortgage term and your mortgage balance doesn't reduce.£ With this type of mortgage you need to make arrangements to repay the balance at the end of the mortgage term.
Loan to Value (LTV)Loan to value (LTV) is a ratio between the size of the loan you would like against the value or sale price of the property you wish to re-mortgage or purchase. Generally the lower your LTV, the lower your interest rate is likely to be.
Mortgage Indemnity Guarantee (MIG) A Mortgage Indemnity Guarantee (MIG) is an insurance policy designed to protect the lender (the bank or building society for example) against loss in the event of the borrower failing to repay your mortgage. The policy may be insisted on by the lender at the start of the mortgage, but it's usually the borrower who pays the premium!
Mortgage TermThe term of a mortgage is the length of time over which the mortgage lender is willing to advance you the money on your mortgage before it must be repaid. The standard mortgage term in the UK is 25 years.
Mortgage OfferThe mortgage offer is the document issued by a mortgage lender to a prospective borrower following approval of the mortgage application. The mortgage offer will contain the conditions of the mortgage and the terms on which it is being made available. It will also contain the mortgage term.
The mortgage offer is a legal document and details the terms by which the mortgage lender and borrower will be bound. It requires careful reading. It is usually valid for a set period of time such as 3 - 6 months, but it can be revoked should circumstances change for the borrower, such as redundancy before the mortgage is completed.
Negative EquityThis is when the value of a property falls below the amount of the mortgage taken out to purchase it.
OverpaymentAn overpayment is when more is paid each month to a mortgage lender than the stipulated required monthly repayment.
Portable MortgagesA portable mortgage offers the opportunity to move the mortgage from one property to another. This allows the mortgage borrower to move property and move the mortgage from the old property to the new one.
RedemptionRedemption is what occurs after a mortgage and all interest is fully paid off. At this point the mortgage lender no longer has any claim on the property.
Re-mortgageA re-mortgage is the replacement of an existing mortgage with a new one.
Repayment MortgagesA repayment mortgage is where the capital is repaid gradually over the term of the mortgage. A repayment mortgage payments consists of the interest on the outstanding mortgage and an additional sum to reduce the capital balance of the mortgage. In the early years of a repayment mortgage each monthly payment has a greater ratio to pay off the interest, this reduces during the term of the mortgage and in converse the ratio to pay off the capital part of the mortgage is increased during the term of the mortgage.
Variable RateThe rate of interest paid can change according to market conditions and/or changes to the Bank of England Base Rate.
