UK jargon for Mortgages
Here is a list of commonly used phrases in the mortgage sector. This website and its information is for guidance only, make sure you discuss all terms and conditions with your mortgage broker as 'jargon' and its meaning can change over time.
Mortgage
A mortgage is a loan from a lender, to purchase a home where you put the property up as security. In otherwords, they keep the title deeds until the loan is paid as a security or 'charge'.
APR - Annual Percentage Rate
APR is a useful way of comparing the cost to you of one loan as against another. The APR includes up front costs and ongoing costs involved in a mortgage or loan and is thus a true indicator of the cost of borrowing.
Repayment Mortgage
Your monthly payments are split between paying part of your outstanding mortgage loan and also part of the interest. Check to see what the split is, as at the beginning of your loan the interest is sometimes paid as a bigger proportion than later in the loan when the capital is being paid off. If you have a 20 year mortgage, the first few years payments can be nearly all interest payments and little reduction of the overall amount borrowed.
Capped rate
This morgage rate restricts the interest rate from rising above an agreed figure. The interest rate is normally the lender's or bank's standard variable rate so can rise or fall, but in this case will never rise above the 'capped rate'. Discount morgages can also be capped.
Cashback
A cash payment you receive when you have paid off a mortgage you have taken out. This can be a fixed amount or a percentage of the amount of the mortgage borrowing. Generally the lender will tie you into a fixed term with a 'cashback' deal.
Conveyancing
This is the legal proceedure, usually carried out by a lawyer on your behalf to process the buying and selling of a property or home. You instruct a solicitor or conveyancor to carry out the legal work. You can do all the conveyancing yourself, or get a professional conveyancer (not a solicitor) to do the work for you. The mortgage, land registration, stamp duty, property deeds and all the other bits and pieces can be handled on your behalf.
Discounted rate
Interest rates can vary during a mortgage and is referred to as a lenders standard variable rate. A discounted rate will always be less than the lenders SVR. If the interest rate rises during your loan you should still get a guaranteed discounted rate from the lenders stanard variable rate. Overall it is an option worth considering but talk through all the scenarios that can happen.
Endowment
A life assurance investment policy that is predicted to yeild a lump sum of money to pay off an interest only mortgage. Different types of endowments exist and include 'unit-linked' or 'with profits' and 'unitised with profits'. There is no guarantee that an endowment policy will produce sufficient funds to pay off the mortgage at the end of the loan term. You only pay the interest each month on your mortgage plus the payment to an Endowment policy, so overall payments can be cheaper. However, you may need to find any shortfall at the end of your mortgage in order to pay back the lender. Many people have recently been stung by this, so unless you are planning to buy and sell your property in a short term, the safer option is often to do a repayment mortgage. Look at the details and discuss thoroughly with your financial advisor as all circumstances can vary.
Freehold
Ownership of the property AND the land it sits on.
Leasehold
If your property is a leasehold for a specific number of years, then once that term is over, the property reverts back to the ownership of the freeholder. Many flats in England and Wales are leasehold but you can extend your leasehold agreement or buy out the freehold. Discuss the details with a solicitor. If the lease is for 80+ years than the value is rarely effected but as the lease reduces this can have an impact. The big problem with leaseholders is any agreement for maintenance of a building. Unscrupulous leaseholders can create enormous bills for 'maintanance work' which they control. Some homeowners in a building have clubbed together and formed their own company and bought the leasehold for themselves... this can work very well.
Investment Vehicle
An investment vehicle will be required if you are intending to take out an interest only mortgage. This 'Investment Vehicle' may be an endowment policy, personal pension or an ISA.
ISA
An ISA or 'Individual Savings Account' is a tax free way to own shares, cash savings account or life assurance in the UK. Sometimes you are able to use your ISA to make payments on an interest only mortgage.
LTV
This stands for Loan to Value and is a calculation of the size of your mortgage as a percentage value of the property. E.G £90,000 mortgage on a house valued at £100,000 would produce an LTV of 90%.
MIG
This stands for Mortgage Indemnity Guarantee which is an insurance against you defaulting (not paying) on your mortgage so they can claim against the LTV in this event. It can cost a lot and a mortgage provider may insist on it, with you paying the premium. Always check to see if this is a requirement, because it can be a large hidden cost.
Negative Equity
This is where the amount of money you owe on the mortgage is higher than the current value of the property.
Repayment Mortgage
Also referred as a capital and interest mortgage, your monthly payments are divided to pay interest on the amount you borrowed and to repay the outstanding mortgage owed.
Tie in period
A 'tie in period' is a period of time that you are required to stay with your lender. An early redemption fee will normally be charged if you wish to terminate the mortgage before this period has lapsed. A tie in period usually applies if the lender has granted you a competitive fixed rate for a number of years. After the tie in period the mortgage rate usually returns to the lenders standard variable rate.
Tracker rate
This is set within a margin lower or higher of the Bank of England base rate or LIBOR (London Interbank Offered Rate) in the UK. Some borrowers like to have their mortgage rates governed independently by the economic conditions rather than by the lender. Tracker morgages follow the base rate, with a constant difference between the base rate and the rate of interest of the morgage loan. They are guaranteed to rise and fall in relation to the bank base rate.
Variable Rate
The interest rate you are charged by the lender is according to the current base rate.
Valuation
The lender usually wants a valuation by a valuer they recognise to supply a reasonable value for their security. You will normally have to pay this valuation fee and a bank valuation is normally a conservative opinion.
Types of Mortgage
Repayment mortgage - Monthly payment made to the lender which pays back some of the interest on the loan and some of the capital. The advantage of a repayment mortgage is that at the end of the term the debt has been totally repaid. Overpayments and lump sum payments can be paid thus reducing interest and capital. Life assurance cover is not always required. The disadvantage is financial penalties for lump sum or overpayments into your mortgage account. If you move house regularly, very little of the capital is paid off as often initial payments are allocated to interest rather than capital. With no life assurance cover in place, the mortgage will still need to be repaid in the event of your death.
Interest only mortgage
You only pay the interest and not the capital sum borrowed. You will need an endowment, ISA or Pension plan to pay the capital off. If the 'investment vehicle' exceeds the amount due to repay the capital at the end of the mortgage, you are quids in. However, if it doesn't, as has been the case with recent policies, you are liable to find the shortfall.
Standard Mortgage
For nearly all property purchases in the UK a standard mortgage is chosen.
Bad credit mortgage
if you have had problems with paying off a loan resulting in a ccj or just a poor credit rating then there are lenders that will help.
Buy to let mortgage
This is a specialist mortgage if you wish to rent out the property.
Flexible mortgage
This allows you to overpay or underpay each month although higher interest rates often apply for this type of mortgage.
Let to buy mortgage
A mortgage allowing you to buy another house and rent out your current home.
Fixed rate mortgage
For a given period of time the interest rate can be fixed which is helpful for budgeting your payments and also if the rate goes up in the outside world, your's stays the same. . The length of the fixed rate mortgage can be a few years, then the rate reverts back to the lenderıs SVR.
All-In-One Accounts
Current account and offset mortgages are proving popular. You can save money by offsetting the interest you pay by using your savings or current account balance to reduce your debt.
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