Mortgage Jargon Explained

A-Z Mortgage Jargon Explained

Stepping into the world of mortgages can feel like deciphering a secret code, with all its unique terms and acronyms. It’s not just a challenge for first-time buyers; even those who’ve done this all before, including next-time movers and buy-to-let investors, often find themselves puzzled.

At Pinpoint Finance, we’re all about taking the complexities out of finance. Our goal is to make your mortgage journey as straightforward and stress-free as possible. You don’t need to be a whiz at mortgage jargon – that’s our job! But understanding the basics can help you move through the process more smoothly, ensuring you’re fully confident in your decisions.

In this easy-to-follow guide, we’ve laid out the A-Z of mortgage terms in a clear, friendly manner. And if you have any questions or need more clarity, remember, we’re always here to help. Let’s tackle the world of mortgages together, making it a hassle-free experience for you!

A

• Additional Borrowing: This term refers to the process where you can increase the amount of your existing mortgage. Commonly used for funding home improvements or consolidating debts, additional borrowing is contingent on your lender’s approval and your ability to afford increased repayments. It’s a practical option for homeowners needing extra funds without a separate loan.
• Affordability Check: A critical step in the mortgage application process, an affordability check is where lenders evaluate your financial capability to manage mortgage payments. This assessment considers your income, regular outgoings, existing debts, and living expenses. It’s a safeguard to ensure borrowers are not overextending financially, which could lead to future financial distress.
• Agreement in Principle (AIP): Often the first step in the home-buying journey, an AIP is a conditional approval from a lender, indicating you could borrow up to a certain amount. Based on a preliminary assessment of your finances, an AIP is not a guarantee but gives you a realistic budget for house hunting. It also demonstrates to sellers that you are a serious and prepared buyer.
• Annual Interest: The interest calculated yearly on your mortgage’s outstanding balance. Understanding how your annual interest is computed is crucial as it affects the proportion of your mortgage payments towards paying off the interest versus the principal amount.
• Annual Percentage Rate of Charge (APRC): The APRC offers a comprehensive view of the cost of your mortgage per year. It includes the interest rate and any additional fees and charges associated with your mortgage. Expressed as a percentage, the APRC is invaluable for comparing the overall cost of different mortgage products, providing a clearer picture of long-term financial implications.
• Annual Review Scheme: Some mortgages operate under this scheme, where your payments are reviewed and potentially adjusted annually. This review considers any changes in interest rates or your mortgage’s outstanding balance over the past year, ensuring your repayment plan remains on track.
• Application Fee: When applying for a mortgage, you may encounter this fee, which covers the administrative costs of processing your application. It’s important to note that application fees are typically non-refundable, even if you decide not to proceed with the mortgage or your application is unsuccessful.
• Arrears: Falling into arrears means you have missed or underpaid your mortgage repayments. Being in arrears can lead to serious consequences, including damaging your credit rating and potential legal action by the lender, including repossession of your property in extreme cases.
• Arrangement Fee: This fee is charged by lenders for setting up your mortgage. It varies between lenders and mortgage products and can sometimes be added to your mortgage amount. However, this would increase the total amount repayable over the term due to added interest.

B

• Bad Credit: Refers to a history of poor credit management, including missed payments, defaults, or County Court Judgments (CCJs). Bad credit can affect your mortgage eligibility, potentially leading to higher interest rates or the need to approach specialist lenders.
• Bank Base Rate: Set by the Bank of England, this rate influences the interest rates charged by banks and lenders for mortgages. Changes in the base rate can affect your mortgage repayments, especially if you have a variable rate or tracker mortgage.
• Benefit Period: This is the duration for which a particular mortgage rate, like a fixed or tracker rate, applies to your loan. For instance, a five-year fixed rate mortgage would have a five-year benefit period of five years, during which your interest rate and monthly repayments remain constant.
• Booking Fee: Also known as a mortgage arrangement fee, some lenders charge this for the administration involved in setting up a mortgage. It’s an additional cost to consider in the overall expense of obtaining a mortgage.
• Broker: A mortgage broker is a qualified mortgage advisor who helps you navigate the complex mortgage market. They can offer tailored advice, recommend suitable mortgage products, and assist with the application process, often accessing deals that might not be directly available to consumers.
• Buildings Insurance: A mandatory insurance policy is required for a mortgage. It covers the cost of repairing or rebuilding your home in case of structural damage. Ensuring you have adequate building insurance is crucial for protecting your investment in your property.

