fbpx

Mortgage Jargon Buster – Everything you need to know

Mortgage Jargon Buster

Getting accepted for a mortgage is hard enough. From credit checks, to saving for a deposit, we understand exactly what it takes to get your next dream home.

When you have someone throwing jargon and terminology at you that you don’t understand… it makes the whole ordeal even harder.

Fear not!

We know what it’s like for real people trying to get onto the property ladder. And we pride ourselves on making it as easy as possible.

That’s why we’ve produced this Mortgage Jargon Buster guide. Explaining all key mortgage terminology in simple, easy-to-understand terms.

Bookmark this page, so you can come back to it any time for a quick check.

Let’s dive in!

Additional borrowing

When someone decides they want to borrow more money on top of their current mortgage, perhaps for home improvements, or pay off other debts for example

Affordability Check

This is the process whereby lenders assess whether your mortgage amount would be affordable. 

Taking into account your credit history, your income, and  how much of your income is committed to outgoings, such as loans. 

Mortgages

Agreement in principle (AIP) 

This is a conditional offer from a lender stating that you may be accepted for an agreed amount of money on a mortgage. 

May also be referred to as a decision in principle (DIP)

This is normally based on a check of your income and credit history and most vendors (a seller/estate agent) will want you to have one before they accept an offer from you.

Annual percentage rate (APR)

An APR is the total annual cost of your mortgage a low APR means the less you pay for your mortgage. 

An APR  includes mortgage broker fees, product fees, and the interest rate.

Arrangement fee 

When looking to obtain a mortgage, you may find that the lender may charge an arrangement fee to organise and complete the mortgage. 

The cost of the arrangement fee varies between lenders and mortgage deals themselves.

Arrears

If you fall behind on your mortgage repayments you’ll be in arrears.

This is also known as defaulting 

Mortgage arrears can lead to the property being repossessed by the lender.

Bad credit

Bad Credit is typically a term used for clients with missed payments, a CCJIVADebt Management Plan or, Bankruptcy. Having bad credit or credit issues can reduce your choice of lenders as some may decline a mortgage application altogether if the borrower has current or previous bad debt. 

There is however a difference between, recent defaults and outstanding debts whereas credit issues that occurred a long time ago or have been settled in full. 

Base rate

In the UK,  the Bank of England  sets a base rate of interest that other financial institutions such as banks and lenders use to determine the amount of interest they charge borrowers or pay savers. 

That means that when the base rate goes up, interest rates will likely go up too and when it goes down, interest rates go down. 

This is an important consideration when looking at whether to fix your mortgage interest rate.

Booking fee

Also known as a mortgage arrangement fee and is charged by the mortgage lender for the admin and process or setting up your mortgage. 

The Original Mortgage Company Team

Broker

A mortgage expert that helps you find an affordable mortgage with a rate and terms suitable for your situation. It’s their job to negotiate your deal and ultimately make sure you’re happy with the amount you pay over your mortgage term.

Buildings insurance 

You’ll be required to have buildings insurance if you take out a mortgage as lenders will want you to be covered for damage to the structure of your home.

Buy-to-let mortgage

This type of mortgage is taken out by a landlord buying a property to rent it out. 

Most buy-to-let mortgage lenders ask for higher deposits upwards of 25% but the amount of deposit you’ll need will vary depending on your own financial and personal circumstances as well as the rental yield of the property you want to buy.

Capital

This is the amount of money you borrow to buy a property. When you repay your mortgage, you’ll be required to pay for the capital of the loan, plus interest, though some mortgage agreements are repaid on an interest-only basis with a capital repayment at the end of the term.

Capped rate

A mortgage with a capped rate has a fixed upper limit in which your payments can’t rise above. Capped rate mortgages are a type of variable rate mortgage, so as interest rates change, your repayments can go up and down. Having a capped rate prevents your mortgage repayments from exceeding a certain point but allows you to still benefit from interest rate falls.

Cashback

A cashback mortgage gives the borrower a one-off lump sum payment at the start of the agreement. Some borrowers decide to use the money for home essentials or furnishings and while this can be handy, cashback mortgages don’t always offer the most competitive interest rates. 

CCJ County Court Judgement. 

If an individual, company, or organisation takes court action against you (saying you owe them money) you might get a county court judgment (CCJ) that can stay on your credit history for 6 years, letting other lenders know that you have previously missed payments. 

This could narrow down your choice of lenders as some won’t accept borrowers with CCJs or other severe bad credit issues. 

