Mortgage Glossary
Advance
The mortgage loan.
APR
Annual Percentage Rate. This is meant to be a way of comparing the total cost of credit. It takes into account most of the up-front and on-going costs involved in taking out a mortgage.
Arrangement fee
A fee you pay to the lender to secure a mortgage product. This deal could be fixed, or discounted rate mortgage or cashback mortgage.
ASU Insurance
This covers accident, sickness and unemployment. It provides a monthly payment if you cannot work for an extended period due to an accident, sickness or unemployment.
BBA
British Bankers Association. This is the trade organisation of the banks.
Booking fee
See arrangement fee.
BSA
Building Societies' Association. This is the trade organisation of the building societies.
Buildings insurance
This covers the cost of rebuilding or repairing the structure of the property. Lenders insist you have enough buildings insurance in place before they give you a mortgage. With leasehold properties, it is the freeholder's responsibility to arrange buildings insurance, although the freeholder will usually pass on the charges to the leaseholder.
Buildings and contents insurance
This is combined insurance, which may be cheaper than one policy for buildings insurance and another separate policy for contents insurance.
Buy-to-let
A mortgage for private landlords seeking to purchase property for letting to tenants
Capital and interest
Your monthly payments are partly to pay the interest on the amount you borrowed and partly to repay the outstanding mortgage. Also known as a repayment mortgage.
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.
Cashback
A payment you receive when you take out a mortgage. It may be a fixed amount, or a percentage of the amount of the mortgage.
CCJ
County Court Judgement. 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.
CML
Council of Mortgage Lenders. Building societies and most banks and other lenders are members of this trade organisation.
Collared rate
The minimum rate below which a mortgage will not fall in the incentive period.
Completion
When the sale and purchase of the property are finalised, and you become the owner of the house or flat.
Conclusion of missives
In Scotland, this is the same as exchanging contracts.
Contents insurance
Insurance cover for your possessions. This may include cover against loss or damage away from the home.
Contracts
The legal documents under which the purchaser and the person selling the property agree to buy and sell the property .
Conveyancing
The legal process involved in buying and selling property.
Council Right To Buy
Scheme offered to people living in accommodation rented from a council or housing association for more than two years
Credit search
A check the lender makes with a specialist company to find out details of your credit history
Credit scoring
A lender's way of assessing whether you are an accepatable risk to lend a mortgage to.
Critical Illness
Insurance that generally pays out a lump sum if you are diagnosed with a life-threatening illness or disease
Date of entry
In Scotland, this is the same as completion.
Decreasing term assurance
Life assurance that pays out an amount if you die during the term of the policy. The amount of cover reduces each year. Decreasing term assurance is usually cheaper than level term assurance.
Default
A legal notice denoting a failure to keep up repayments on a debt
Deposit
The amount of money you put towards buying a property.
Direct lender
A lender that arranges mortgages over the phone, through the post, or even on the Internet.
Disbursements
A solicitor's expenses - for example, for stamp duty, HM Land Registry fees, searches, faxes and so on.
Discharged Bankrupts
Bankruptcy after a period of time becomes Discharged Bankruptcy (Restrictions are lifted) but it still remains on your credit history.
Discount term
The time that a discounted rate applies to a variable-rate mortgage. 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, 30 June 2010.
Discounted rate
A guaranteed reduction in the standard variable mortgage rate. This often lasts for an agreed period
Early repayment charges
A fee charged by the lender if you pay off all or part of your mortgage before an agreed date or you move the loan to another lender. These charges usually apply on fixed, discounted, or cashback mortgages.
Endowment
A life assurance policy that is designed to produce a lump sum to pay off an interest-only mortgage. There are different types of endowments, for example, 'with-profits', 'unit-linked' and 'unitised with-profits'.
Equity
The amount of value in a property that isn't covered by a mortgage - simply take the amount of the mortgage from the property valuation to work out the equity.
Equity release
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.
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.
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 pull out before completion, you or they will have to pay compensation to the other party.
Extra cover or accidental damage cover
This is insurance against damage to the structure of your property and its contents - for instance, putting your foot through the ceiling or spilling paint on the carpet.
Fixed rate
The interest rate charged on the mortgage is set for an agreed period of months or years.
Fixtures
Any item that is attached to a property and so is legally part of the property.
Flexible mortgage
A type of mortgage where you can make extra payments and even under payments without paying a charge.
Freehold
Ownership of the property and the land it is on.
Freeholder
Someone who owns the freehold of the property.
