Good and bad credit mortgage and loan terms explained
Arranging a mortgage and moving home can be a confusing experience so here is a really useful guide to the jargon used.
Advance
The money you receive as credit for your mortgage or loan.
APR
Annual Percentage Rate. This is meant to be a way of comparing the cost of credit by how much interest you will pay. It takes into account most of the up-front and on-going costs involved in taking out a mortgage, remortgage or loan. You cannot always rely on it because lenders work it out in different ways, but it is a legal requirement to be explained on any form of literature you may receive.
Arrangement fee
A fee you pay to the lender in return for a mortgage or remortgage deal. This deal could be fixed, discounted or cash backed. The fees are generally known as the:
- application fee
- booking fee
- completion fee
- draw down fee
- reservation fee
BBA
British Bankers Association. This is the trade organisation of the banks in the UK.
Bonuses
These are payments that a life assurance company or society adds to a 'with-profits' endowment. Bonuses are usually made at the end of each calendar year, and there may be a final (terminal) bonus when the endowment comes to the end of its term or matures. This normally coincides with how you have chosen to repay the mortgage or remortgage. Bonuses aren't guaranteed and the amount awarded can fluctuate from year to year. However, once a bonus is made by the life company, they cannot take it away.
BSA
Building Societies' Association. This is the trade organisation of the building societies in the UK.
Capital and interest
Your monthly payments are partly to pay the interest on the amount you borrowed for your mortgage or remortgage and partly to repay the outstanding mortgage. Also known as a repayment mortgage or remortgage.
Capped rate
An interest rate charged for a set period of months or years which can go up and down with the variable rate, but there is a maximum (capped) interest rate which it cannot go above.
Cash back
A payment you receive when you take out a mortgage or remortgage. It may be a fixed amount, or a percentage of the amount of the mortgage or remortgage.
CCJ
County Court Judgments. A decision reached in the County Court which can be for not paying debts. If you pay off the debt, the CCJ is satisfied and a note is put on your records to say this. If too many CCJ's are accumulated, you could be forced to declare yourself bankrupt.
CML
Council of Mortgage Lenders. Building societies and most banks and other lenders are members of this trade organisation.
Completion
When the sale and purchase of the property are finalised, and you become the owner of the house, apartment or flat.
Conclusion of missives
In Scotland, this is the same as exchanging contracts.
Contracts
The legal documents under which you and the person selling the property agree to buy and sell the property. The documents have to be notarised by a solicitor or lawyer.
Conveyancing
The legal process involved in buying and selling of property in the UK.
Credit search
A check the lender makes with a specialist company, of which there are two main ones, Equifax and Experian, to find out whether you have any County Court Judgments or a record of not paying loans, credit-card bills and so on.
Credit scoring
A lender's way of assessing whether you are a good risk to lend a mortgage or remortgage to.
Decreasing term assurance
Life assurance that pays out an amount if you die during an agreed period or the term of the policy. The amount of cover reduces each year. So, this makes it ideal to cover repayment mortgages and remortgages where the amount you owe the lender reduces each year. Decreasing term assurance is usually cheaper than level term assurance.
Deposit
The amount of money you put towards buying a house or property.
Direct lender
A lender that arranges mortgages over the phone, through the post, or even on the Internet without having to see you face to face.
Disbursements
A solicitor's expenses - for example, for stamp duty, HM Land Registry fees, searches, faxes, letters, legal documents and so on when seeing through your property sale or purchase.
Discount term
The time that a discounted rate applies to a variable-rate mortgage or remortgage. This term may be for a guaranteed number of months or years, or it could be until a set date in the future; for example, 17 March 2007.
Discounted rate
A guaranteed reduction in the standard variable mortgage or remortgage rate. This often lasts for an agreed period.
Early redemption charges
A fee charged by the lender if you pay off all or part of your mortgage or remortgage before an agreed date or you move the loan to another lender. These charges usually apply on fixed, discounted, or cash back mortgages and remortgages.
Endowment
A life assurance policy that is designed to produce a lump sum to pay off an interest-only mortgage or remortgage. There are different types of endowments, for example, 'with-profits', 'unit-linked' and 'unitised with-profits'. Make sure that your endowment is sufficient to cover your final payment at the end of the term.