C

• Capital: In mortgage terms, capital refers to the principal amount borrowed to purchase your property. Over the mortgage term, you repay this amount and interest to the lender.
• Capital and Interest: Also known as a repayment mortgage, your monthly payments cover both the interest on the loan and a portion of the capital. This method ensures the mortgage balance is gradually paid off over the agreed term.
• Capped Rate: A mortgage with a capped rate has an upper limit on the interest rate, ensuring that your repayments won’t exceed a certain level even if market interest rates rise. It offers security and flexibility, as your rate can decrease if market rates fall.
• Cashback Mortgage: This type of mortgage offers a lump sum cashback at the start of the mortgage term. While appealing due to the upfront cash, weighing the overall cost is important, as these mortgages may come with higher interest rates.
• CCJ (County Court Judgement): A CCJ is a court order in the UK that can be registered against you if you fail to repay the money you owe. Having a CCJ can severely impact your credit rating and reduce your chances of being approved for a mortgage.
• Completion Date: The day on which the sale of a property is finalized. On this date, funds are transferred to the seller, and the buyer becomes the legal owner of the property, receiving the keys.
• Conveyancing: The legal process of transferring property ownership from one person to another. It involves various legal checks, preparation of documents, and liaising between the buyer, seller, and their respective legal representatives.

D

• Daily Interest: Interest is calculated daily on the outstanding balance of your mortgage. This method can be beneficial as each payment reduces the principal, thereby reducing the interest calculated the following day.
• Discounted rate mortgage: offers a temporary reduction on the lender’s SVR, typically for the first two to five years of your mortgage. For example, if your lender’s SVR is 6.50% and they offer a 2% discount, you’d pay 4.50% during the introductory period.

E

• Early Repayment Charges (ERCs): Fees may be charged if you repay your mortgage, or a significant part of it, earlier than agreed. These are common with fixed-rate mortgages and are intended to compensate the lender for the loss of expected interest payments.
• Equity: The portion of your property that you own outright. It’s the difference between the market value of your property and the amount you still owe on your mortgage. Equity can increase as you repay your mortgage or if your property’s value rises.

F

• Fixed-Rate Mortgage: A mortgage where the interest rate is fixed for a set period, providing stability in your repayments. This type of mortgage is popular for its predictability, as it protects you from interest rate fluctuations during the fixed-rate period.

G

• Guarantor: A guarantor on a mortgage agrees to take responsibility for the mortgage payments if the primary borrower cannot pay. This is often a parent or close relative and can be a way for first-time buyers to get onto the property ladder.

H

• Higher Lending Charge (HLC): The lender may apply this charge when you borrow more than a certain percentage of your property’s value. It’s designed to protect the lender against the increased risk associated with higher loan-to-value (LTV) mortgages.
• House of Multiple Occupation (HMO): A property rented to at least three tenants sharing bathrooms and kitchens. Mortgages for HMOs can have different criteria and interest rates due to the perceived increased risk.

I

• Individual Voluntary Arrangement (IVA): An IVA is a formal agreement between you and your creditors to pay back debts over a period of time. Having an IVA can affect your credit rating and ability to obtain a mortgage.
• Interest-Only Mortgage: A mortgage where you only pay the interest each month, with the full loan amount due at the end of the mortgage term. This can result in lower monthly payments but requires a plan to repay the capital at the end of the term.
• Interest Rate: The percentage charged on your mortgage balance, representing the cost of borrowing. The interest rate can vary depending on the type of mortgage and market conditions.
• Intermediary: A mortgage intermediary, or broker, is a specialist who helps you find and apply for a mortgage. They can provide valuable advice and access to a range of mortgage products that might not be publicly available.

J

• Joint Mortgage: A mortgage taken out by two or more people. This is common among couples or friends buying a property together. Each person is jointly responsible for the mortgage repayments.

L

• Land Registry: The government department in the UK that maintains records of property ownership. When you buy a property, the change in ownership is registered here.
• Leasehold: A type of property ownership where you own the property but not the land it’s on. Leaseholds are common with flats and might involve paying ground rent and service charges.
• Let-to-Buy Mortgage: A mortgage that allows you to buy a new property while renting out your existing one. It involves converting your current residential mortgage into a buy-to-let mortgage.
• Lifetime Mortgages: A type of equity release for older homeowners, allowing them to access the equity in their property. The loan, plus interest, is repaid when the homeowner dies or moves into long-term care.

M

• Market Value: The estimated amount a property should sell in the current market. This value can fluctuate based on market conditions and property improvements or deteriorations.
• Mortgage Agreement in Principle (AIP): A preliminary agreement from a lender indicating the potential loan amount they may offer. It’s based on an initial financial situation assessment but not a formal mortgage offer.
• Mortgage Lender: A financial institution, such as a bank or building society, that lends money for mortgages. They assess your financial situation to determine if you qualify for a mortgage and under what terms.
• Mortgage Payment Protection Insurance (MPPI): Insurance that covers your mortgage payments in certain circumstances that prevent you from working, such as illness, injury, or redundancy.
• Mortgage Term: The duration over which you agree to repay your mortgage. Standard mortgage terms range from 10 to 40 years, with 25 years being a typical length.

