Here's the Reeds Rains' glossary of mortgage terms where we explain words and phrases you'll come across when considering a mortgage. If you have any questions, do contact us to talk to a Reeds Rains mortgage and protection advisor.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
Our initial mortgage consultation is free. We will charge a fee between £399 and £999 that is payable on application. The amount we will charge is dependent on the amount of research and administration required. We reserve the right to charge a subsequent fee of £99 for each further application that may be required.
All lenders have to quote an Annual Percentage Rate (APR) in addition to their standard interest rate. This is to help you compare different schemes. The way APR is calculated can be confusing but it takes into account total cost of the credit to the consumer, expressed as an annual percentage of the total amount of credit, including interest and other charges applying. It is designed to provide a more effective indication of which mortgage is likely to be cheaper over the whole mortgage term.
This can be known as a MIP (Mortgage in Principle) or an AIP (Agreement in Principle) and is confirmation in writing of a lender's expression of intent to provide funding subject to certain conditions being met. This is normally required when making an offer on a property to prove to the owner that a lender is willing to consider a mortgage application from you up to a certain amount.
Lenders may charge an arrangement fee to set up your mortgage. They vary significantly and you could be charged up to £2,000 or more. You can usually choose between paying the arrangement fee upfront with your application or adding it to the mortgage, but it will ultimately cost more to do the latter as you will pay interest on it over the term of the mortgage. Some arrangement fees are charged as a percentage of the loan, rather than a flat fee and some charge smaller arrangement fees up front which are non-refundable (these can sometimes be called "Booking fees".
If you go into arrears it means that you have missed a mortgage payment or more than one mortgage payment.
Base rate is the interest rate set by the Bank of England for lending to other banks. This is generally used as the benchmark for setting other interest rates. Mortgage Standard Variable Rates and Tracker Rates are generally linked to this rate.
A booking fee is usually charged upfront and pays for "booking" the loan while your application goes through. Sometimes this is called a Reservation Fee and is normally non-refundable. The cost of these fees is normally around £99 but can be slightly higher, while some lenders don't charge it at all.
Buildings insurance is a requirement of the lender when you take out a mortgage, but it does not have to be arranged through them. You need to have this in place before you move into your home and it covers you for damage to the structure of the your house.
A buy to let mortgage is a loan designed to enable you to purchase a property with the sole intention of letting it out to tenants. These mortgages are not for people who want to live in the property they are buying. Lenders often offer a specialist "Buy to let" mortgage which is generally more expensive than residential mortgages.
The total amount of money borrowed to buy a property.
This is a mortgage including a lump sum which is paid out following completion. Cashbacks may be offered with reduced rates and other incentives as a combination package. These type of mortgages will typically have early repayment charges which would apply if you redeemed within a specified period after completion.
County Court Judgement. This is a type of court order in England, Wales and Northern Ireland that may be registered against you if you fail to repay money you owe.
A collar, if applied by a lender to a variable interest rate, is the minimum rate of interest you will be charged. This means that if the genral rate of interest rates continues to fall, the rate you are charged will not fall below the 'collar' rate.
The legal work that your solicitor will do to enable you to buy and/or sell a house.
This is a flexible mortgage linked to your current account. Some companies in this sector also link savings accounts and mortgages together into combined accounts. With this type of mortgage, you are only charged interest on the net amount you owe the lender, after offsetting any savings or current account balances against the amount of your mortgage.
In finance, this is failure to fulfil a legal obligation, especially to repay a loan or mortgage.
This is the amount you will be required to put down towards the purchase of the property. The rest of the funds required will be obtained from your mortgage. The amount usually required by the lenders is a minimum of 5%, but generally the more deposit you put down the more favourable the rate offered to you will be.
A discounted rate gives you a reduction of, for example, 1% off the lender's standard variable rate for a specified period. So, although the rate may rise and fall, you will be paying less than the standard variable rate for this period. Early repayment charges and arrangement fees are likely to apply.
This is a fee payable if you repay your mortgage, either in full or in part, before the end of the penalty period. These fees typically range from 1 to 5% of the loan amount typically. The penalty normally applies for the same time that you fix your interest rate or enjoy the benefit of a tracker or discount, however are not limited to just these events.
If the house was sold this would be the money you would have left after the mortgage was repaid.
The interest rate is fixed for a specified number of years so you know what your repayments will be over that period. Following this period, the rate will usually revert to the lender’s standard variable rate. Early repayment charges and arrangement fees are typically likely to apply.
These give various benefits which usually include the ability to vary monthly payments in line with your changing circumstances. They may also allow you to take ‘payment holidays’ and to borrow back any overpayment you have made. Because of their flexible nature and the variety of schemes available it is not possible to give a full description here, but your mortgage adviser will provide more detail if you are interested in this type of loan.
This type of tenure means that you own both the property and the land it stands on and there is no time limit to the period of ownership.
