Mortgage rates and terms explained

Mortgage jargon can become quite confusing with all sorts of mortgage terms and mortgage rates being used to explain things, so we have put together a simple glossary of terms for you to help make things easier. Why not save this page as one of your favourites so that you can refer to it more easily in the future?

We hope you find this information useful, but should you have any more specific questions or need specific mortgage advice then dont hesitate to request a "Call me Back" or phone today on 08451 489 163.

Adverse credit this is the expression used to describe a poor/bad credit history. For example it may be used to describe someone with a CCJ.

APR Annual percentage rate. The APR is the easiest way to compare the actual cost of the loan with other mortgage loans. It is calculated by considering the mortgage over the whole period you are taking it out over (i.e. 30yrs) rather than the initial 2 or 3yrs for example. It helps you to work out the true cost of the loan over the whole mortgage period.

Arrangement fee this is the amount charged by a lender to set up the mortgage for you.

Bank of England Base Rate (Base Rate) this is reviewed every month and is the national interest rate set by the Bank of England. Your mortgage may be above, below, or the same as this depending on your mortgage type, and may go up and down with this rate.

Broker fee this is the fee that a broker will charge you for their services and for handling the mortgage process for you. Our typical broker fee at Mortgages for Business is £297.

Buy to Let mortgage this is a mortgage set up for a house that you are buying or have bought to let/rent out rather than live in yourself.

Capital and interest mortgage (repayment mortgage) monthly payments on this type of mortgage will cover the interest on the mortgage, plus a specified amount of the actual mortgage loan, therefore you are reducing the loan amount each month.

Capped rate mortgage this type of mortgage can go up and down with the interest rate, however it will have a fixed maximum interest rate (capped rate) that it will not exceed.

Cashback a lump sum cash amount you may receive when you complete a mortgage (this only applies to certain mortgages). It may be a fixed amount or a percentage amount of the mortgage.

CCJ County Court Judgement. This is issued when there is non-payment of debt, it will show up on your credit history as adverse credit, however there are specialist mortgages that cater for people with CCJs on their credit records.

Completion this is the expression used to describe the final stage when purchasing a new home.

Conveyancing the legal process involved when buying/selling a property.

Credit check This is the check that is undertaken in to your financial history when you apply for a mortgage, it will show your credit behaviour, any other loans/mortgages etc and any adverse credit.

Credit score this is a scoring method used by some lenders to grade the quality of your credit history as a result of carrying out a credit check.

Discounted Rate Mortgage this is a guaranteed reduction in the rate of your mortgage against the standard variable rate or Bank Base Rate. This usually lasts for a fixed period. i.e. 3 yrs discounted rate.

Early repayment charge this is a charge that will be implemented against you if you repay your mortgage early or before a set date.

Equity this is the difference between the loan amount you have borrowed and the value of the property that it is on. It is possible to have negative equity, for example if your loan amount is greater than the value of the property this is caused by a fall in house prices after you have purchased a property and taken out a mortgage on it.

Fee free remortgage this is a mortgage that is offered at no fee from the lender, which basically means that that they will pay for the valuation and legal fees on your behalf. This is a good way of saving money when you are looking to remortgage, and is an incentive that several lenders offer from time to time.

Fixed Rate Mortgage this is a common mortgage type, and is when the lender fixes the rate that you will pay for a set period, for example they may set the rate at 5.75% for 3yrs, after this fixed rate period the rate you pay will change.

Freehold this is the expression used when you own/are purchasing the land that the property is built on.

HIP Home information pack. All homes marketed for sale in England and Wales need a HIP. The Pack includes an Energy Performance Certificate (EPC), and advice on how to cut carbon emissions and fuel bills. Also included are documents such as a sale statement, searches and evidence of title. A HIP can be arranged by most conveyancing solicitors or a dedicated HIP provider. The seller will have to pay the cost of the HIP.

Interest only mortgage with an interest only mortgage your monthly payments are simply the interest on the mortgage loan, and NOT the actual mortgage loan itself. Therefore with this option you will not be reducing the loan amount. It is therefore important with an interest only mortgage to have some other investment plan in place in order that you can pay off the mortgage after the mortgage period (i.e 30yrs).

Leasehold this is common with flats in the UK. It is the expression used when you own/purchase the property, but not the land it is built on. After a set number of years the lease will need to be re-purchased/extended.

Lender the lender is the person lending the money for the mortgage, for example it may be Halifax or Royal Bank of Scotland.

Legal fees this fee covers the aspects associated with the conveyancing of your mortgage (the legal work of transferring your
mortgage), this cost can vary greatly depending on the complexity of the application.

