Mortgage Definitions

Check out the A to Z list below

APR / The Annual Percentage Rate

The formal measure of how much a loan will cost you in interest payment in real terms for every year of the loan. It’s supposed to be a true comparison between different loans. Read more about the APR here

 

A Mortgage in Principle

This is a conditional offer made by a mortgage lender that – provided the information you give them is correct – they will “in principle” give you the loan you have discussed with them.
It’s very useful to have one before you even start looking for a house to give you the edge over any competition. Having one means you should be able get the actual mortgage quicker when the race to buy your chosen home begins.

 

Buyers market

This is when the buyer is more in demand than the seller. The buyer is more able to dictate terms.

 

Capital / Capital Repayments

Capital means a sum of money.
Capital repayments are what you make to repay the capital debt (i.e. the actual money you borrowed) on your mortgage /loan. These would usually be monthly.

 

Chain

Usually when you’re buying a new home you are depending on the sale of your old home to finance the new one. If the people buying from you are also depending on others buying/selling their homes then this is a “chain”.
The problem is that no one can move ’till everyone’s ready and one failure along the line will beak the whole “chain.”

 

Conveyancing

Conveyancing is the legal work involved in buying and selling a home. It would normally be done either by a solicitor or a licenced conveyancer.

As a buyer you need to have one or the other for the sellers/vendors Estate Agent to contact immediately after your offer is accepted so try to have one lined up before you get to this stage.

Read more about conveyancing / property legal work

 

Credit reference agencies

These are used to check your credit rating.

 

Endowment payments

With an endowment mortgage, these are payments made into an endowment policy which is a type of life assurance. (The mortgage /loan is eventually paid off with one lump sum at the end of the mortgage term).

 

Equity

Equity – when used in connection with property – usually means the difference between the market value of a house and the amount owed on the mortgage.

For example if your home is worth £200,000 and you owe £150,000 on the mortgage, you could be said to have equity in the property of £50,000.

If the house is jointly owned with your partner, you could be said to each have £25,000 of equity in the house.

 

Excess

In insurance “excess” means the first bit of your claim which you have to cover yourself.

So if your excess were £250 that means you would have to pay the first £250 of any damage you wish to claim for.

The insurer would pay the rest. If it relates to a time period e.g. 30 days this means the insurance would start being paid after 30 days.

 

Gazumping

Gazumping is where the seller has accepted your offer but then takes a higher one. The Estate Agent is legally bound to pass on all offers to their client, the seller and of course the higher the offer the bigger their commission…

They may even pretend there’s been a higher offer at a crucial moment just to see if you’ll raise your offer…

 

“Headline interest rate”

This is the interest rate for a mortgage which is used to gain the public’s attention and sales. The mortgage lenders aim to attract new business with great sounding cut-price interest rates.

However you have to make sure you’re not paying more in other ways e.g. tie ins to the lenders more expensive insurance cover or penalties to make you stay with them after the very low interest rate no longer applies and you’re paying over the odds.

 

IFA

This stands for an Independent Financial Adviser. They have to be qualified and are supervised stringently by the Financial Conduct Authority.

 

What is interest?

When you borrow money the lender makes money by charging interest.

If you’ve borrowed £100 and the interest rate is 5% that means you would be paying £5 in interest – so you’d have to pay a total of £105 back.

 

Interest rate

This is the most significant thing about a mortgage. The Interest Rate is the amount of interest you’re charged and will affect what you have to pay back.

For example, if you’ve borrowed £100 and the interest rate is 5% that means you would be paying £5 in interest – so you’d have to pay a total of £105 back.

The interest rate should always be referred to as an APR (Annual Percentage Rate). Even if it’s termed as a monthly interest rate it should show the APR it reflects BY LAW.

 

ISA

Individual Savings Account

Read more about ISA Mortgages

 

Loan to value

This is usually a percentage which shows the size of mortgage vs the property’s value. E.g. if the mortgage is £80,000 and the property’s value is £100,000 the loan to value is 80%.

 

Mortgage lender

Any financial institution that offers and/or arranges mortgages. These could be insurance companies, friendly societies, building societies, banks, unit trust managers and, nowadays, even supermarkets.

 

Mortgage Term

The length of the mortgage agreement. This is normally 25 years but can be any period agreed.

 

National Land Information Service

The National Land Information Service has all the relevant information on land and property, local government, the private sector and local geography online onto one system/website.

In fact you should be able to find out much more about your house than from an old style local search.

Proposed roads, supermarkets, residents’ parking schemes, planning issues, rights of way etc. will be revealed online within minutes whereas this often took local authorities weeks to produce. www.nlis.org.uk

 

Negative equity

When the value of a property falls below what is owed on the mortgage. This would happen during a property slump.

Say you bought a house for £100,000 during a property boom. Two years later there’s a slump and it halves in value. If you sell it the new price won’t cover the repayment of the, say, £98,000 you still owe on the mortgage.

This happened to millions during the 1980’s in the UK and meant people couldn’t move. Many had to stay with unwanted partners and friends’ they’d bought the property with during happier times.

 

Overhanging lock in

This is where the mortgage lender imposes penalties to make you stay with them after an initial low interest rate – which attracted you to that particular mortgage – no longer applies and you’re paying a normal rate or perhaps more than average.

 

Redemption penalty / Early Pay Off Charges

This another way for the mortgage lender to make you stay with them after you signed up to an initial low interest rate (which attracted you to that particular mortgage). Once this is over you are forced to pay a normal rate or perhaps more than average – or face a redemption penalty.

See more about mortgage costs and charges

 

Penalties

These are used by mortgage lenders to make sure you stay with them or – if you leave – that they squeeze a bit more money out of you.

Typical penalties are charging a percentage of what’s still owed on your mortgage if you go to another lender with a better interest rate.

See more about mortgage costs and charges

 

Premiums

Insurance premiums are the regular payments you make for the policy.

 

Surveyor

A surveyor checks property is in an acceptable condition.

 

Tie you in / tie ins

Mortgage lenders will lure you in with great sounding cut-price interest rates (aka the “headline interest rate”).

To make up for their “loss leader” they’ll try to “tie you in” eg by making you pay a financial penalty if you change to another mortgage lender.

Sometimes they’ll make it compulsory that you buy their insurance policies ie it’ll be a condition of your taking the cut-price interest rate. This would be known as an insurance “tie in”. See also Penalties.

 

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