Introduction
Whether you’re a first-time buyer or an experienced home mover, navigating the world of mortgages can be confusing and overwhelming. The language and terminology associated with mortgages can often feel like a foreign language. That’s why we’ve created this comprehensive jargon buster guide to help you understand and decode the complex mortgage terminology you may encounter when applying for a mortgage. From “Advance” to “Valuation,” we’ll break down the key terms and concepts to empower you to make informed decisions throughout the mortgage process.
A
Advance
The “Advance” refers to the amount of money you borrow from the lender to purchase a property. It represents the total loan amount you will be responsible for repaying over the agreed-upon mortgage term.
Annual Percentage Rate of Charge (APRC)
The Annual Percentage Rate of Charge (APRC) is a crucial metric used to compare different mortgage offers from various lenders. It takes into account not only the interest rate on the loan but also any additional fees or charges associated with the mortgage. By considering the APRC, you can get a more accurate picture of the overall cost of borrowing.
Arrangement Fee
An “Arrangement Fee” is a charge imposed by some mortgage lenders to cover the administrative costs associated with setting up the mortgage. It is usually a one-time payment and can be added to the mortgage balance or paid upfront.
Asking Price
The “Asking Price” refers to the price at which the seller lists the property for sale. It represents the amount the seller hopes to receive from the buyer.
B
Base Rate
The “Base Rate” is the interest rate set by the central bank of the country, such as the Bank of England in the UK. It serves as a benchmark for other interest rates, including mortgage rates. Changes in the base rate can impact the overall cost of borrowing for homeowners.
Buildings Insurance
Buildings insurance is a type of insurance coverage that protects the structure of your property against damage caused by events such as fire, storms, or floods. Most mortgage lenders require borrowers to have adequate buildings insurance to safeguard their investment.
Buy to Let Mortgage
A “Buy to Let Mortgage” is a type of mortgage specifically designed for individuals who want to purchase a property with the intention of letting it out to tenants. Buy to Let mortgages often have different terms and conditions compared to residential mortgages.
C
Completion
“Completion” refers to the final stage of the property purchase process when ownership of the property is legally transferred from the seller to the buyer. It is the point at which the buyer becomes the official owner of the property.
D
Deposit
The “Deposit” is the upfront payment made by the buyer when purchasing a property. It represents a percentage of the property’s purchase price and is typically paid from the buyer’s own savings. The sise of the deposit can impact the mortgage options available and the interest rate offered by lenders.
E
Equity
“Equity” is the difference between the current market value of a property and the outstanding mortgage balance. It represents the portion of the property that you own outright. As you pay off your mortgage and the property value increases, your equity in the property grows.
F
Fixed Rate
A “Fixed Rate” mortgage is a type of mortgage where the interest rate remains fixed for a specified period, typically between 2 to 5 years. This means that your monthly mortgage payments will remain the same throughout the fixed-rate period, providing stability and predictability.
Freehold
“Freehold” refers to the complete ownership of both the property and the land it stands on. As a freeholder, you have full control and responsibility for the property and the land.
G
Gazumping
“Gazumping” occurs when a seller accepts a higher offer from a different buyer after accepting an initial offer from another buyer. It can be a frustrating experience for the original buyer who may have already invested time and money into the purchase process.
I
Interest-Only Mortgage
With an “Interest-Only Mortgage,” your monthly payments only cover the interest portion of the loan, and the principal amount remains unchanged. At the end of the mortgage term, you will need to repay the original loan amount in full.
L
Loan to Value (LTV)
The “Loan to Value” ratio represents the percentage of the property’s value that is financed through a mortgage. For example, if you are purchasing a property worth £250,000 with a £200,000 mortgage, the LTV would be 80%.
M
Mortgage Agreement
A “Mortgage Agreement” is a document that outlines the terms and conditions of the mortgage between the borrower and the lender. It sets out the details of the loan amount, interest rate, repayment schedule, and other important information.
P
Portability
“Mortgage Portability” refers to the ability to transfer your existing mortgage from one property to another when you move. This can be beneficial if you want to avoid early repayment charges and maintain the terms and conditions of your original mortgage.
R
Redemption
“Redemption” refers to the complete repayment of a mortgage loan. This can occur when the mortgage term comes to an end, or when the borrower decides to pay off the mortgage early.
Remortgaging
“Remortgaging” is the process of switching your existing mortgage to a new mortgage deal, either with the same lender or a different one. This can be done to secure a lower interest rate, release equity, or change the terms of the mortgage.
Repayment Mortgage
A “Repayment Mortgage” is a type of mortgage where your monthly payments cover both the interest and the principal amount of the loan. As a result, the mortgage balance decreases over time, and at the end of the mortgage term, the loan is fully repaid.
S
Standard Variable Rate (SVR)
The “Standard Variable Rate” is the default interest rate set by the lender once any initial fixed or discounted rate period ends. SVRs can fluctuate and are influenced by changes in the base rate and market conditions.
T
Term
The “Term” refers to the agreed-upon length of time over which you will repay the mortgage. It is typically expressed in years, with common mortgage terms ranging from 25 to 30 years.
Valuation
A “Valuation” is an assessment of the property’s value conducted by a qualified surveyor. It is often required by mortgage lenders to ensure the property provides sufficient security for the loan. Valuations can vary depending on the purpose, such as a basic valuation or a more detailed survey.
Conclusion
Understanding mortgage terminology is essential for navigating the mortgage process confidently. By familiarising yourself with the jargon and concepts covered in this guide, you’ll be better equipped to make informed decisions and effectively communicate with mortgage lenders and professionals throughout your journey. Remember, if you ever come across a term you don’t understand, don’t hesitate to ask for clarification. Ultimately, understanding the language of mortgages will help you secure the best mortgage deal and achieve your homeownership goals
