Jargon Buster

Advance: This is the mortgage loan itself.

Agreement in principle: The mortgage lenders commitment to lend you money subject to certain conditions e.g. survey/valuation report/proof of income.

APR: Annual Percentage Rate An easy way of comparing credit terms. The figure quoted to show the total cost of a loan, including the interest rate, one-off costs and ongoing costs.

Annual Interest: The lender recalculates interest due once a year, rather than recalculating the interest every time a capital payment is made. A capital payment applied to the mortgage account at the start of the year would therefore have the same effect as being paid at the end of the year. This does not mean that you can defer capital payments that are scheduled monthly to the end of the year.

Assignment/Assignations of life assurance: To ensure the mortgage is repaid at the end of its term or if you die, the mortgage lender has the right to claim under the life assurance policy for any outstanding amount.  Assignment is not very common in the current mortgage market.

Arrangement Fee: A fee charged by the lender in return for a mortgage deal. This may be payable either in advance, where the Lender will ask you to make payment with the mortgage application, on completion or added to the loan. An arrangement fee can vary from £50 to % of the amount being borrowed, and all or part of it may be non-refundable if the mortgage is declined or withdrawn.

Buildings Insurance: This must at minimum covers the cost of rebuilding/repairing the structure of the property. Lenders insist you have enough buildings insurance before they give you a mortgage.

Buildings and Contents Insurance: This is combined insurance which covers the cost of building or replacing the structure of the property and also the cost of replacing the damaged contents. This may be cheaper than taking out two separate policies.

Capital and Interest Mortgage: See Repayment Mortgage

Capital: The amount of loan on which the mortgage lender calculates interest.

Chain:  The sale of a property and purchase is called a chain; this would be a chain of 1, for every property linked the size of the chain increases. A chain of 4 is not uncommon.

Completion: When the sale and purchase of the property are finalised and you become the legal owner of the property. This is the point when interest is calculated from for the mortgage.

Contracts: Legal documents between the purchaser and the vendor, agreeing to buy and sell the property.

Credit Search: A check made by the lender using a specialist agency to find out whether you have any outstanding credit, repaid or defaulted on previous mortgages, loans, credit card bills etc, and whether you have any County Court Judgments against you.

Daily Interest: This is the fairest way to calculate interest and results in a recalculation of interest charged every time you make a capital repayment.

Deed Release Fee: A charge by the lender for administration cost to release the deeds on full redemption of a mortgage. This charge is levied whenever redemption occurs and so is not strictly a redemption penalty. Over time the lender  may vary this fee and should inform you in such an event of the new charge.

Deposit: The amount of money you put towards buying a property at the outset.

Disbursements: Fees incurred by solicitors, such as stamp duty, land registry fees and local authority searches.

Discount Term: (Also known as benefit period) The time that a discounted or benefit is the mortgage product.

Early Repayment Charge: This is a charge for repaying your mortgage during a specific period. The charge may be a fixed percentage or decline each year until it disappears. Suppose you had a fixed rate mortgage for 5 years then you could expect to pay a early repayment charge if you redeemed the mortgage within 5 years - the charge might be 5% of the mortgage balance in the first year and 1% of the mortgage balance in the 5th year.
Try to avoid mortgage schemes that have an early repayment charge that is extended past the benefit / scheme period (in the case of the 5 year fixed rate mortgage above the penalties may extend to year 6, 7 or beyond). This prevents future flexibility and could leave you on a fairly high standard variable rate for a number of years.

Endowment: A life assurance policy designed to produce a lump sum, usually at the end of your mortgage term.

Equity:The difference between the amount of mortgage on a property and the property's current value.

Exchange of Contracts: When the vendor and purchase swap identical contracts that confirm the price and the completion date, plus which fixtures and fittings will be left behind. At this point the deal becomes legally binding and if either party pulls out they may have to pay compensation.

Further Advance: An additional amount borrowed, with the mortgaged property as security.

Gazumping: This is when the vendor accepts an offer on a property and then accepts a higher offer from another purchaser.

Gazundering: This is when the vendor accepts an offer, and just before contracts are exchanged the purchaser puts in a lower offer.

