Mortgage Jargon Buster
Agreement in Principle
APRC
Arrears
Base Rate
Capital and Interest Payment
Conveyancing
Mortgage Deposit
Early Repayment Charge (ERC)
Equity
Fixed Rate mortgage
Freehold
Gifted deposit
Interest-only mortgage
Leasehold
LTV (Loan to Value)
Monthly Repayment
Mortgage Illustration
Mortgage Offer
Mortgage Term
Negative Equity
Overpayment
Portability
Payment Holiday
Product Fee
Remortgage
Stamp Duty
Standard Variable Rate
Tracker Rate Mortgage
Underwriting
Valuation
Variable rate
Agreement in Principle
An Agreement in Principle (AIP), also known as a mortgage in principle or decision in principle, gives you an understanding of how much you may be able to borrow towards the purchase or remortgage of a property. It’s a document that you can use with an estate agent, or those selling a property, to show that you may be in a financial position to purchase it.
APRC
The annual percentage rate of charge (APRC) is the total cost of the loan expressed as an annual percentage. The APRC is provided to help you compare different offers.
Arrears
If you fall behind on your mortgage payments you are “in arrears”.
Base Rate
A rate of interest set by the Bank of England, which tracker mortgage rates and lenders’ standard variable rates usually follow.
Capital and Interest Payment
Your monthly payment covers the interest and also reduces the total balance outstanding.
Conveyancing
Is the legal process of buying and selling property. This can be done by a solicitor or specialist-licensed conveyancer.
Mortgage Deposit
The amount you need to pay towards the total purchase price of the property. This varies depending on the product and lender.
Early Repayment Charge (ERC)
Some mortgages, such as a fixed rate mortgage, charge a fee if you pay back the loan early. This can vary, so check your original letter of approval or terms and conditions for the amount. This is known as an Early Repayment Charge (ERC)
Equity
Is the difference between the current value of your home and the amount outstanding on your mortgage.
Fixed Rate mortgage
A mortgage where the interest rate stays the same for a specific period (e.g two or five years) even if the base rate changes in the meantime.
Freehold
You own both the property and the land it stands on.
Gifted deposit
A gifted deposit is when someone else, perhaps a family member, provides the funds for some of, or all, your mortgage deposit.
Interest-only mortgage
This is a mortgage taken out where you only pay back the interest charges each month. As the initial loan amount is not being reduced, this will need to be repaid in some other way. If you choose an interest only mortgage, your monthly payment will only include the interest you need to pay. At the end of the term, you will still need to repay the amount you originally borrowed and any additional borrowing you may have taken, so it’s best to think about how you will do this, for example, through a repayment vehicle such as an investment or savings plan which should be reviewed on a regular basis
Leasehold
You own the property but not the land it is built on for a specific number of years. Flats are usually owned on a leasehold basis. You may find it hard to get a mortgage if there are fewer than 70 years left on the lease of the property you want to buy. Leases are renegotiable, but the shorter remaining terms, the more expensive it will usually be.
LTV (Loan to Value)
LTV means Loan to Value. The size of your mortgage as a percentage of the value of your property.
Monthly Repayment
The amount you pay to your lender for your mortgage each month.
Mortgage Illustration
A Mortgage Illustration should be given to you before you make a mortgage application. It describes the key things you need to know about your mortgage such as payments and fees.
Mortgage Offer
This is your guaranteed offer. Once your mortgage is approved, you’ll get a formal offer setting out the terms and conditions.
Mortgage Term
The amount of time you are repaying your mortgage over.
Negative Equity
When the value of your home falls below the amount of your mortgage.
Overpayment
This is when you pay extra, over and above your monthly mortgage payment. You could choose to make a one-off lump sum overpayment or overpay a regular amount with your normal mortgage payment. Overpayments save you interest and will shorten your mortgage term.
Portability
Where an existing mortgage can be transferred between properties when you move house.
Payment Holiday
This is a period during which you make no payments on your mortgage. While you make no payments interest will continue to be charged. This feature is usually only available on a flexible mortgage.
Product Fee
This is a set-up fee for your mortgage. Lenders will charge different product fees.
Remortgage
When a person transfers their mortgage from another lender.
Stamp Duty
This is a tax you pay when you buy a property. You don’t have to pay stamp duty on a property purchase of up to £125,000 but any amount over this you will have to pay a percentage of the price. As the price you pay for a new property increases, so do the rates of stamp duty, ranging from 1% to 4% for properties up to £1million.
Standard Variable Rate
The default mortgage interest rate your lender will charge you after your initial mortgage deal ends.
Tracker Rate Mortgage
The mortgage interest rate is set at a fixed percentage above the Bank of England (BoE) base rate. The interest rate payable will rise and fall in line with changes to the BoE base rate.
Underwriting
Mortgage underwriting is when a lender checks the details in your mortgage application to make sure everything is correct and that you can afford the repayments. They also look at the level of risk in lending to you, following rules set by the Financial Conduct Authority (FCA), so they can decide if the mortgage is right and safe for you and the lender.
Valuation
Mortgage lenders require a valuation to prove that the property is worth the amount you want to borrow.
Variable rate
This means the interest rate can go up or down if your mortgage lender decides to change their standard variable rate.