Understanding the mortgage process can be daunting, especially with all the industry-specific jargon. This guide aims to simplify common mortgage terms, helping you make informed decisions about your mortgage.
A-Z of Common Mortgage Terms
Below we have listed the 25 most common mortgage terms which you may have heard or read but not quite understood, if we have missed any, let us know.
Agreement in Principle (AIP)
An AIP is a statement from a lender indicating how much they might lend you based on your financial situation. While not a guarantee, it shows sellers you’re serious about buying and can speed up the mortgage application process.
APR (Annual Percentage Rate)
APR measures the total cost of borrowing over a year, including interest and fees. It provides a true comparison of mortgage costs, beyond just interest rates.
Arrangement Fee
This fee is charged by lenders for setting up your mortgage. It can be paid upfront or added to your mortgage balance, where it will accrue interest.
Bank Rate / Base Rate
Set by the Bank of England, this rate influences the interest rates lenders charge. If the Bank Rate rises, your mortgage payments might increase if you have a variable rate, discount, or tracker mortgage.
Capital and Interest
Also known as a repayment mortgage, this loan requires monthly payments of both interest and part of the capital, ensuring the loan is fully paid off by the end of the term.
Completion
The final stage of the homebuying process, where the property legally changes ownership. Your solicitor will have requested the funds from your mortgage lender to complete the transaction.
Conveyancing
The legal process of transferring property ownership from seller to buyer, is managed by a solicitor or licensed conveyancer.
Deposit
The upfront amount you pay towards the purchase of a property. A higher deposit can result in a lower interest rate.
Early Repayment Charge (ERC)
A penalty for repaying your mortgage earlier than agreed, typically during a fixed or discounted rate period. Some lenders allow overpayments without triggering the ERC, reducing interest and shortening the term.
Equity
This is the portion of the property’s value you own outright. It is calculated as the difference between the property’s market value and the remaining balance.
Exchange
The stage where both parties sign and swap contracts, and the buyer pays the deposit. Once contracts are signed, you are legally bound to buy the home.
Fixed-Rate Mortgage
A mortgage with an interest rate that stays the same for a set period, usually 2-5 years, providing stable monthly payments regardless of Bank Rate changes.
Freehold
Ownership of both the property and the land it stands on.
Interest-Only Mortgage
A mortgage where you only pay the interest each month. The capital must be repaid at the end of the term, often through savings or investments.
Leasehold
Ownership of the property but not the land it is built on, for a specific number of years. Flats are usually leasehold.
Lender
The organisation, typically a bank or building society, that provides the mortgage funds.
Loan-to-Value (LTV)
A percentage representing the size of your mortgage compared to the property’s value. Lower LTV ratios usually attract better mortgage rates.
Mortgage Term
The length of time over which your mortgage is to be repaid, typically ranging from 10 to 30 years, with 40-year terms becoming more common.
Overpayments
Additional payments towards your mortgage balance beyond the required monthly payments, potentially reducing the mortgage term and saving on interest.
Porting
Transferring your existing mortgage to a new property without paying an early repayment charge, often retaining the same terms and conditions.
Remortgaging
Switching to a new deal with your existing lender or a new one, often to get a better interest rate or release cash from your property.
Stamp Duty
A tax on property purchases exceeding a certain value in England and Northern Ireland, with equivalents in Scotland and Wales. Rates vary based on the property’s value, with lower rates for first-time buyers and surcharges for additional properties.
Standard Variable Rate (SVR)
The lender’s default interest rate, to which your mortgage reverts after a fixed, tracker, or discount deal ends. It can change at any time, usually following Bank Rate changes, and is typically higher than rates available through mortgage deals.
Tracker Mortgage
A mortgage with an interest rate that follows the Bank of England’s Bank Rate, plus a set percentage, causing payments to fluctuate with Bank Rate changes.
Valuation Survey
A survey to ensure the property is worth the price you’re paying. Unlike a homebuyer’s report or structural survey, it does not provide insights on the property’s condition or structural integrity.
If you are struggling with any other mortgage terms that we may have missed, or maybe you need more details on one of the common mortgage terms we’ve covered above, reach out to us, we’re happy to support.
Why Choose Us?
- Independent Advice: We offer unbiased advice on a range of products from various lenders, ensuring you get the best deal for your circumstances.
- Market Insight: Our in-depth knowledge of the market helps you understand the pros and cons of different mortgage types and adapt to market changes.
- Application Support: We assist in preparing your application, increasing your chances of approval by presenting your financial situation in the best light.
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Important Note: Your home may be repossessed if you do not keep up repayments on your mortgage. Always seek professional advice before making any financial decisions. Information is based on our current understanding and may change without notice.