Full status
Describes a borrower who can produce proof of income by way of employers refference, pay slips, P60 or certified accounts to support a mortgage application
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
On certain life policies, e.g endowments, there is a guarantee that the company will pay out a certain amount when you die.
HM Land Registry
The 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 condition 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. And, you have more grounds to sue or get compensation from a surveyor for a poor report than you would from a simple valuation .
Income multipliers or multiples
The size of mortgage that lenders will offer will often be worked out by multiplying your annual income 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 £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.
Income protection insurance
Provides an income in the event of accident, sickness or disability .
Income references
This is confirmation from your employer that you earn the amount you claim in your mortgage application. Accountants may also give confirmation of income if you are self-employed.
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 at the end of the term using the proceeds of a separate investment plan for example, an endowment, personal pension or ISA and so on.
IPT
Insurance premium tax. A tax on all UK general insurance policies. This is currently charged at 5% of the premium.
IVA
An arrangement to make one monthy payment to your creditors to aid the repayment of debts. (Individual Voluntary Arrangement)
Leasehold
This is when you own the property for a set number of years, after which ownership reverts 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 minimum of years left on the lease before making a loan (this will depend on the lender) .
Leaseholder
Someone who owns a leasehold property.
Let to Buy
Moving from your hometo buy a newone but retaining the existing property to let to tenants
Level term assurance
Life assurance which pays out a lump sum if you die during the term. The amount of cover stays the same throughout the term, which makes the cover suitable for interest-only loans because the amount you owe on the mortgage stays the same until the end of the mortgage.
LIBOR
London Inter Bank Offered Rate - the interest rate banks set for lending money to each other. The rate can be 7-Day and set weekly or 3-Month and set in line with the financial year quarters ie April\June\September and January.
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 for the loan.
Mortgagee
The company or organisation which lends you the money under a mortgage.
Mortgagor
The person taking out the mortgage.
Higher Lending Charge
A one-off charge levied by the lender when you purchase or re-mortgage a property to pay for insurance that allows the lender to recoup some of the amount borrowed if you default on the repayments and the lender makes a financial loss on the sale of the repossessed property.
MPPI
Mortgage payment Protection insurance this insurance will pay an agreed monthly payment if you cannot work because of an accident, sickness or unemployment. This amount should cover your mortgageand related repayments. See also ASU Insurance
Multiple agency
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.
New for old
This is insurance cover which will pay the full cost of replacing damaged or lost property with a similar, new item.
No-claims bonus
This is similar to motor insurance. Some insurers will give a discount on buildings and contents insurance if you haven't made a claim for a number of years.
Percentage advance
The size of the mortgage 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.
PHI
Permanent health insurance. This pays a regular monthly amount until the end of the policy term or you return to work if you cannot work because of illness or an accident.
Policy excess
The amount you will have to pay when you make a claim. For example, this may be the first £50 of a £500 claim for damage caused by a storm.
Policy schedule
This gives policy details of what cover is provided how much cover you have (the sum insured), the discount you qualify for (if any), and the premiums you have to pay. With some policies you may get a new schedule when you renew the policy or whenever you change your policy.
Possession
The lenders' term for repossessing your property in the event of serious, sustained arrears.
Private medical insurance
This pays the costs for private medical or hospital treatment.
Purchaser
The buyer of the property.
Rebuilding cost
This is the recommended amount that you should take out buildings insurance cover for. This may be higher or lower than the market value of your property and is assessed by the person who carries out a valuation of the property on the lenders behalf.
Rettance fee
A charge made by the lender for sending the mortgage funds to your solicitor when the purchase is about to be completed.
Remortgage
A new mortgage to replace your existing 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 travelled, 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. Also known as a capital and interest mortgage.
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 for sealing legal documents when you repay the mortgage.
Searches
Checks carried out during the conveyance phase. 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-certification
You confirm how much you earn and the lender does not need any references.
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
A tax you pay on the purchase of properties which cost over a certain ammount, currently £125,000.
Structural survey
This is the most comprehensive 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. It also gives you cover against negligence by the surveyor.
Sum assured
How much the inssurance company guarantees to pay you if you have a life assurance policy and you die.
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 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 repayment 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 signed, actually transfers the ownership of a property.
Unit trust
A popular type of stock market-linked investment that you may use to repay an interest-only mortgage. Your monthly premiums buy units in a fund of stocks and shares that is run by a professional manager. The value of units can go down as well as up, and a unit trust doesn't include life assurance.
Valuation
A simple check of the property in order to find out how much it is worth and whether it is suitable security for a mortgage. 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. See alos SVR
Vendor
The person selling the property.