Equity
The amount of value in a property that isn't covered by a mortgage - simply take the amount of the mortgage or remortgage from the valuation to work out the equity.
Equity release / Releasing equity
You take a new, larger mortgage, or increase a mortgage you already have and use some or all of the extra money you have raised for home improvements, holidays and so on. Sometimes referred to as remortgaging.
Estate agency fees
The amount the estate agent charges the person selling the property. This is usually worked out as a percentage of the sale price, and may be negotiable. On a 4% fee, the estate agent selling the property for £60,000 would receive £2,400. Some Internet web sites will let you advertise your property for as little as ten pounds, but you still have solicitor, conveyancing, valuation and surveyors charges to pay.
Exchange of contracts
The point where you and the person selling the property sign and swap identical contracts that show the price and what fixtures and fittings are being sold, as well as a date when everything will be finalised. When you exchange contracts the deal becomes legally binding, and if you or the seller pulls out before completion, you or they will have to pay compensation to the other side.
Execution only
The company selling or arranging an investment product like a pension or PEP cannot and does not give any advice on the benefits of the scheme - they simply sell the product.
Fixed rate
The interest charged on the mortgage is for a set amount for an agreed period of months or years on mortgages, remortgage and loans.
Fixtures
Any item that is attached to a property, and so is legally part of the property such as fitted kitchens or bedrooms and bathrooms.
Flexible mortgage
A type of mortgage or remortgage where you can make extra payments and even under payments without paying a charge or penalty.
FPC
Financial planning certificate. These are professional qualifications for financial advisers both independent and working for larger financial institutes. There are FPC Levels I, II, III. Advanced FPC is the highest qualification.
Freehold
This is when you own the property and the land it is on.
Freeholder
Someone who owns the freehold of the property.
Gazumping
This is when the person selling the property accepts an offer from a potential buyer, and then accepts a new, higher offer from another buyer before exchange of contracts.
Gazundering
This is when the person selling the property accepts an offer, and then the buyer puts in a new, lower offer just before exchange of contracts.
Ground rent
A fee that a leaseholder has to pay the freeholder every year.
Guaranteed death benefit
Usually in relation to an endowment policy, it is the amount the provider of the policy guarantees to pay out upon death of the insured before the policy reaches maturity .
HM Land Registry
The official organisation that keeps records of properties in England and Wales. Transfer of ownership has to be registered with the HM Land Registry.
Homebuyer's report
This is when a professional surveyor checks the structural state of a property. This is more detailed than a valuation but less detailed than the structural survey. The report is optional and you pay the bill; but, this report should pick up possible problems and may give you the chance to negotiate a lower price.
IFA's
Independent Financial Advisers. These advisers can give you information on and recommend investment products (endowments, pensions, PEPs) from the whole range of life assurance and investment companies.
Income multipliers or multiples
The size of mortgage that lenders will offer will often be worked out by multiplying your income each year by a set figure. If you are the only person taking out the mortgage, the usual maximum income multiple is three times your yearly income. So someone earning £15,000 could borrow three times this amount, or £45,000. If you are taking out a mortgage with someone else, the multipliers might be three times the main income plus one times the second income. Or it could be two-and-a-half times the two incomes added together. (Lenders may consider including all or part of any regular bonuses or commission you receive as your income.
Interest only
Your monthly payments to your lender are simply made up of interest. You do not pay off any of the mortgage during the term of the mortgage. You pay off the mortgage finally using the proceeds of a separate investment plan for example, an endowment, personal pension or PEP and so on.
IPT
Insurance premium tax. A tax on all UK general insurance. This is currently charged at 5% of the premium when you buy it from an insurance company or an insurance broker (but the Government can change this rate).
Leasehold
This is when you own the property for a set number of years, after which it goes back to the freeholder. Most flats in England are leasehold, and although most lenders will lend on leasehold properties, they will demand that there is a number of years left on the lease before making a loan (this could be 60 years, but will depend on the lender).
Leaseholder
Someone who owns a leasehold property.
Licensed conveyancer
An alternative to solicitors, these people specialise in the legal side of buying and selling property.
Loyalty bonus
These are special schemes if you already have a mortgage, that
may provide reduced interest rates or fees, and even services like removals.
LTV
Loan to value. This is the size of the mortgage as a percentage of the value of the property or the price you are paying for the property. (A £45,000 mortgage on a house valued at £50,000 would mean an LTV of 90%.
