An explanation of mortgage terms
Click on one of the links above to take a shortcut the definition for the
chosen letter. If you think that we have missed off any definitions that
you think would be useful please email us - info@msquaredmortgages.com
A (click on the word to view the definition)
Advance
The mortgage loan. We arrange this for you free of broker fees.
APR
Annual Percentage Rate. This takes into account up-front and ongoing costs associated with taking out a mortgage.
Arrangement Fee
This is normally charged by the lenders for arranging a fixed, capped or cash-back mortgage.
ASU
Accident, Sickness and Unemployment (also referred to as MPPI - Mortgage Payment Protection Insurance). This is an insurance policy designed to provide a regular income to pay the mortgage, should the borrower become unemployed or be unable to work due to an accident or sickness.
B (click on the word to view the definition)
Bankrupt
An individual debtor (person, company or corporation) whose assets are administered by a court appointed trustee for the purpose of redistribution to the debtor's creditors.
Bank of England Base Rate
If this is altered in an attempt to control the overall economy, then the lenders will normally follow its movement and alter their own Standard Variable Rate.
Beneficiary
A person entitled to benefit, for instance under the terms of a trust or a will.
Booking Fee
A charge levied for the arrangement of a mortgage, which usually guarantees funds or guarantees a rate for fixed or capped rate mortgages.
Borrow Back
Borrowing back is only available to flexible mortgage holders. It allows you to borrow back overpayments you have made if at any point you need extra cash so if you want to buy something costly, or you run into unforeseen expense, the money is at hand.
Breach
A violation of any legal obligation, for instance breach of warranty or breach of trust.
Bridging Finance
A temporary loan which enables you to complete the purchase of a new home if you have to do this before completing the sale of your existing property.
Broker
An agent who brings parties together, who may also assist in the negotiation of contracts between them. Can provide advice on the most suitable products.
Broker Fee
A fee charged by a broker for locating the most appropriate mortgage.
Buildings Insurance
What you must have to protect your property against hazards such as fire, flood and subsidence.
Building Society
A mutual society whose purpose or principal purpose is to provide mortgages and savings accounts.
Buy to Let
A particular type of mortgage designed for borrowers who intend to let the purchased property as an investment.
C (click on the word to view the definition)
Capped Rate
An interest rate that is set for a period of months or years, and is applied only if the standard variable rate exceeds it.
CAT Standard mortgages
The Government has laid down CAT standards - fair Charges, easy Access and decent Terms - to help people identify mortgages which meet minimum standards. If a mortgage is described as meeting the CAT standards it doesn't mean that it is 'Government approved' or necessarily right for you.
Cash-back
A lump sum of money given by the lender when you take out their mortgage. It varies depending on the individual scheme, can be quoted as a set figure or as a percentage of the overall mortgage, and can, in some cases, be used to fund the deposit.
CCJ
County Court Judgement. A decision made in the County Court, usually for the non-payment of a debt and is registered on your credit file. Once the debt is paid ("satisfied"), and a satisfaction certificate obtained, it is also noted on your credit file.
Collateral
An asset, such as a car or a home, which is used to guarantee the repayment of a loan. Should the borrower fail to repay the loan under the terms of the original contract, the asset may be seized by the lender.
Commitments
Charges, such as car loan payments, family maintenance and mortgage payments, which a person has contracted to pay.
Compound Interest
An interest payment on both capital and on previously accrued interest. For example, £100 borrowed for 5 years at 5% p.a. would become £105 after 1 year, £110.25 after 2 years and £115.76 after 3 years, and so on.
Conclusion of Missives
The Scottish equivalent of exchanging contracts.
Completion
The day you become the new owner and can move in or transfer your deeds to a new mortgage provider.
Contracts
The legal documents under which the buyer and seller of the property agree the terms.
Contents Insurance
Protection for items in your home, including furniture and personal possessions - in case they're stolen, lost or damaged.lo
Convenant
A clause in a mortgage contract or in a contract for the sale of a property that obligates or otherwise restricts one of the parties (buyer/lender or buyer/seller). The contract should detail any penalties, including repossession, which will be incurred if the covenant is broken.
Conveyancing
The process of transferring ownership of the property.
Credit History
A history of an individual's open and fully repaid debts. Checking a credit history helps a lender to assess the likelihood that a prospective borrower will maintain their mortgage repayments.
