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Glossary of terms

Say what? Buying a house is one of the biggest investments most of us will make in our life, so it’s important to understand the process. Don’t worry if some of the terminology is making your head spin, we’ve tried to break down the jargon for you here.

  • APRC (Annual Percentage Rate of Charge)

    An APRC is a good way to compare different lenders. It provides an average annual cost of the mortgage as a percentage. It includes interest charged over the full term of your loan, as well as any other fees you may need to pay, such as an arrangement fee.

  • Arrangement Fees

    Arrangement fees are administration charges made by lenders for setting up the mortgage. An arrangement fee is charged when the mortgage is drawn down and can be paid separately or added to the mortgage loan.

  • Base Rate

    The base rate is set by the Bank of England for lending to banks and building societies. The base rate influences the interest rates offered by lenders, so if the base rate goes up it’s likely mortgage or savings rates will go up by a similar amount.

  • Broker

    A broker is an impartial person or company that arranges a mortgage between you and a lender. They will take care of a lot of the paperwork, will recommend the best mortgage for your needs and will be able to justify that recommendation.

  • Buy To Let

    A buy to let mortgage is designed specifically for landlords who want to buy property to rent out.

  • Capital Repayment Mortgage

    A capital repayment mortgage calculates a monthly payment that will pay off the capital and interest by the end of the term.

  • Deeds

    The deeds, or title deeds, is a document which details the chain of ownership for land and property. This is usually held by the mortgage provider until you have paid your mortgage off.

  • Deposit

    A deposit is a sum of money that goes towards the cost of the property that is being purchased.

    The deposit must be provided from the applicants’ own resources, not borrowed from elsewhere such as a personal loan or credit card. The only exceptions to this is when the deposit is gifted by a family member; subject to a deed of gift, or where funds have been raised against another owned property.

    Builder’s deposits/incentives are acceptable subject to full UK Finance disclosure of incentives form being provided to the valuer.

  • Decision in Principle (DIP)

    A decision in principle (DIP), is the first step to getting a mortgage. A lender will provide a reasonable estimate of how much you can borrow based on your income, expenditure and your credit score. The amount you can borrow may occasionally change when you get your mortgage offer.

  • Early Repayment Charge (ERC)

    Some mortgages will include an early repayment charge if you decide to repay some or all of your mortgage within a certain period of time. This is usually either a percentage of the loan repaid or a number of days interest.

  • Equity

    The equity you have in your home is the value of your home minus your outstanding mortgage. In other words, it is the amount of money you would get back from selling your home if you ignore the costs of selling.

  • Exit Fee

    An exit fee may be applied by your lender when you repay your mortgage in full or move to another lender.

  • Fixed Rate Mortgage

    A fixed rate mortgage has a fixed interest rate for a set period of time, so your mortgage payments won’t change during that period even if the Bank of England base rate changes.

  • Interest Only Mortgage

    An interest only mortgage allows the borrower to only pay the interest charged for the term of the loan. As you’re not paying any of the capital of the mortgage, you will need to have another repayment method to pay back the amount borrowed at the end of the term of the mortgage. Your mortgage lender will want details of how you intend to repay the mortgage.

  • Interest Rate

    A mortgage interest rate is the percentage of the loan that you will be charged for borrowing money from your mortgage lender. The amount of interest you pay will affect how much your monthly repayments are.

  • Intermediary

    An intermediary is an impartial person or company that arranges a mortgage between you and a lender. They will take care of a lot of the paperwork, will recommend the best mortgage for your needs and will be able to justify that recommendation.

  • Joint Mortgage

    A joint mortgage allows two or more people to take out a mortgage to buy a property. All applicants will be responsible for paying the mortgage so if one person can’t pay, the other will need to make up the difference. Typically, all applicants will also be owners of the property.

  • Joint Borrower Sole Proprietor

    Joint Borrower Sole Proprietor is a feature of our Residential and Buy For University mortgages. You can find out more about what it means here.

  • Loan To Value (LTV)

    Your loan to value (LTV) is the size of your mortgage relative as a percentage of the value of your house. A lower LTV normally means a lower interest rate as the mortgage won’t be as risky for a lender.

  • Maturity Date

    The mortgage maturity date is the end of your mortgage term when you will have repaid your mortgage or need to repay the mortgage if you have an interest only mortgage.

    If your mortgage has a period when your interest rate is fixed, or has a fixed discount, then your product maturity date is the end of that period.

  • Monthly Repayment

    The amount you pay each month depends on your interest rate, your loan size and, for capital repayment mortgages, the term of your mortgage.

    If you are paying interest only, the monthly payment will be the interest charged on the mortgage that month.

  • Mortgage Illustration

    A mortgage illustration, or ESIS (European Standard Information Sheet), is a document that will explain the key features of a mortgage. This will include the monthly payment, interest rate details and any fees that will be chargeable at both the start and the end of the mortgage.

  • Outstanding Balance

    An outstanding balance explains how much you still have left to pay on your mortgage.

  • Overpayment

    A mortgage overpayment allows you to pay more off your mortgage than what is contractually agreed with the lender. By overpaying you could save money on your interest payments and pay off your mortgage sooner. Most mortgages allow you to pay more into your mortgage than your monthly mortgage payment. This reduces the interest you are charged and allows you to pay off your mortgage sooner or reduce your monthly mortgage payment. Some mortgages have early repayment charges for partial or full repayments of the mortgage above a certain level.

  • Remortgaging

    Remortgaging is when you switch your current mortgage to a new deal either with your existing lender or a new lender.

  • Shared Ownership

    A shared ownership scheme allows you to purchase a share in a property, usually 25% to 75%, while paying rent on the rest. The schemes are targeted at helping first-time buyers and lower income households and are usually run by housing associations who own the remaining share.

  • Stamp Duty Land Tax

    Stamp duty Land Tax (SDLT) is a tax paid to the Government when you buy a property. First Time Buyers are exempt from SDLT for a residential purchase.

  • Standard Variable Rate (SVR)

    A standard variable rate (SVR) is the variable rate set by your lender. Most rates with an initial fixed rate or a short term tracker rate move onto an SVR once the initial period has finished.

  • Term

    A mortgage term is the length of time that you have to pay the loan off.

  • Variable Rate

    A variable rate mortgage is a mortgage linked to a rate that can change, meaning that the amount you pay each month can change. Discounted rates are a type of variable rate mortgages.

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