Higher Lending Charge: Higher Lending Charge is not an insurance, or a premium paid for insurance, it is simply a charge made by the lender for borrowing a higher percentage loan to value. For example, if you wish to borrow £72,000 on a property where the purchase price is £80,000 you are said to be borrowing 90% of the purchase price, you may be charged a fee on the 15% of borrowing above 75%, i.e. on £12,000. Typically lenders charge 7% on this excess which would be £12,000 x 9.1% = £1092.

HM Land Registry: The official organisation that keeps records of properties in England and Wales. Transfer of ownership or interest in the property needs to be registered.

Homebuyers Report: This is when a professional surveyor checks the structural condition of a property. It is more detailed than a basic mortgage valuation but less than a structural survey. It will identify possible problem areas, which may give the purchaser a chance to negotiate a lower price.

Income Multipliers: The amount of money that lenders will offer is usually calculated by multiplying your annual income by a set figure. For two applicants the multipliers can be (3) x main income plus (1) x second income, or (2.5) x joint income.  Figures in ( ) for illustration purpose only

Income References: Confirmation from your employer that you earn the amount you stated  in your application. References are commonly applied for if additional income has been declared on the application.  Accountants may also give confirmation of income if you are self-employed

Interest-Only Mortgage: The Repayment of the mortgage is entirely dependant on the performance of the investment vehicle. There is a risk that you will not have enough capital to repay the mortgage at term end.
Payments to the investment vehicle may need to be increased

Legal Costs : The fees charged by a solicitor including the charge for conveyancing (the transfer of ownership of land), the costs of legal registrations and miscellaneous costs (known as disbursements). For example, local search fees and Land Registry fees. Solicitor's fees vary; look for no sale no fee, fixed fee. This will allow you to budget.

Loan to Value: ( Also referred to as LTV).The size of the mortgage as a percentage of the value of the property. The interest rate payable may depend on the loan to value, lower the percentage lower the risk to the lender.

Mortgage: A loan to buy a property where the capital lent is secured against the property purchased .

Mortgage Valuation: A simple check of the property in order to find out how much it is worth and whether it is suitable to secure a loan on.

Mortgagee: The Company who lends the money.

Mortgagor: The person taking out the mortgage.

Negative Equity: This is where the money you owe on your mortgage is greater than the value of the property.

Percentage Advance: ( Also known as loan to value) Size of the mortgage worked out as a percentage of the price you are paying for the property, or valuation.

Remittance Fee: A charge made by the lender for sending the mortgage funds to your solicitor when the purchase is just about to complete.

Remortgage:. The term used when you change your mortgage provider,  but don’t actually move.

Repayment Mortgage: (Also known as a capital and interest mortgage). Your monthly payment has an element that goes partly towards paying the outstanding mortgage sum, and partly towards paying the interest on the sum

Sealing Fee: A charge made by lenders to seal and release the mortgage deed when you repay the mortgage.

Searches: Checks carried out during conveyancing, using Local Authorities and other local organisations. These searches check for planning proposals or other matters that could affect the value of the property.

Self-Certified: This means the lender does not need employment or income references from you. This type of mortgage is usually offered to self-employed people, commission based employees or people with income from more than one source.

Stamp Duty: A 1% tax you pay on properties which cost between £120,001 and £250,000. For properties between £250,001 and £500,000 the tax rises to 3%. Over £500,001 and the tax is 4%.  Not payable on remortgages unless a  transfer of equity over the threshold has occurred.

Structural Survey: This is the most in depth property check. Carried out by a professional surveyor, it should detect most hidden faults, and provides the greatest protection for the potential buyer.

SVR: Standard Variable Rate.

Term: The period of the mortgage expressed in years, usually between 20-35, over which the mortgage repayments are spread.

Tie-in Period: As a condition of a special mortgage offer (fixed/capped/ cashback etc) you may have to agree to stay with the lender at their standard variable rate for a further period. If you move elsewhere during this time, you may be liable for an early redemption charge.

Valuation: A professional appraisal of a property's value.

Vendor: The person selling the property.