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Sprive's A- Z Mortgage Jargon Buster!

You might come across all sorts of unusual words when you’re dealing with your mortgage arrangements, so we thought it would be helpful to provide a ‘one-stop shop’. Here we explain what all this frustrating jargon means in simple terms.

Mortgage Jargon A-Z

Affordability Check: An assessment carried out by the lender to work out if you can afford the mortgage repayments. It analyses your income, financial situation, and spending, among other things.

APR (Annual Percentage Rate): A percentage rate that represents the total cost of the mortgage, including interest repayments and any fees. This allows you to compare the cost of mortgages. Sometimes it is known as APRC (Annual Percentage Rate of Charge).

Arrangement fee: Lenders charge this fee for the administration of a mortgage and holding the funds for a mortgage while the mortgage application is assessed.

Arrears: A mortgage holder is in “arrears” when they have missed at least one mortgage repayment.

Base rate / Bank of England Base Rate: An interest rate set by the Bank of England. This rate is sometimes used by banks and building societies to determine their rates on savings, debt, and mortgages.

Booking fee: A fee charged by the lender up-front for the administration of the mortgage application.

Buildings Insurance: Insurance protection to cover the cost of entirely rebuilding a home, for example, if there is a fire or flood. It is mandatory for all homeowners.

Buy-To-Let Mortgage: A mortgage on a residential property that will be rented to tenants rather than being somewhere for the borrower to live.

Capital: The lump-sum mortgage amount borrowed for the purchase of a property.

Capped rate: A type of mortgage where the interest rate will never go above an agreed “capped” limit.

Cashback mortgage: An incentive offered by the lender, whereby the borrower receives a cash sum when the mortgage reaches completion.

CHAPS fee: A fee charged by the lender for the transfer of the mortgage funds to the buyer’s solicitor.

Completion: At “completion” the property is now under the legal ownership of the buyer and they can move in.

Conveyancing: The legal process of transferring a property from one person to another. This process is managed by a solicitor or conveyancer.

Credit score: A score that is generated for each person based on their current and past financial situation. This is used by lenders to assess whether or not to lend to an individual. A higher credit score is more likely to lead to mortgage application approval.

Credit scoring: A process by which lenders normally assess whether or not a mortgage applicant meets their lending criteria. It is based on the individual’s credit score and a series of questions that the lender asks the individual.

Deeds: A legal document that makes the property purchase official.

Disbursements: Property purchase expenses paid by a lawyer on the property buyer’s behalf.

Discounted Mortgage: A variable rate mortgage. The rate is determined as a discount off of the lender’s Standard Variable Rate (SVR).

Early Repayment Charge: An Early Repayment Charge (ERC) is a fee charged by the lender if the borrower repays the mortgage during the initial deal period.

Equity: The difference between the value of a property and the mortgage on the property. For example, if the property is valued at £200,000 and the mortgage is £150,000, then the equity held in the house is £50,000.

Exchange of contracts: At this point, there is an exchange of paperwork contracts between the buyer and seller, which makes the transaction legally binding.

Fixed-rate mortgage: A mortgage with a fixed interest rate for a certain number of years, typically two, three, or five years.

Flexible Mortgage: A mortgage arrangement that allows the borrower to make overpayments, take payment holidays, or make smaller repayments.

Freehold: If a property is a freehold (as opposed to a leasehold), then the owner of the property also owns the land it is on.

Full structural survey: A thorough and comprehensive survey of a property. It assesses the condition and structure of the property. This can be useful for a buyer if they have concerns or if there are irregularities with the property. This survey is more in-depth than the one usually performed by lenders.

Ground rent: A fee usually paid by the owner of a flat (leaseholders) to the owner of the land the property is on (the freeholder).

Guarantor: Someone who is liable for covering mortgage repayments to the lender, if the mortgage holder misses payments.

Higher Lending Charge: A fee charged by some lenders if the deposit on the property is very low i.e. if the loan-to-value ratio is high, for example, 90%.