Loan to Value (LTV) this is the size of the loan calculated as a percentage of the property value. For example, if a property is valued at £100,000, and the mortgage you take is for £65,000, then the LTV is 65%.

LIBOR London Inter-Bank Offer Rate. This is the interest rate at which banks/mortage lenders borrow and lend money to each other. This rate may be the rate on which your mortgage is based instead of the Bank of England Base Rate.
 
Mortgage this is a loan used to buy a property, the property is used as the security against you paying back the loan. Therefore if you default on the loan your property which may include your home, may be repossessed. Mortgages can be taken out on a variety of properties including flats, houses, shops, offices, and hotels for example.

Mortgage Broker a broker is a company that arranges mortgages, they often have access to many/all lenders rates and so can pick the best deal going. The major benefit of using a broker, rather than going direct to the lender is that a broker of gets special deals that arent available in the general market place, plus it means that you wont need to shop around and waste your time, as a broker source the best deal for you. Finally, a broker is a mortgage expert and so knows how the process works and is able to handle it on your behalf, whereas if you went direct to a lender there is a chance you may get confused or struggle if you are unsure of how the process works.

Mortgage indemnity guarantee (MIG) also known as a high loan to value fee or a mortgage indemnity charge, this is a type of insurance that you can purchase (and some lenders insist you do), which covers the lender in the case of you defaulting/missing a mortgage payment. It ensures that the lender will get their money back should your property be repossessed. A MIG can be very expensive, it is important to find out if a lender requires this when selecting a mortgage.

Personal/residential mortgage this is a mortgage taken out on a property that you will be living in, for example when you buy your own house. This is also known as a home-owner mortgage, and is the most common type of mortgage.

Portable this is a mortgage that will allow you to transfer your mortgage to a different property without any penalty, even if there are repayment charges.

Remortgage this is quite a common process for mortgage holders and is when a new mortgage is taken out without moving home. Common reasons for this are to release equity from a property, to consolidate debts, or when you are at the end of a fixed rate deal and it would be financially better to remortgage on to a more favorable mortgage rate.

Reversion rate  - this is the mortgage rate that your mortgage will revert to at the end of your fixed rate period. For example, you may be on a 3yr fixed mortgage rate of 5.75%, after these 3yrs the mortgage rate may change to be 7.4%, therefore the reversion rate in this case is 7.4%.

Searches  - these are the checks or searches carried out by your solicitor when you are purchasing a new property, they will look out for anything that may affect your property. For example, if any planning applications have been made at that property or in the area, if the area is prone to flooding, or for example if there is a history of subsidence.

Self-certification this is a method used where you state your income without having to provide pay-slips to prove it. Some lenders allow this for example when someone is self-employed or have various income streams.

Stamp duty this is a tax levied on property purchases. It is only payable on properties over a certain price, and is a percentage of the property price. Stamp duty is payable by the buyer of the property upon completion.

Structural survey  - this is an extensive survey in to the actual physical structure of the property, which ensures it is in good condition before you purchase it. Some lenders may insist you have a structural survey carried out.

Sub-prime - this is the expression used to describe a poor/bad credit history. For example it may be used to describe someone with a CCJ. People who fall in to the sub-prime category are often perceived as a higher risk to lenders and thus as a result may experience higher rates, there will also be fewer lenders/products available and an MIG may be compulsory in some cases.

Title deeds this is the legal document which shows who is the legal owner of the property.

Tracker Rate Mortgage this is a type of mortgage that will track the Base rate or LIBOR rate at a certain level, therefore if the LIBOR or Base rate goes up or down, then so will your mortgage rate proportionately. For example, if your mortgage rate tracks at 0.5% above the Base rate, and Base rate is 5.5%, then your mortgage rate will be 6%, however if base rate falls by 0.25% (making it 5.25%) then your mortgage rate will fall to be 5.75%. Note Base rate can go up and down, so it is important to note your mortgage payments can go up and down, and you must be able to cover the payment no matter how high it goes.

Variable rate this expression shows that the interest rate varies and is not fixed. It is the interest rate the lender charges you. It may go up or down and with that your payments will do to.

Valuation this is a check carried out by the lender to find out how much the property is worth and whether the property is suitable for them to arrange a mortgage for you on. It is common for you to pay the bill, although as an incentive some lenders may carry this out free of charge.

We hope you find this information useful, but should you have any more specific questions or need specific mortgage advice then dont hesitate to request a "Call me Back" or phone today on 08451 489 163.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.