Credit Search
This is a search your lender will carry out to determine whether you have any CCJ's, defaults or outstanding credit card bills.
Credit Scoring
A process used by some, but not all, lenders to determine whether you are a good risk to offer a mortgage too.
Critical Illness Policy
An insurance policy taken out by a borrower designed to pay them a lump sum of money, at least equal to the mortgage amount, should they be unfortunate enough to be diagnosed as suffering from any one of a number of certain medical conditions after the mortgage is in place. Unlike life assurance, it pays out on survival of the illness. It means the mortgage can be cleared so that there is no fear of repossession.
Current Account Mortgage
This is still a fairly new type of mortgage but it is becoming more common. Essentially, you have a mortgage account and a current account. Any positive balance in the current account is deducted from the mortgage balance, thus reducing the amount you owe. This is called offsetting and will reduce the interest charged on your mortgage.
D (click on the word to view the definition)
Debt Consolidation
A procedure by which a number of loans, each with individual interest rates, are collected together in a single debt.
Deed
The legal document that sets out your ownership or title to a property.
Deeds Release Fee
A fee charged by a lender, usually at the end of a mortgage term, to cover the administration involved in returning the deeds (property ownership documents) to your solicitor.
Default
The failure to keep up with mortgage repayments on a regular or adequate level.
Deposit
The amount of money you put towards the purchase of the property.
Disbursements
The solicitor's expenses, which you have to pay on top of the fee, for such things as land registry, searches, faxes, etc. Some lenders will cover this cost for you.
Discount Rate
A percentage off the lender's Standard Variable Rate or on the lenders tracker rate and set for a specific amount of time, i.e. 1% off for three years.
Draw Down Facility
The facility by which borrowers may increase the level of their debt up to specified limits and at specified times.
E (click on the word to view the definition)
Early Repayment Charge (previously known as 'Early Redemption Penalty')
A financial penalty for repaying part or all of the mortgage before an agreed date. It is often applied to mortgage schemes that are either fixed, capped or cash-back types. Quite simply, the lender agrees to offer what it believes is an exceptional package of benefits, providing the borrower agrees to keep the mortgage with them for an agreed length of time. Some lenders, and some scheme types, have no early redemption penalties at all. These are definitely worth looking into.
Endowment
A savings plan with built-in life assurance that can be used as the repayment vehicle on an "interest-only" mortgage. Some policy holders have received notification that their policy may not mature with sufficient value, and as a result either switch to a repayment mortgage, or part endowment and part repayment
Equity
The difference between the amount you owe on your mortgage and the current value of your property.
Equity Release
A mortgage taken out on a home that is already fully owned, typically in order to make use of the capital tied up in it.
Estate
A legal term referring to the sum total of all the property and personal assets owned by an individual at the time of their death.
Exchange of Contracts
This is the point at which the respective solicitors swap contracts agreeing the price, fixtures and fittings, and completion date for the move. Everything is now legally binding. The buyer is now responsible for the new properties buildings insurance and, if either the buyer or seller withdraw, compensation will have to be paid.
Extended Tie-Ins
This is where the early redemption penalties apply even after the scheme date has finished. It means, in effect, that the lender, in exchange for what it believes is an exceptional scheme, requires the borrower to keep the mortgage with them after the scheme has ended, for a set period of time, i.e. "fixed rate for two years with an early redemption period of five years." Extended tie-ins are to be avoided if at all possible.
Expatriate
A person working in a country that is neither their country of birth nor nationality.
F (click on the word to view the definition)
Fee Free/Low Fee Mortgages
Mortgages whereby the provider charges little or no fee for the mortgage product.
This may include free valuations, free legal work and no arrangement fees charged.
These mortgages are not always the best way to proceed due to higher rates of interest generally charged by the provider to compensate for the lack of fees.
Financial Services Authority (FSA)
The UK regulatory body for Finance
Feuhold
A term used in Scotland to refer to the ownership of both a property and the land on which it is built. The closest equivalent in England and Wales is Freehold.
First Charge
Most mortgage lenders who lend money to enable someone to buy their home would require a first charge. This means the lender has first call on any funds available from the sale of the property to clear the outstanding mortgage debt.
First Time Buyer
A purchaser who is buying a property for the first time. Typically a lender will offer more attractive deals for first time buyers. Also known as First Time Purchaser (FTP).
Fixed Rate
The interest rate is set for an agreed period of time.
