Mortgage jargon dictionary

Your mortgage dictionary

It can be a challenge to understand mortgage-related terminology, so we’ve provided a glossary of key terms and their definitions to help you bust that jargon.

• A
• B
• C
• D
• E
• F
• G
• H
• I
• J
• K
• L
• M
• N
• O
• P
• Q
• R
• S
• T
• U
• V
• W
• X
• Y
• Z

A-Z dictionary

A

Approval in principle

Following some basic financial checks, a lender will make a temporary offer of a mortgage loan so you know how much you can afford to borrow when looking at properties. This is subject to a successful, full application later on.

APR

So you can compare financial products like-for-like, an APR offers an annualised percentage that is standardised and shows you the true cost of borrowing.

Arrangement fee

A fee charged to the borrower by the lender for arranging your mortgage product.

Arrears

If a borrower fails to meet their contractual mortgage payment in full then the account will fall into arrears by the amount due that has not been paid.

Asking price

The price the vendor states when starting negotiations for the sale of their property.

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B

Base rate

Lenders use this rate, set by the Bank of England, as a basis for setting some tracker rates, usually by adding a few per cent on top.

Buy-to-let mortgage

A mortgage product for people who would like to invest in residential property to let out as a rental.

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C

Cashback

You may be offered a lump sum as part of your mortgage product, providing you with ‘cash’ to cover additional costs, such as decorating. This is typically paid upon completion of your mortgage.

Conveyancing

When a solicitor or licenced conveyancer handles a range of legal paperwork as part of your mortgage application, such as transfer of property deeds.

County Court Judgement

This is a legal decision handed down by county courts for debts to be repaid in England and Wales. Judgments are made available to credit reference agencies to help them assess credit-worthiness of individuals.

Credit rating

In order to get a clear picture of how you have managed your finances in the past, a lender will determine your credit rating by accessing information held at one or more Credit Reference Agencies. This is used, along with existing personal data held by the lender (for existing customers) and information from your application, to determine your credit rating against lender’s own, internal credit assessment systems and influences their decision to grant the mortgage.

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D

Default

Failure to meet the legal obligations (or conditions) of a loan, usually from missed payments.

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E

Early repayment charge (ERC)

Certain mortgage products have an initial period during which a lender will agree to fix or provide a discounted interest rate. Your lender will usually charge you an Early Repayment Charge if you decide to pay off your loan before that period has finished. This may also be charged if a lump sum over a pre-agreed percentage of the loan is paid off during the initial period.

Equity

The equity amount in your property is calculated as your home’s value, less the amount you owe your lender for your mortgage loan.

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F

Fixed rate

Most lenders offer products which provide borrowers with a chance to fix their mortgage product rate for a set number of payments or until a certain date, so they can budget ahead.

Freehold

This describes where you own not only the building but the land upon which it stands.

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G

Guarantor

Some lenders may be willing to offer a mortgage loan if someone, such as a parent, guarantees to cover payments if the borrower no longer can.

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H

Help to buy

The Government (opens in a new window) is supporting home ownership by helping people to become homeowners where it is affordable over the long term.

Home buy schemes

Government-led schemes, such as Help to Buy, aim to help people who have smaller deposits to buy their own home - through equity loans or mortgage guarantees, for instance.

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L

Leasehold

A scenario often seen with flats in England and Wales, where you own the property but not the land it stands on. Instead, you purchase a leasehold, for a long period of time.

Loan to value (LTV)

Describes percentage rate to show the ratio between the value of a loan compared to the value of the property. Interest rates will typically vary by the LTV at the point of application.

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M

Mortgage payment protection insurance

An insurance product designed to cover your mortgage payments should you be unable to pay due to unemployment, accident or illness.

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N

Negative equity

When the value of your mortgage loan exceeds your property’s value.

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O

Offset mortgage

A mortgage product which links to savings or current accounts you have with the same lender, allowing you to reduce the amount of your loan that you pay interest on by the amount you have in your other accounts (by ‘offsetting’ the balances)

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P

Portability

A product which can be moved to a new property if you move is ‘portable’. If your new home is more valuable, you can make up the difference with a separate loan.

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R

Rebuild cost

Your buildings insurer needs to know how much it would cost to rebuild your property from the ground up should the worst happen, so it can calculate your premium.

Remortgage

A new mortgage application for your existing property, with the same or a new lender.

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S

Searches

As part of your mortgage application, your solicitor will check with organisations such as local authorities for any information which impacts on your property - planning proposals are an example.

Shared ownership

Borrowers may be able share a mortgage with another party, such as a housing association, then pay rent to the association to cover its share of the mortgage.

Stamp duty

A tax you must pay to the Government if you sell a property valued at more than a certain amount. The tax rate increases as the property value increases. Check with www.gov.uk (opens in a new window) for more information.

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T

Term

The period during which you agree to pay back your mortgage.

Tracker mortgage

A mortgage product with a shifting interest rate that ‘moves’, typically in line with the Bank of England’s base rate or the lender’s SVR, so it can go up as well as down.

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V

Valuation

Your lender will commission a surveyor firm to produce this report to ensure the property has been correctly valued before offering you a mortgage. This is used to assess the correct LTV, required to provide the correct mortgage product(s) available and assist with the assessment of the mortgage application.

Variable rate mortgage

A mortgage product where the interest rate can be varied by the lender, either up or down.

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