N

• Negative Equity: Occurs when the value of your property is less than the outstanding balance on your mortgage. This situation can arise if property prices fall.
• New Build: Refers to a property that has been recently constructed or is in the process of being built. New builds often come with warranties and are sold by developers.
• NHBC Guarantee: A 10-year warranty provided by the National House Building Council for newly built properties, covering any major defects.
• Non-Standard Construction Property: Properties are not built with traditional materials like brick or stone or non-traditional roofing materials. These properties can sometimes be more challenging to secure a mortgage for due to perceived increased risks.

O

• Overpayment: Paying more than the required monthly mortgage amount. Overpayments can reduce the total interest paid over time and potentially shorten the mortgage term.

P

• Part and Part: A repayment method combining elements of both interest-only and repayment mortgages. A portion of the mortgage is paid on an interest-only basis, while the rest is paid as a capital and interest repayment.
• Portability: A feature of some mortgages that allows you to transfer your existing mortgage to a new property when you move. This can be beneficial if you have a good interest rate or terms you want to keep.
• Product Fee: A fee for specific mortgage products, often associated with special interest rates like fixed or tracker mortgages. This fee is usually paid upon mortgage completion.

R

• Remortgage: The process of switching your mortgage from one product to another or from one lender to another. This is often done to secure a better interest rate or more favourable terms.
• Repayment Mortgage: A mortgage where monthly payments cover the interest and a portion of the capital. This ensures the mortgage balance is gradually paid off over the agreed term.

S

• Stamp Duty: Stamp Duty Land Tax (SDLT) is a tax paid on property purchases in the UK. It’s calculated as a percentage of the property’s purchase price. It varies depending on the property value and whether it’s your first home, a secondary property, or a buy-to-let investment. First-time buyers often benefit from reduced rates or exemptions, making stepping onto the property ladder easier. Understanding how much stamp duty you must pay is crucial in budgeting for a property purchase. Calculate your SDTL costs here.
• Standard Variable Rate (SVR): The SVR is the default mortgage interest rate lenders charge after any fixed, tracker or discounted deal period ends. It’s variable, meaning it can go up or down, often influenced by changes in the broader financial market or the Bank of England’s base rate. Borrowers often consider remortgaging when their mortgage reverts to the SVR, as it can be higher than other available rates.
• Survey: A detailed inspection of a property’s condition, usually carried out by a qualified surveyor. Surveys range from basic valuations required by lenders to full structural surveys that comprehensively assess the property’s state. Choosing the right type of survey can provide peace of mind and protect against unforeseen repair costs.
• Switching (Product Transfer): This refers to moving from your current mortgage deal to a new one with the same lender. Switching is commonly done at the end of a fixed-rate or tracker period to avoid moving onto the lender’s usually higher SVR. It can be a straightforward way to change your mortgage product without the need to remortgage with a new lender.

T

• Tracker Mortgage: A type of mortgage where the interest rate ‘tracks’ an external rate (usually the Bank of England base rate) at a set margin above or below it. This means your mortgage interest rate and repayments can go up or down in line with changes to the base rate, offering potential savings when rates are low and the risk of higher payments if rates increase.
• Telegraphic Transfer (TT): A method of electronically transferring funds, often used in the final stages of a property purchase to transfer the mortgage amount from the lender to the seller. It’s a fast and secure way to ensure funds are available on completion day.

U

• Underpayment: An arrangement with your lender that allows you to pay less than the standard monthly mortgage payment for a certain period. This can be useful in times of financial hardship or unexpected expenses but will increase the overall amount owed due to the accumulation of unpaid interest.

V

• Valuation: A professional assessment of a property’s value conducted by a surveyor on behalf of the lender. This ensures the property is worth the price being paid and is suitable security for the mortgage. It’s important to note that a valuation is not a detailed survey of the property’s condition.
• Variable Rate Mortgage: A mortgage with an interest rate that can change, usually in line with the lender’s SVR. Payments can go up or down depending on rate changes, offering flexibility and unpredictability in monthly repayments.

W

• Whole of Market Advice: This term refers to a broker or adviser providing mortgage advice with access to mortgage products from across the entire market rather than being limited to a select panel of lenders. This ensures you receive advice that reflects the best outcomes for your circumstances.

Z

• Zero-Hour Contract Mortgages: Specialised mortgage products designed for individuals on a zero-hour contract. These mortgages consider the unique nature of such employment, requiring lenders to assess affordability based on average earnings and employment history.