Jargon Buster Team

Completion date

On the completion date, the buyer is required to transfer funds to the seller or housing developer in order to complete the purchase, this is done via a solicitor. Keys are exchanged and the buyer can move into their home.

Conveyancing

Conveyancing is the legal process you must go through when you buy or sell property in the UK and is the legal transfer of property from one owner to another. 

Usually, a solicitor oversees this process though many people take the advice of a professional conveyancer who can prepare the contract of sale, check the property for any issues via searches that might break council regulations, and arrange building inspections.

Current account mortgage (CAM) or Offset Mortgage

A CAM (otherwise known as a current account mortgage), is a product that combines your mortgage balance, your current account, and savings (if relevant) to give you one balance. 

So, if your mortgage debt was £100,000, your balance in your current account is £3,000 and you have savings of £1,000, your overall balance would be -£96,000. 

Naturally, after recently being paid, your balance would be less overdrawn, so additional funds can be used to offset your mortgage, and therefore, with reduced debt, you would pay less interest.

CAM mortgage products can be charged with a higher interest rate but this type of mortgage allows you to reduce your balance quicker, especially if you have a good income and don’t spend more than you earn.

Credit score

Your credit score gives lenders an idea as to how well you manage money and the level of risk they are taking if they loan you money. The lower your score, the higher the risk lenders will consider you to be.

Decision in Principle (DIP)

Sometimes known as an Agreement in Principle. This is a document from your lender confirming that you can borrow a certain amount and can be used as proof that you can afford to buy a property.

Deposit

Mortgage lenders usually require a deposit as a portion of the property’s value. The minimum deposit you will usually need is 5%, but the cheapest deals are usually available when larger deposits are made.

Your own circumstances and the type of mortgage product can  affect the amount of deposit a lender will require you to pay, so your mortgage broker will check your eligibility for products and then calculate your deposit size.

Debt to income ratio (DTI)

Your DTI tells you how much debt you have in relation to your income and is calculated by dividing your total amount of  debt by your monthly income and then multiplying the answer by 100.

Lenders calculate DTI as part of their assessment of how likely you are to maintain your mortgage. If you have a lot of debt and a low income that isn’t enough to comfortably cover your debt plus the mortgage amount you’re applying for, a lender is unlikely to approve you.

Early repayment charges (ERCs) 

Some mortgages, for instance Fixed Rate deals have penalty fees you have to pay if you want to leave your mortgage during a specified period, usually the period of the initial deal.

Original Mortgage Company Team

Equity

In brief this is the amount of the property that you own outright.

So for example, if you bought a house with a market value of £100,000 and you had a 10% deposit, you would own £10,000 worth of equity.

 Over time as you make mortgage payments and reduce your mortgage debt, providing the value of the house doesn’t fall you build equity.

Once you’ve paid your mortgage off, you’ll have 100% of the equity.

Equity release scheme

Equity release is a financial product for homeowners 55 and over. Property prices can increase in value over time and rather than having to sell your home, equity release enables you to access the money you’ve built up over the years, without having to sell up and move. 

Equity release plans vary but usually the money is released as a lump sum, or as regular smaller payments to your bank.

There are different types of equity release options and a mortgage adviser will have a specific qualification to discuss these. 

An option is that a lifetime mortgage is secured against your home, with no repayments in your lifetime. The mortgage is paid off when you pass away or if you decide to move into full-time care.

A further option is that interest only is paid by you with the debt again paid off on death or if you move to full time care.

The market has developed further variations all of which require discussion from a specifically qualified advisor. 

Family offset mortgage

This mortgage product is usually used by parents who want to help their child get onto the property ladder. The parents’ savings are balanced against their child’s debt, so the amount they owe and pay in interest is reduced. 

First Homes Programme

First Homes are new-build flats and houses built on developments situated up and down the country, sold with at least 30% discount. Local councils can decide to allocate further discounts to make the scheme more affordable for local applicants.

First-time buyer

If you’ve never owned property before and therefore have no property to sell, you’re a first-time buyer. 

Fixed-rate mortgage

The interest rate you’re charged on a mortgage is fixed for an agreed period of years and therefore doesn’t go up or down, even if interest rates change in line with the BOE base rate.

Find out more about our fixed-rate mortgages.

Freehold

A freehold agreement means that you own the building and the land it stands on, whereas a leasehold agreement means you only own the building and not the land beneath it. 