Mortgage
A loan to buy a home where you put up the property as security against you paying back the loan.
Mortgagee
The company or organisation which lends you the money under a mortgage.
Mortgagor
The person taking out the mortgage.
MPPI
Mortgage Payment Protection Insurance. This is insurance you take through the lender when you take out the loan. This will pay an agreed monthly payment if you cannot work because of an accident, sickness or unemployment. This amount should cover your mortgage repayments.
Multiple agencies
A number of estate agents agree to try to sell the property.
Mutuals
Organisations owned by and for the benefit of their members (savers and borrowers), with no outside shareholders. Building societies are mutuals, and so are some insurance and investment companies.
Negative equity
This is where the money you owe on the mortgage is greater than the value of the property. For example, if you had a £60,000 mortgage on a property valued at £50,000, you would have £10,000 negative equity.
Non-status
This means the lender does not need employment or income references from you. This type of loan is often offered to self-employed people.
On risk
This is when your insurance cover begins. This may be before you have paid a premium.
Percentage advance
The size of the mortgage or remortgage worked out as a percentage of the price you are paying for the property or valuation. (If your property was valued at £80,000, a £60,000 mortgage would be a 75% advance).
Possession
The lenders' term for repossessing your property.
Purchaser
The buyer of the property.
Remittance fee
A charge made by the lender for sending the mortgage funds to your solicitor when the purchase is just about to be completed.
Remortgage
A new mortgage although you are not moving home.
Removal expenses
The cost of hiring a removal firm. This may depend on the total amount and size of your possessions, the distance traveled, the number of stairs and so on.
Repayment
Your monthly payments are partly to pay the interest on the amount you borrowed and partly to repay the outstanding mortgage pr remortgage. Also known as a capital and interest mortgage or remortgage.
Replacement value
This is the cost of buying the same or similar items as new if you have to replace them in the event of a claim.
Sealing fee
A charge made by lenders when you repay the mortgage or remortgage.
Searches
Checks carried out during the conveyancing. These checks are made with local authorities and other official organisations to check planning proposals and other matters that may affect the value of the property, and if it can be sold in the future.
Self-certified
You confirm how much you earn, and the lender does not need any references when applying for a mortgage or remortgage. These are usually recommended for self-employed people who don't have sufficient accounts.
Settlement
In Scotland, this is the same as completion.
Sole agent
A single estate agent agrees to sell the property.
Solicitor
The person who deals with the conveyancing.
Stamp duty
This is a government tax which is payable when a property is sold. Stamp duty is calculated on the purchase price of the property and is paid by the buyer.
Structural survey
This is the most wide-ranging check of the outside and inside of a property. This is carried out by a professional surveyor, and it should pick up all but the most hidden faults. The structural survey is optional and you must pay the bill, but it provides the greatest protection for the potential buyer in terms of the information it provides.
SVR
Standard variable rate. The interest rate the lender charges goes up and down, with your interest payments changing accordingly.
Tie-in period
As a condition of a special mortgage or remortgage deal (discount or fixed rate, for example), you may have to agree to stay with the lender for a period of months or years after the deal has ended. If you move your mortgage elsewhere during this period, you may have to pay an early redemption charge.
Term
The period of years over which you take the mortgage and when you have to repay it. Most new mortgages are taken on a 25-year term.
Title deeds
Documents to show proof of who owns the freehold and leasehold property.
Transfer deed
A document that, once you sign it, actually transfers the ownership of the property to you.
Unit-linked endowment
Your monthly premiums are used to buy units in a fund or funds run by professional managers. Like unit trusts, the price of these units can go up and down, so the value of the endowment can constantly change.
Unitised with-profits endowment
A mixture of the unit-linked and with-profits endowments. Like the unit-linked endowment your monthly premiums are used to buy units in a fund, or funds. Unlike the unit-linked endowment, the value of the units cannot fall, once an increase has been made.
Valuation
A simple check of the property in order to find out how much it is worth and whether it is suitable to lend a mortgage on. This is carried out by a professional surveyor for the lender. You usually pay the bill and will usually get a copy of the report.
Variable rate
The interest rate the lender charges goes up and down, with your interest payments changing accordingly.
Vendor
The person selling the property.
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