APRC stands for Annual Percentage Rate of Charge. Its purpose is to show you the annual cost of a mortgage, and allow you to compare this against other market offerings. It combines everything including interest rates, charges and fees to demonstrate how much you would pay over the full term of your mortgage if you never change it.
This stands for Automated Valuation Model and is a software based tool that is used to determine the value of a property.
The base rate is the UK’s interest rate as set by the Bank Of England.
This is an insurance policy that covers the cost of rebuilding your home if it’s damaged or destroyed. It is usually a requirement of your mortgage offer that you have buildings insurance in place.
A capital and interest mortgage is another term for a repayment mortgage. When you have this type of mortgage your monthly payments repay both the interest accrued on the outstanding balance, and an amount towards clearing that balance. If you remain on capital and repayment throughout the term of your mortgage, and do not take out any further secured debts, then at the end of this term you will be mortgage free and own your property outright.
Some lenders offer a “cashback” incentive with some of their products, usually designed to help with costs or simply as a reward for choosing them. This balance is paid to you on completion or shortly after completion and is not a part of your mortgage borrowing. Our advisors will consider these incentives when selecting the best value product for you.
Having a charge on a property means that a company or an individual has registered a formal financial interest in your property with HM Land Registry, this usually means the property cannot be remortgaged, sold or transferred without the charge being cleared, this is how lenders ensure that the money they lend for a mortgage is repaid. This security means that the lenders consider the lending to be lower risk, and as such they offer lower interest rates.
In the case of a purchase, completion is the term used to describe the point in the process where the money has passed from the buyer to the seller and the ownership of the property has transferred. It is the day the buyer becomes the legal owner of the property and can move in. In the case of a re-mortgage, it is when the solicitors repay your existing mortgage with your current provider and the new mortgage starts with the new provider.
Contents insurance is a policy that covers the cost of replacing or fixing items within your home if they are damaged, destroyed or stolen. It can also cover you for items taken out of the home (on holiday for example). If you don’t have this insurance it won’t stop you from getting a mortgage but it is good to have.
Conveyancing is the legal term for transferring land or property from one person to another. It comprises of two phases, the exchange of contracts and the completion of the transfer.
Credit reference agencies are independent organisations who hold information regarding a consumers credit history. They provide this information on potential borrowers to lenders so that they can use it to decide whether or not they are a suitable candidate for credit.
This is the process of merging one or more outstanding debts such as loans and credit cards with your mortgage payment into one single monthly payment, usually with the aim to reduce your monthly outgoings.
A deposit on a mortgage is the amount of money you pay upfront towards the purchase price of a property. It is usually a percentage of the value of the property, commonly set between 5% and 10%.
A formal deed entered into between two charge holders to alter their priority in respect of their financial interests in equity should the property be taken in possession by a lender who has been defaulted.
This is a type of variable rate mortgage where the lender offers you a discount on its standard variable rate (SVR) for a fixed period of time, typically a couple of years.
A drive by is a type of valuation. Instead of inspecting both the interior and exterior of a property during a survey, the appraiser only examines the exterior.
ERC stands for Early Repayment Charges. This is a charge from your lender to leave your current agreed rate before it’s end date. Usually ERC’s start high but decrease as you approach your rate’s end date.
This is the money invested in your property. The difference between the value of the property and the mortgages and/or debts secured against it.
This is when both parties sign and swap the contracts. This means the buyer is legally committed to buying the property and the seller is legally committed to selling it. It is also the point where the buyer will be asked to submit their deposit.
This enables you to keep the interest rate on your mortgage at the same level for however long the duration of your deal is agreed. The good thing about this is that you’ll know how much your mortgage payments will be each month and if interest rates were to rise you’ll be protected from the impact of this. The downside is that if the rates fall, you’ll end up fixed on the rate you’re contracted to rather than moving to the current, lower rate.
A flexible mortgage offers flexibility in monthly repayments. This could include making overpayments when borrowers have extra income, reducing or skipping payments when income is lower than expected and the option to take back any overpayments previously made.
The amount of income before tax or deductions.
HLC means Higher Lending Charge. This is an insurance premium that you have to pay when the ‘Loan To Value’ is higher than a certain figure – typically loans in excess of 90% of the property value. It protects the lender to some extent if you default on the mortgage for any reason.
A mortgage illustration is a document sent to you by a potential mortgage provider showing all the costs associated with your mortgage. Whilst it will inform you of any lender fees, broker fees and occasionally valuation fees, it won’t cover solicitors’ fees or insurance as these are separate costs. The mortgage illustration document only covers what is included in the mortgage itself.
Money received through employment/self-employment, investments, pensions, benefits and/or child maintenance.
Advice received from Independent Mortgage Advisors that have a wide range of knowledge and products available to tailor fit a mortgage based on circumstances and income. They are also not tied to one particular provider so can give unbiased advice.
The premium paid by a borrower to a lender in return for borrowing the lender’s money.
With this type of mortgage you only pay the interest, this means the monthly payment is lower, but you aren’t clearing any of the capital. You then have to repay the capital at the end of this term in one lump sum, usually through investments, pension lump sums, or sale of the property.
Life insurance pays out on the death of the people insured, or earlier if there’s a diagnosis of terminal illness that meets the insurers policy definition. If you don’t have this insurance it won’t stop you from getting a mortgage but it is recommended to help your loved one be able to pay off the mortgage, in the event of your death. Our partners at Your Protection People can arrange a suitable and affordable life insurance policy for you.