Ground rent

This is usually charged to homeowners on a leasehold agreement, typically for flats or new-build properties which require maintenance to shared areas like lifts, car parks, and communal gardens. A freehold rent is paid to the freeholder.

There are often opportunities to purchase the freehold in certain circumstances

First time buyers

Guarantor 

Guarantors are usually parents or family members who agree to meet your monthly mortgage repayments if you’re unable to. This type of mortgage can be most common with first-time buyers that are struggling to get onto the property ladder. 

Help to Buy 

There have been many Help to Buy schemes in the UK, each designed to make it easier to buy a house as a first-time buyer. Help to Buy: Equity Loan, for example, provides eligible borrowers with a loan up to 20% of a property’s value, interest-free for 5 years. This can boost deposit sizes for first-time buyers, making it much easier to access lenders with cheaper rates. 

Help To Buy Isa

The Help to Buy ISA scheme closed in November 2019 and is no longer available. This took the form of a tax-free savings account, into which the government paid you, the first-time buyer, a cash bonus towards the purchase of a property. For every £200 saved, the government used to deposit an additional £50, up to a maximum of £3,000. 

Higher lending charge (HLC)

This is sometimes charged by your mortgage lender if you are borrowing more than 75% of the property’s value. 

House of multiple occupation (HMO)

Also referred to as a house share and a term typically used by landlords who rent out a house to more than 3 tenants, who have their bedrooms but share facilities such as the bathroom or kitchen.

Interest rate

This is the cost of borrowing money. So if the rate is 5%, that means if you borrow a pound over a year you’ll repay £1.05. 

Interest-only mortgage

An interest only mortgage differs to a regular mortgage. Rather than making mortgage repayments for the capital (the amount you borrowed to buy the property) and the interest for the loan, you only repay the interest and then at the end of the mortgage term, the full balance is due.

This reduces your outgoings and frees up money to invest in other areas and hopefully see a return and is popular for Buy to Let mortgages

Intermediary or Broker

An adviser who can help you arrange a mortgage, also known as a mortgage broker. They have access to a wide range of lenders and search for the best suited to deal for the borrower.

Independent Brokers can research the whole of the market whereas tied brokers are limited in the range they can offer.

Individual Voluntary Arrangement (IVA)

A court-approved agreement that requires you to repay your debt over an agreed period of time. 

Joint mortgage

A mortgage taken out by two or more people to purchase property, either to live in or to rent it out to tenants. 

Joint mortgage applicants don’t necessarily have to be partners, and it’s common for parents, siblings, and even friends to apply for mortgages together. 

Land Registry

The official body responsible for maintaining details of property ownership. 

Most property is now electronically registered now.

Leasehold

A property sold under a leasehold agreement provides ownership of the property but not the ground beneath it. Leasehold agreements can range up to 999 years.  You may find it hard to get a mortgage if there are fewer than 70 years left on the lease of the property you want to buy. 

Your conveyancing solicitor will help you to look into increasing the length of a remaining lease

Let-to-buy

This mortgage allows you to borrow money to buy a new property, while your existing property is let out to tenants. 

Subject to you passing eligibility criteria and affordability assessments, you would need to convert your existing residential mortgage for your current home into a buy-to-let mortgage while obtaining a new residential mortgage for your new home. 

Lifetime mortgages

This type of equity release product lets you (the homeowner) access equity built up in your property. 

A lifetime mortgage is secured against your home, with usually  no repayments in your lifetime. The mortgage is paid off when you pass away or if you decide to move into full-time care.

Loan-to-value (LTV)

LTV stands for the loan-to-value ratio, which is the percentage of the property value you’re loaned as a mortgage. 

So if you had a 10% deposit for a home, your loan to value ratio would be 90% because the mortgage lender would need to lend you 90% of the property’s value. 

Moving Home

Market value

Market value is an opinion of what a property would sell for in a  market based on the features and of that property.

Monthly repayment

The amount you pay your mortgage lender each month

Mortgage agreement in principle (AIP)

A mortgage in principle is a conditional offer from a lender that states you may be accepted for an agreed amount of money on a mortgage. 

You might have also heard this referred to as a decision in principle (DIP) or an agreement in principle (AIP). An agreement in principle is usually required by most vendors (a seller/estate agent) before they accept an offer from you to buy the property.

Mortgage lender (Mortgage Provider)

Usually a bank or building society. If you meet and agree to the terms of their mortgage agreement, they’ll agree to lend you a percentage of the cost of a property with the understanding that you’ll make repayments on time and in full.

