Mortgage glossary - Future Finance

A

Affordability – your ability to afford a house. This is usually expressed in terms of the maximum price you could pay for a house, as well as your ability to pay the monthly repayments. 

Application – this is a questionnaire that provides information on you. It allows the lender to make a decision on whether the borrower is suitable for a mortgage.

Application fee – is the cost of accepting and reviewing an application. 

Approval – this means that the borrower (you) meets the lender's criteria, as well as the underwriter’s requirements. This may be conditional on further verification of information provided by the borrower. 

Arrears – if you go into arrears it means you have 'defaulted' at least once on your mortgage repayments, i.e. you have missed a month's payment. Contact your lender as soon as possible if you think you may go into arrears. 

B

Base rate – is the rate of interest set by the Bank of England.

Buildings insurance – is the insurance which covers you for damage to the structure of your home. Most lenders will require you to have buildings insurance in place when you take out a mortgage.

Buy-to-let – means that the property is purely for letting to tenants. Most mortgage lenders offer special 'buy-to-let' mortgage deals for this purpose, but it is generally more expensive than a normal mortgage as there are more risks associated with lending owners with tenants.

C

Capital – is the amount of money you borrow to buy a property.

Capped rate – this ensures that the mortgage interest rate charged by your lender will never exceed the upper 'capped' limit, regardless of increases to the Bank of England base rate.

Cashback mortgage – this means that you will receive a set amount of cash on completion. Remember to factor this into the total cost of your mortgage over the initial period to see whether this makes this offer more attractive than others.

CCJ – a CCJ is a County Court Judgement and are made against you for non-payment of debt. This could impact your credit rating and therefore make it harder for you to get a mortgage.

Conveyancing – is the legal side of buying and selling property. It can be done by a solicitor or specialist licensed conveyancer.

Credit rating – this is a score to measure your creditworthiness. It is based on your previous credit history. If you have always repaid your borrowing on time then your credit rating will be good, if you have missed or made late repayments, or you’ve received a CCJ, your rating will be low.

D

Defaulting – if you cannot make your agreed mortgage repayment, you will go into arrears on your mortgage. This is known as 'defaulting'.

Discounted-rate mortgage – this is where the interest rate you are charged is a set amount less than your mortgage lender's standard variable rate (SVR). 

E

Early repayment charges (ERCs) – these are the penalty fees you have to pay if you want to leave your mortgage before completion of the agreed term. 

Equity – this is the value of your property minus the amount of money you have left outstanding on your mortgage.

F

Fixed-rate mortgage – this means that mortgage interest rate stays the same for the initial period of the deal, which is usually two to five years, ensuring you know exactly what you will be paying on your mortgage each month. Your rate won't go up or down as it would with a variable-rate mortgage.

Flexible mortgage – this enables you to make additional payments or even take a 'payment holiday' from your mortgage. It can help you pay your mortgage off early and save money on interest, but they are usually more expensive than conventional mortgages.

Freehold – this means you own the property and the land it stands on.

G

Guarantor – this a third party, such as your parent or guardian, who agrees to fulfil your financial obligations if you are unable to.

I

Interest-only mortgage – means you only pay just the interest on your mortgage each month and not any of the capital.

L

Land Registry – this is where details of property ownership are kept.

Leasehold – means you own the property, but not the land it stands on.  This is often the case with flats and apartments.

Loan-to-value (LTV) – is the size of your mortgage as a percentage of the property’s value. 

M

Monthly repayment – the payment you make to your lender for your mortgage each month.

Mortgage agreement in principle - means you will be able to borrow a certain amount, subject to any specific checks, such as credit history.

Mortgage payment protection insurance (MPPI) - is insurance that covers your mortgage payments if you are unable to work due to illness, an accident or being made redundant.  

Mortgage term – is the number of years you decide to take the mortgage out for.

Mortgage deed – is a contract between lender and borrower, outlining the legal obligations of the borrower and the rights the lender should the borrower default.

N

Negative equity – is when the value of your home falls to a level which is below the amount remaining on your mortgage.

O

Offset mortgage  -  this is when your mortgage is linked to your savings and, sometimes, your current account. Your credit balances are offset against your mortgage debt so you only pay interest on the difference.

R

Rebuild cost – it the amount of money it would take to rebuild your home if it is destroyed.

Re-mortgage – is when you change your mortgage to another provider or want torelease equity from your home but don’t move.

Repayment mortgage – is a mortgage designed to pay off the mortgage interest and part of the capital of the loan each month. This guarantees that you will pay off the mortgage by the end of the term.

S

Stamp duty – is a tax is payable at 0.5%, unless you are a first time buyer.

Standard variable rate (SVR) – is the default mortgage interest rate your lender will charge after your initial mortgage deal when your 'tie-in' period is up, your interest rate will move to the lender's SVR, which could be higher or lower than your initial rate.

T

Tie-in period – is the time that you are 'locked in' to your mortgage deal, and would have to pay an early repayment charge if you decided to move your mortgage elsewhere.

Tracker mortgage – this means your mortgage interest rate tracks the Bank of England base rate at a set margin above or below it.

V

Valuation – this verifies that your property is worth the amount you want to borrow.

Variable-rate mortgage – means the interest rate on your mortgage can go up or down according to your lender’s standard-variable rate.

© Copyright Future Finance -  Made by Switch

Close menu