This page explains all those mysterious words and phrases which leave you baffled.
A
Adverse Credit
An person who has had problems in the past with their credit, examples include late payments, bankruptcy or County Court Judgements (CCJ)
Agreement in principle
The agreement in principle gives an indication of the likely outcome of the loan application. This is not a formal offer, but will include a credit search with a credit reference agency and a judgement on your ability and likeliness to repay the loan amount requested.
Once an agreement in principle has been given the lender will make further checks to ensure the information you have provided and check that the house you have chosen is suitable for us to lend against. They would then offer you a formal offer of loan.
Annual Percentage Rate (APR) or Overall Cost for Comparison
The APR indicates the total cost of borrowing and enables you to compare offers from different lenders. The APR takes all payments, such as interest payments, repayments of capital, all costs and fees based on projections for the payments applicable during the term of a mortgage into consideration.
Appreciation
The value of a property increasing as a result of changes in market conditions.
Arrangement Fee
Most mortgage products have an Arrangement Fee; this is a fee payable to the lender for arranging the mortgage on the product you’ve chosen. Arrangement fees can often be added to the amount you want to borrow, however, you will pay interest on this additional amount throughout the life of your mortgage.
Arrears
Measure in Months or pounds that the mortgage or other loan payments have fallen behind schedule.
Asset
The entire property owned by a person, including currency, stocks, and enforceable claims against others.
B
Building Society
A mutual organisation whose principal purpose is to provide mortgages and savings accounts.
Buildings Insurance
An insurance policy which pays the cost of repair or rebuilding your property in the event of damage or destruction. The majority of mortgage lenders will require you to take out buildings insurance as a condition of their loan.
Buy To Let
Buy to Let is a mortgage type used to buy property which is to be used for the purposes of renting out to a third party.
Bank of Base Rate
The Bank of England Base Rate is the interest rate set by the Bank of England and is officially called the Bank of England repo rate.
C
Capital Repayments
A lump sum payment to reduce the loan, this will reduce either the term of your mortgage or your monthly repayments.
Cap and Collar Mortgage
A capped mortgage has a maximum interest that can be charged, while a collar mortgage has a minimum rate of interest that can be charged
Capped Rate Mortgage
A capped rate mortgage sets a maximum interest rate that the lender can charge, but only for a specified period.
Cashback Mortgage
These are generally variable rate mortgages where the benefit of lower payments given in discounted rate mortgages are converted into a single lump sum, which you receive when you take out the mortgage. Fixed or discounted mortgages can sometimes offer a cashback.
County Court Judgment (CCJ)
A ruling for bad debt issued by a County Court or higher court. The judgment is recorded and will show up during any credit checks. CCJ’s may count against you in your mortgage application.
Completion
The completion date is the date the solicitor forwards the money from your lender to the solicitor of the vendor. Therefore from the completion date you are the legal owner of the property.
Contents Insurance
The contents of your home, including electrical goods, carpets, furniture and curtains are covered with this insurance
Conveyancing
This is the legal process of transferring ownership of a property. It includes negotiating and agreeing the contract for buying and selling your home.
Critical Illness Insurance
Insurance Policy that pays a lump sum to the insured in the event of being diagnosed with a life threatning or disabling illness.
Current Account Mortgage
A flexible mortgage with daily interest calculation that has a bank account attached to the mortgage account. Money in the account is offset against the balance of the mortgage on a daily basis so in effect is earning interest as a rate equivalent to the payable interest rate on the mortgage.
D
Discounted Rate Mortgage
This interest rate of the mortgage is discounted from the lenders Standard Variable Rate for an agreed period from the start of the mortgage.
E Early Repayment Charge A charge payable by the customer in the event the amount of the loan is repaid in full or in part before a date specified in the contract. Endowment A method of repaying an interest only mortgage. A endowment policy is a form of life assurance that pays a tax free lump sum at the end of its term or a guaranteed amount which is usually the same as the mortgage debt. Equity The amount of money invested into buying a property or the deposit placed on a property. Also known as capital. Exchange of Contracts This is the stage of the mortgage application at which buyer and seller have legally committed themselves to the purchase deal. F Fees and Charges You should be aware that there are many fees and charges that may be payable. These include Legal Fees, Release Fees, Valuation Fees, Payment Protection and Buildings and Contents Insurance. Fixed Rate Mortgage A fixed rate means that no matter what happens to interest rates, your mortgage interest rate stays the same until an agreed date. However, your monthly payment could change as a result of other factors; for example changes in insurance premiums. Flexible Mortgage A mortgage that allows the borrower to make over or under payments, or take a payment holiday. Freehold A term which means that you own the property and the plot of land the property is situated on. Further Advance A situation where the lender makes another loan available and under which both loans are included within first charge on the property. A further advance can be used to consolidate debt or pay for improvements to the property. G Gazumping This is when another potential buyer places a higher offer for the same property after your offer has been accepted. Guarantor A person, who guarantees the mortgage repayments in the event the borrower defaults. Typically the guarantor will be a parent or relative. H Higher Lending Charge (HLC) A Higher Lending Charge is a charge which you may have to pay if you are borrowing more than 90% of the purchase price or property valuation, whichever is the lower. This charge may either be added to the loan or deducted from the advance on completion. Homeowners’ Loan A loan secured on your existing mortgaged property for any purpose. Typical