Mortgage payment protection insurance (MPPI)

MPPI is a type of insurance that covers your mortgage if you can’t work due to accident, sickness, or unemployment. Some providers also cover homeowners for involuntary redundancy but not all. 

Mortgage term

This is the amount of time you agree to repay your mortgage. Many mortgages have terms spanning from 10 years to 40 years. A mortgage is charged with interest, so the longer the term, the more interest you’ll pay overall. 

Negative equity

This is where the market value of your home is less than the amount remaining on your mortgage. If you owe more money than your house is worth, you and your lender could potentially be at risk for loss as you could no longer sell your house to repay your mortgage in full.

This might not be a problem if you’re working and able to meet your repayments but if you are suddenly unable to repay your mortgage, perhaps because of a job loss or illness, selling your property would still leave you with debt to repay.

New Build

This is a building that has recently been built or is in the process of being built. New Builds typically come with 10-year warranties which are split into two periods. The defects insurance period covers the first two years and the structural insurance period covers years three to 10.

A new build developer purchases the land and obtains the necessary permits to create plots and newly built homes, to be sold. When you buy a new build, the developer is paid either in cash or with a mortgage.

Offset mortgage

An offset mortgage lender provides a loan that is offset against your savings and sometimes, your balance in your current account. 

Your savings is used to offset the mortgage balance, so you only pay interest on the difference. This reduces the amount of interest you pay for your mortgage as technically, you’re borrowing less. You will not usually be paid credit interest on the balance of any monies offset against the mortgage.

Part buy/part rent (Shared Ownership)

 If you decide to get a part buy/part rent property, you’ll buy a share in a property, likely from a housing developer or Local Authority, and pay capped rent on the part you don’t yet own. 

You don’t have to purchase additional shares but some developers may provide you with the option to purchase additional shares or tranches at a percentage of the property’s market value at a time.

Porting a mortgage

A portable mortgage allows you to transfer your mortgage deal from one property to another if you move, without paying arrangement fees. 

Remortgage

A remortgage describes a scenario in which you take out a new mortgage on a property that you already own, perhaps to move to a cheaper rate and save money, or to borrow more for home improvements or to spend as you wish.

Remortgaging

Repayment mortgage

A repayment mortgage is where you pay off the mortgage interest and part of the capital of your loan each month. If you maintain this commitment, you are guaranteed to have paid off the mortgage by the end of the term.

Right to Buy scheme

Originally intended to enable tenants of council houses to buy the homes they lived in at a discounted price based on the number of years in which they paid a rent. This has now being opened up to housing association tenants too. 

Service charge

The fee paid to a managing agent for the ongoing maintenance of a leasehold property is usually higher for flats that have more shared areas like lifts, shared gardens, or hallways. 

Shared ownership

You buy a share of a property (usually between 25% and 75%) and pay rent on the remaining share, which is owned by the local housing association. 

Stamp duty

Stamp duty land tax (SDLT) is payable when you buy a property for more than £125,000 (or £40,000 if it’s a buy-to-let property or second home).

From time to time these limits are amended

Standard variable rate (SVR)

This is the mortgage interest rate that your lender will charge after your initial mortgage deal period ends. This could be higher or lower than your original rate but often, lenders charge a lower interest rate initially, and then after one or two years, depending on the lender, the rate increases.

Tie-in period

This is the period during which you are ‘locked in’ to your mortgage deal. You’ll have to pay an early repayment charge if you leave your mortgage during this period. Seek advice about mortgages that tie you in after your introductory rate has ended. 

Tracker mortgage 

The interest rate on your mortgage tracks the Bank of England base rate at a set margin above or below it. 

Valuation survey

Lenders always carry out a valuation survey to check whether the property is worth roughly the amount you’re paying for it in order to qualify for the amount of lending that you have applied for.

 You should always have your own survey done too, to check for structural problems.

Variable-rate mortgage

The interest rate you’re charged on a variable rate mortgage can change (go up or down) in line with inflation or changes to the BOE base rate.

Original ideas for your finances

Here at The Original Mortgage Company, we’re always on hand to speak to new customers. Whether you’re looking to purchase your first property, remortgage or add a new buy-to-let to your portfolio.

Contact us today to get started.

Book a free consultation

Once you click submit, a member of our friendly team will contact you to book the best date and time to discuss your requirements.