Interest-only mortgage: With an interest-only mortgage, the mortgage holder only pays interest to the lender during the term of the loan. None of the lump-sum mortgage capital is repaid during the mortgage term. The lump-sum capital is repaid at the end of the mortgage term.

Joint mortgage: A mortgage taken out by more than one borrower.

Land Certificate: A certificate provided by the Land Registry that proves legal ownership of a property.

Land Registry: The government department that holds records for ownership of all properties in England and Wales.

Landings and Buildings Transaction Tax (LBTT): A tax paid on the purchase of property or land worth more than £145,000 in Scotland.

Leasehold: This usually applies to flats. A leaseholder owns the right to live in the flat for a specific number of years but does not own the property.

Loan to value (LTV): LTV is the percentage of the property’s value that is mortgaged. For example, if the property is valued at £150,000 and the mortgage is £100,000, the LTV ratio is 66%.

Mortgage in principle: This is a written statement by the lender to lend a certain mortgage amount, dependent on their assessment of the property. The mortgage is not yet confirmed.

Mortgage Payment Cover (MPC): Mortgage insurance that covers your mortgage repayments for a limited period of time, in case of an accident, injury, or illness.

Mortgage offer: Once the lender is satisfied with their checks on the property, they can then make a mortgage offer to the buyer, confirming that the mortgage application has been approved.

Mortgage term: The length of time during which the borrower agrees to repay the mortgage, normally 25 years.

Mortgage valuation: A simple survey of the property used by the lender to ensure that the property provides adequate security for the mortgage.

Negative Equity: Equity is the difference between the value of the property and the mortgage on the property. If the mortgage amount exceeds the value of the property, this is negative equity.

Offset mortgage: An offset mortgage is a type of mortgage that allows you to reduce your mortgage interest payments by “offsetting” mortgage debt with savings. For example, if the mortgage is £100,000, and the individual deposits £5,000 savings with the same lender, they pay mortgage interest on only £95,000.

Overpayments: In essence, this means paying off more of your mortgage debt in a given year than is required by the mortgage agreement. Lenders usually allow overpayments of up to 10% per year without penalty.

Own buildings insurance fee: Your mortgage lender usually charges this fee Iif you have purchased building insurance from another company. This covers their administrative burden of checking that the insurance is adequate.

Porting: Some lenders allow you to “port” your mortgage, such that you keep your existing mortgage when you move to another home.

Remortgaging: The process of securing a new mortgage on your home.

Repayment mortgage: A mortgage agreement that involves repayment of the capital debt as well as interest.

Stamp Duty: A tax paid on the purchase of property worth more than £125,000. It is a tiered rate that is a percentage of the value of the property.

Standard Variable Rate (SVR): At the end of the introductory term of a mortgage, the rate reverts to the SVR. For example, after two years, a two-year fixed-term mortgage reverts to the SVR. It is usually a more expensive, higher rate.

Survey: A comprehensive assessment of the condition of the property.

Title deeds: Paperwork that outlines the historical ownership of a property. It includes details about mortgages, conveyancing, and leases.

Tracker mortgage: A variable rate mortgage whose rate is linked to the Bank of England’s base rate. As the base rate moves up or down, so does the mortgage rate.

Under Offer: A property is “under offer” when the seller provisionally accepts an offer. However, the purchase is not yet complete.

Valuation: A basic valuation carried out by the lender to ensure that the property has sufficient value as security against the mortgage.

Valuation fee: The fee charged by the lender for their basic survey of the property.

Variable Interest Rate: An interest rate that changes over time.

Vendor: The seller of a property or land.

Hopefully, this article can serve as a useful reference guide next time you’re negotiating the process of remortgaging. Sprive is committed to making all things mortgages as simple to understand as possible so that remortgaging is a hassle-free breeze. You can look forward to this upcoming new feature soon.

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