purposes include raising funds for consolidation, holidays, cars or home improvements Household Insurance An insurance policy that protects you against loss or damage to the property caused by fire, some natural causes and acts of vandalism. I Income Multiplier The formula used by lenders to calculate how much a prospective borrower can borrow. . Initial Disclosure Document A document giving information about the services offered by a lender or broker. Interest Only Mortgage A type of mortgage in which the borrower only repays the interest on the loan for the duration of its term. The full loan amount is repayable at the end of the mortgage period. Investment Vehicle An investment vehicle is needed if you take out an interest only mortgage. This could be an endowment policy, personal pension or ISA. Individual Saving Account (ISA) ISAs provide another way to repay interest only mortgages. ISAs enjoy tax breaks with no capital gains tax on growth, reduced tax on dividend income and no tax levied on withdrawals. There is a limit on the amount you are able to place into an ISA. J Joint Income The total gross income of the two borrowers in a joint mortgage. K KFI (Key Facts Illustration) The KFI summarises all the important features of the mortgage and must be clear, fair and not misleading. The KFI is presented in a standard way so you can compare the cost and terms of the mortgage with other similar mortgages. L Landlord's Reference A reference given by a previous landlord, this confirms an applicant's history regarding payment of rent and their previous conduct as a tenant. Letting your Property Lenders have schemes in place for people who intend to let their properties. If you dont inform the lender that you intend to let your property you will be in breach of your mortgage deeds. Life Assurance A insurance policy designed to cover your mortgage in the event of the policy holders death. Loan to Value (LTV) LTV is the amount you are borrowing as a percentage of either the property value or the purchase price, whichever is the lower. M MIRAS (Mortgage Interest Relief At Source) This was a government scheme that allowed you to claim tax relief on the interest you paid on your mortgage. This scheme was discontinued is April 2001 Mortgage A loan made against the security of a property. Mortgagee The lender in a mortgage. Mortgagor The borrower in a mortgage. N Negative Equity Where the mortgage is greater than the value of the property. O Offer of Advance Once your mortgage application has been assessed, the lender will send you an offer of advance which will outline how much they are prepared to lend and on what terms and conditions. A copy will also be to your solicitor. Overpayment Situation where repayments are increased so that the mortgage is repaid before the end of the agreed term. Some mortgages (flexible mortgages) allow for overpayment, but others mortgages may impose charges for the early repayment. P Payment
Payment Method The method an interest-only mortgage is to be repaid at the end of its term. Typically this will be either an endowment, an ISA, or some other investment product. Portable In relation to a mortgage, this refers to a mortgage that can be transferred between properties when the policyholder moves home. R Redundancy The DSS only gives assistance after 9 months of redundancy and to qualify for help paying the mortgage interest being means tested and restricted to the first £100,000 of the loan, it is suggested you consider mortgage payment protection insurance if worried about maintaining mortgage payments. Re-mortgaging Moving mortgage from one lender to another without moving house. Re-inspection Fees A fee payable if the lender needs to re-inspect the property after the original valuation, this is usually to check if you've made agreed repairs. Repayment Mortgage Mortgage repayments on these loans represent both interest and a portion of the capital owed each month. Your outstanding mortgage balance will reduce year on year over the term of the loan. Retention The ability of a lender to retain part of a mortgage until certain conditions are met. Right-to-Buy mortgages Mortgages for public sector tenants who qualify to buy their home under the Government's Right-to-Buy scheme. S Self Certification A mortgage where the borrower confirms their income themselves, rather than from an employer or company accounts. Typically the lender will charge higher rates of interest, or require a larger deposit for self certification mortgages Self build scheme A package for customers who are looking to build their new home themselves. Split Loan A split loan is where part of the loan is set up interest only and part as repayment.
You currently have to pay Stamp Duty Land Tax if the new home your purchasing costs more than £125,000. The amount is calculated on the whole purchase price and rises as the price of your home increases. Standard Construction A building that has been constructed using conventional techniques and materials, for instance bricks and stone with a tiled or slate roof. Standard Variable Rate (SVR) This is the standard variable mortgage interest rate that is offered by the lender. It is usually the rate that accounts revert to after a fixed, capped or discount product ends. T Term The period of time between the start and finish of the mortgage loan. Tracker mortgage A Tracker mortgage is a variable rate mortgage where the interest rate is linked directly to the Bank of England Base Rate. Whenever the Bank of Base Rate changes, so does the rate on the tracker mortgage. The rates are guaranteed to change by the same amount, within an agreed period. U Unencumbered A property that has no loans or borrowings secured on it. V Valuation Fee Whether you are purchasing or re-mortgaging a valuation of the property will have to be undertaken, to ensure it provides adequate security for the lender. There is a charge for this valuation and it increases with the valuation/purchase price.
Rainbow is a trading style of Havering Financial Consultancy who is an appointed representative of Intrinsic Financial Planning Limited which is authorised and regulated by the Financial Services Authority.
When the fixed rate ends, your mortgage will change to a different interest rate. This will usually be the lenders Standard Variable Rate or a rate which is linked to the Bank of England Base Rate. The follow on interest rate may be higher or lower than the interest rate you've been paying. If the interest rate is higher, your payments will increase.
There are 3 levels of valuation; a Basic valuation, a Homebuyers' Report, and a Structural survey. The principle of; the more detailed the valuation, the higher the fee applies.