Loan to value is the ratio of your mortgage balance as a percentage of the value of the property.
This qualifies as any payment that is made after the date set by your mortgage lender when the mortgage is first taken out.
A mortgage adviser is a qualified person with permission to give mortgage advice. They help the borrower decide which kind of mortgage they need, find a deal that fulfils their requirements and liaises with the lender to arrange the deal.
These are formal, legally binding documents that confirm you are entering into a contract with your mortgage provider, secured against your property.
A mortgage term is the total length of time you will make payments to the lender. This can be up to 40 years. The longer the term, the lower the monthly repayments will be but the more interest you’ll pay over the term. It is important to remember that your term will only remain the same if you make no changes, such as reducing the term, overpaying or taking out equity.
The amount of income after tax or deductions.
The date at which the formal mortgage offer is valid until.
This is the formal document, stored and maintain by HM Land Registry, upon which the address, the ownership, and any legal charges and third party interests relating to a property is recorded.
An offset mortgage allows you to link your mortgage with your savings account. The idea involves moving your savings into a ‘offset savings account’ and instead of earning interest on your savings account, it reduces the amount of interest you pay on your mortgage. Your savings are not used to pay off your mortgage and your savings can be withdrawn or topped up throughout the term with the interest being offset on a monthly basis. This means the more you have in savings the less interest you pay that month, and if you withdraw from your savings you will pay more.
This qualifies as any additional payment you make over your usual monthly mortgage payment.
This is a combination of a repayment mortgage and an interest-only mortgage. Whilst you’ll still have a lump sum to pay at the end of the term, it will be lower than the amount due for an interest-only mortgage due to the payments you’ve previously paid.
If there is a short-term change to your finances and you cannot pay your mortgage you can take a payment holiday. This is an agreement with your lender to temporarily stop or reduce your monthly mortgage payment. This can usually be up to six months but is subject to each individuals circumstances. Your repayments will be re-evaluated at the end of the payment holiday and could increase as a result. Taking a payment holiday could affect your credit rating and adversely affect your ability to obtain finance in the future.
This is the figure that is paid from the lender to an intermediary for introducing the business. This is not added to the mortgage or charged to the customer in any way.
These are formal records held with the land registry to prove ownership.
This is the formal period of time which allows you to consider a binding mortgage offer.
A remortgage is the process of moving your current mortgage on your current property to a different lender. Your new mortgage deal with the new lender replaces the old mortgage deal with the old lender.
A repayment mortgage is a monthly mortgage payment which contains an element of capital in addition to the interest payable on the loan. The proportion of capital repaid increases with each monthly payment. As long as all repayments due to the lender are made in full and on time, the mortgage will be repaid at the end of the term.
If you have, or want to take out an interest only mortgage you will need to have a repayment vehicle in place. A repayment vehicle is essentially your plan to repay the outstanding balance at the end of your interest only mortgage. This usually takes the form of an investment/savings plan or a plan to sell the property and downsize at the end of the mortgage term.
These are enquiries carried out by the solicitor with public authorities to give you more information about the area of the property you plan to buy. The searches check if any developments are planned or if there are any historical problems in the area.
If you are applying for secured debt, you’re generally seen as being a lower risk to the lender. In the context of mortgages you would be securing your home against the debt you’re looking to borrow which means the lender can repossess the property if you fail to make the repayments. The benefits of this are lower interest rates and financing terms.
A secured loan is a 2nd charge mortgage. This means that it is secured against your property but it has a lower priority than your 1st charge mortgage. Because the loan is secured, the lender considers the borrower as less of a risk but the borrower risks losing their property if they cannot make the repayments. These loans usually offer a larger borrowing limit, a lower interest rate and a longer repayment period compared to unsecured loans.
Tax charged on the purchase of a property.
These are formal, legally binding documents that confirm you are entering into a contract with your mortgage provider, secured against your property.
SVR stands for Standard Variable Rate. If a fixed, tracker or discount deal mortgage comes to an end and a new deal hasn’t been arranged, it will usually be automatically transferred onto the Standard Variable Rate. The rate is normally significantly higher than the rates agreed on other types of mortgages and the payments can change month to month.
This is a home inspection carried out by a qualified surveyor to identify any potential issues with the property. The surveyor will assess areas such as the roof, ceilings, walls, fireplaces, staircases, woodwork, chimney, guttering, windows and more.
A tracker is a type of mortgage where the interest rate varies. It usually ‘tracks’ the Bank of England’s base rate. If you get a tracker mortgage, your mortgage repayments could be different every month.
This is the formal legal process of adding a new party to your properties title deed or removing a party from the title deed.
If you’ve previously made overpayments on your mortgage, you may have the option to underpay if you need to relieve some financial pressure. The total amount you’ve overpaid acts as an allowance meaning you can make lower payments until the allowance equals zero. Always speak to your lender before underpaying to be sure this option is available to you.
The opposite to secured debt. In terms of mortgages, this refers to a type of debt that is not secured by your property. Whilst the borrower might be seen as a higher risk to the lender, if the interest rate and payment terms are affordable, the deal is less risky for the borrower because they can’t lose their home if they can’t make the repayments.
This is the process of finding out the value of a property. The estimate is provided by an estate agent or independent valuer and is based on elements such as location, size and condition.
The above is a comprehensive list of all terminology used during the process of apply for and securing a mortgage.
If there is anything you need further clarification on, or if you spot anything we have missed then please let us know.