A guarantor is someone who legally agrees to take on the financial responsibility of another in the event of their failure to meet their debt obligations. In other words a mortgage guarantor agrees to bear the burden of meeting mortgage payments should the borrower be unable to pay. Parents and relatives can step in to act in these circumstances. A person considering acting as a guarantor should seek specialist legal advice to make sure that they fully understand their legal obligations if they take on the role.
There are two types of scheme, both are designed to enable properties to be purchased where the borrower can only afford to put down a small deposit. The schemes allow for participating lenders to offer mortgages that only require a minimum deposit of 5% (terms and conditions apply).
A higher lending charge (HLC) is a charge made by mortgage lenders when the loan to value (LTV) exceeds a limit as specified by the lender. It is designed to cover any increased risk the lender might incur, and may be used to buy an insurance policy called a Mortgage Indemnity Guarantee, which protects the lender should the borrower default on the mortgage.
With an interest only mortgage, you make no capital repayments to the lender until the end of the term. Instead payments may be made into an investment designed to repay the loan at the end of the mortgage term. With this type of mortgage there is a risk that the value of the investment may not be enough to repay the debt. During the mortgage term, you pay only interest to the lender on the outstanding balance. Please note that Reeds Rains Ltd does not provide investment advice, and should you require such advice, we recommend that you contact an Independent Financial Adviser. Neither Reeds Rains nor First Complete Ltd are responsible for any advice you receive from a third party.
The official body responsible for registering and maintaining details of property ownership. A land registry search takes place as part of the conveyancing transaction.
This means that you own the property for as long as is specified in the lease; you are granted the right to live there by the freeholder. At the end of the lease the property again becomes the possession of the freeholder. The majority of leasehold properties are flats, although some houses are leasehold.
These are a type of Equity Release mortgage. Should you require a Lifetime mortgage you will be referred to a third party provider. Neither Reeds Rains Ltd nor First Complete Ltd is responsible for any third party advice.
Against the value of your property, this is the percentage size of the loan. For example a property with a value of £100,000, and a mortgage £70,000 the LTV will be 70%.
A search carried out by your solicitor to find out if there are any Local Authority Notices or Plans with respect to the building itself and the surrounding area (for example, have plans gone through to build a motorway next to the house?).
This is the payment you make to your lender to repay the loan every month.
A loan which is secured against your property.
A legal document that formally secures the mortgage loan against your property.
A Mortgage Broker is a type of intermediary who sells mortgages on behalf of lenders.
Period over which mortgage is to be repaid.The length of time you agree to take your mortgage over. This is typically 25 years, but can be shorter or go up to retirement age and beyond (subject to lender's underwriting criteria and affordability).
The lender of a mortgage.
The house buyer who takes out a mortgage (also known as the borrower).
When the value of your house falls to less than your mortgage.
This is a type of flexible mortgagelinked to your savings and sometimes linked to your current account. With this type of mortgage, you are only charged interest on the net amount you owe the lender, after offsetting any savings or current account balances against the amount of your mortgage.
A portable mortgage will allow you to transfer your borrowing from one property to another if you move, without losing the rate you are currently being charged. The advantage of this is that early repayment charges will be avoided if they are applicable.
The cost of rebuilding your home.
When a mortgage is fully repaid.
This is the process of changing your mortgage for a different one, without moving home.
A mortgage that pays off both the home loan and the interest at the same time. Make all the payments, and the mortgage will be fully repaid.
An investment of some sort, typically an ISA, an endowment policy or a pension which is used to repay an interest only mortgage at the end of the term. Please note that Reeds Rains Ltd does not provide investment advice, and should you require such advice, we recommend that you contact an Independent Financial Adviser. Neither Reeds Rains nor First Complete Ltd are responsible for any advice that you receive from a third party.
When the mortgage lender takes away or repossesses your home because you have fallen too far behind on your mortgage repayments in order to sell to recover their losses.
A government tax charged to buyers on houses above a value of £125,000.
With this type of mortgage your payments will go up or down when the lender’s mortgage rate changes. Most standard variable rates tend to move in line with the Bank of England base rate, but there is sometimes a delay and there is no guarantee that the lender will pass on the full effect of the increase or decrease. When the interest rate goes up, the amount that you have to pay also rises, and it falls when interest rates come down.
A report constructed by the surveyor detailing firstly, whether the house is structurally sound and secondly, listing the major/minor defects, including the necessary work which needs to be done. This is the most comprehensive and expensive type of survey.
Another name for adverse credit mortgages.
This is the period of time in which you are tied into your mortgage deal. It means that should you choose to redeem your mortgage in part or in full during this period then an Early Repayment Charge would be levied.
The legal document which shows the ownership of land and property.
This is a variable rate where the interest rate is a set amount above or below the Bank of England or some other base rate and so always "tracks" changes in that rate.
Lenders will instruct a valuation to verify that the property is worth the amount you want to borrow. Upon receipt of a mortgage application they will usually arrange this for you (at a cost to yourself) and will not issue an offer of mortgage without one. This is the most basic type of survey and very limited in its scope, and is only likely to uncover obvious defects to the property. It is carried out by the lender for the lender although sometimes the borrower may be provided with a copy.