Mortgage Jargon Explained: glossary of mortgage-related terms

When starting out on your journey to secure a mortgage it can seem like there is so much to learn – including a whole new language of mortgage jargon!

The words and acronyms used by mortgage advisors might at first seem impenetrable but fear not, here at VA Mortgages we want to demystify the whole mortgage experience for you.

Whether you are a first-time buyer just dipping your toe in the mortgage market for the first time or a long-time mortgage customer looking to remortgage, take a look through our handy glossary of mortgage terms to help make your mortgage journey clear from the very start.

Glossary of Mortgage Terms

What is APR?

APR stands for Annual Percentage Rate and means the total cost of the mortgage borrowing in a year, including interest and fees. APR can be used to compare the cost of different mortgage deals.

When looking online for mortgage deals they will often be listed by their ‘representative APR’. This is a generalised rate for comparison. When you actually apply for a mortgage a personal APR based on your circumstances will be produced which should give you a more accurate idea of the cost of the mortgage.

What is an Arrangement Fee?

Arrangement fees are the fees you pay to a mortgage lender to cover the administrative cost of setting up the mortgage. You can either pay them up front or add them to your loan. If you add arrangement fees onto your loan then you will pay interest on it for the whole mortgage term.

Not all mortgage products come with an arrangement fee, some are free to set up but others may charge as much as £2,000 as an arrangement fee.

What is an Automated Valuation Model?

An Automated Valuation Model (or AVM) is used by some lenders to provide a quick, automated valuation of your property based on recent house sales in your area and property trends. An AVM usually means that the lender will not need to send a surveyor to conduct a valuation of your property.

What is the Bank of England Base Rate?

The Bank of England base rate, also known as the bank base rate, is the interest rate set by the Bank of England. Most lender’s Standard Variable Rate (SVR) are higher than the Bank of England’s rate but they usually track in relation to it.

What is a Capped Rate?

A capped rate is a mortgage rate which cannot go higher than a set level, usually for the first couple of years of the mortgage deal.

What is Cashback?

Cashback is the money paid in cash from a mortgage lender to a customer (usually at the start of the deal) as an inducement to sign up for a specified mortgage product.

What is Completion?

Completion is the last stage of the house buying process and occurs when the final payment of the property’s agreed sale price (minus the deposit already paid) reaches the bank account of the house seller.

What is Conveyancing?

Conveyancing is carried out on the house buyer’s behalf by their solicitor or conveyancer. It is the process by which it is confirmed that the property in question is actually owned by the person selling it and that it has no outstanding loans attached to it. Conveyancers also run searches to establish the boundaries of the property and identify any local planning applications which could affect the value of the property.

What is a Decision in Principle?

An Agreement in Principle or Decision in Principle (DIP) is when a lender agrees that ‘in principle’ they will lend you a certain amount. A Decision in Principle is a useful document to have when house hunting because it shows the seller that you will be likely to be able to obtain a mortgage should you want to make an offer on their property.

What is a Discounted Rate?

A discounted rate is a special mortgage rate offered by a lender for the first few years of the mortgage deal.

What is an Early Repayment Charge?

An Early Repayment Charge (ERC) is a penalty fee you might be charged if you wish to leave the mortgage during the agreed period of the deal.

What is Exchange of Contracts?

Exchange of contracts is the part of the house buying process where you exchange contracts with the seller of the house. Once this has taken place the buyer is committed to buying the property and the seller is committed to sell it at the agreed price.

For the buyer it is a sensible idea to start their building insurance policy from the date of exchange because from this point onwards were the house to become damaged in any way, they would still be obliged to buy it.

What is a Fixed-Rate Mortgage?

A fixed-rate mortgage is a deal for which the interest rate is fixed at a set rate for an agreed period of time (usually ranging from two to ten years).

What is LTV?

LTV stands for Loan-to-Value and is a ratio which reveals how much you are borrowing in relation to the value of the property. For example, if the house you are buying is worth £300,000 and you have a deposit of £30,000 then your deposit is 10% of the value of your house, making the LTV 90%.

Lenders generally favour a lower LTV as it represents less risk.

What is a Mortgage Holiday?

If your personal circumstances change such as job loss or illness, you might decide to apply for a mortgage payment holiday. Not all lenders offer this option but providing certain criteria are met your lender might allow you to either stop or reduce mortgage payments for an agreed period.

What is a Mortgage Illustration?

A Mortgage Illustration sometimes also known as a Key Facts Illustration is the document produced for you by your mortgage advisor or lender to show you all the most important facts about the mortgage. It is tailored to your specific circumstances and should show you:

  • Any fees or charges connected to the mortgage.
  • How much you’d expect to pay monthly for the mortgage.
  • The rate of interest and the type of interest for the mortgage.
  • The overall cost of the mortgage for the entire term.
  • If there are any overpayment or early repayment charges.

What is an Offset Mortgage?

An Offset Mortgage is when your mortgage account is linked to your savings account (and sometimes your current account too). Any credit balance is offset against any debt so that you only pay interest on the difference.

What is Porting a Mortgage?

Porting a mortgage basically means that it is portable – you can move house and take your existing mortgage deal with you. However, it is not quite as simple as it sounds, as to port a mortgage you effectively have to reapply. This means that if your circumstances have changed, such as becoming self-employed, your lender might refuse to port your mortgage. If you are thinking of moving house it is a good idea to consult a mortgage advisor to explore all your options.

What is Remortgaging?

Remortgaging is when you change your mortgage product without moving house. You might remortgage to get a better interest rate or to release some of the equity in your home.

What is Stamp Duty?

Stamp Duty Land Tax (SDLT) is the tax you need to pay in England or Northern Ireland when you buy a property. Different taxes apply in Wales and Scotland. Find out the latest Stamp Duty rates here.

What is a Standard Variable Rate?

A Standard Variable Rate (SVR) is the basic interest rate selected by a lender. Variable rate mortgages will usually follow the lender’s SVR, and once the term of a fixed-rate mortgage ends the deal usually reverts to the lender’s SVR.

Each lender’s SVR will vary and might go up or down depending on the lender’s criteria.

What is a Survey?

A survey is carried out by an expert on the home you are intending to buy. The survey (sometimes called a Homebuyers Survey) will bring up any structural issues with the building plus any repairs which might need to be made.

What is a Variable Rate Mortgage?

A variable rate mortgage is a mortgage deal which varies according to the Standard Variable Rate (SVR) or tracker rate set by the lender.

Indepent Mortgage Advice

Here at VA Mortgages we would be happy to discuss your individual circumstances and help you to find the right mortgage for you.

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