Flexible Mortgages
A relatively new breed of mortgage types that will allow flexibility of repayments. Typically, a borrower will be allowed to overpay, underpay, take payment holidays, and in some cases link their current, savings and deposit accounts to the mortgage account, so that the positive balances offset the negative balances. Some lenders will also include daily interest calculations so that any overpayments have an immediate effect on the interest charged.
Freehold
A form of legal title to land which means you are the absolute owner of the property and the land it's on.
Further Advance
When you borrow extra funds against the value of your home. The loan is added to your main mortgage and your payments recalculated.
G (click on the word to view the definition)
Guarantor
Someone who guarantees to repay your mortgage if you can't borrow enough to buy the home you want. Parents, for instance, may act as guarantors for their children when they buy their first home.
Gazumping
This is where the seller accepts an offer and agrees the sale only to accept a bigger offer before exchange of contracts has taken place.
H (click on the word to view the definition)
Higher Lending Charge (previously known as Mortgage Indemnity Guarantee)
This insurance covers the lender if your property gets repossessed and the lender does not get all its money back. It protects the lender, not you. You would still be responsible for reimbursing the insurance company if they have to pay out to the lender. It is usually you who has to pay the one-off premium as part of the lender's conditions, but most lenders allow it to be added to the overall mortgage debt, and is collected when the mortgage is redeemed in the future. Recently the threshold for triggering a MIG premium has been raised from 75% LTV to 90% LTV. This means that anyone with at least a 10% deposit will probably escape it.
Homebuyer's Report
A Homebuyers Report, or a homebuyer's survey, is a surveyor's assessment of the state of repair and condition of the property. It includes all parts that are readily accessible, including the roof space, if possible, but excludes under floor areas. The concise report will summarise the findings and make recommendations for further investigations or remedial work if required. Because the surveyor is in direct contact with you, you can discuss any issues or concerns directly.
I (click on the word to view the definition)
Income Multipliers
Determines, in most cases but not always, how much you can borrow. The industry average is three times the gross salary of the first applicant plus one times the second, or two-and-a-half times the joint salaries, if this produces more.
Income Reference
The lenders will usually write for an income statement from your employer.
Interest Only Mortgage
You only pay interest to your lender throughout the mortgage term and your mortgage balance doesn't reduce. At the same time, you put money into a separate investment which should grow and pay off the mortgage as scheduled. You must make sure you keep premiums up to date on any mortgage investment products.
Intermediary
A company which matches borrowers with lenders, as well as undertaking a certain amount of application processing. Typically an intermediary will receive a fee directly from the lender for these services.
ISA
A savings plan designed to grow tax-free and can be used to repay an "interest only" mortgage.
J (click on the word to view the definition)
Currently no descriptions added for J
K (click on the word to view the definition)
Currently no descriptions added for K
L (click on the word to view the definition)
Land Registration
The process of registering your title to an area of land with the Land Registry, typically handled by a solicitor.
Leasehold
This is where you own the property for a number of years and then it reverts to the freeholder.
Legal Charge
A document held by the Land Registry detailing who had first claim on your property. Typically the owner will have first claim.
Level Term Assurance
A life insurance policy that pays out a lump sum should the borrower die during the term of a mortgage. Level term refers to the fact that this sum will remain constant throughout the term of the mortgage.
LIBOR Linked Mortgage
The interest rate at which banks in London buy and sell money from each other. A tracker mortgage that tracks LIBOR
Licenced Conveyancer
An alternative to using a solicitor. They specialise in property ownership transfer.
Life Assurance
An insurance policy taken out by most borrowers to, at least, repay the outstanding mortgage debt should they die. It means their dependants/relatives/partner/ spouse can now inherit the property with no mortgage on it.
LTV
Loan To Value. This refers to the size of the mortgage in relation to the value of the property. For instance a mortgage of £75,000 on a property of £100,000 value is said to be 75% LTV.
M (click on the word to view the definition)
Main Residence
The property in which a person resides for the majority of the time. Also known as the 'principal private residence', it can often be important for tax purposes.
Mortgage
A legal document that pledges a property to the lender as security on a loan.
Mortgage Code Arbitration Scheme
A scheme, administered under the Mortgage Code, that allows disputes between borrowers - or prospective borrowers - and lenders to be resolved without court action.
Mortgage Deed
A legal document establishing a mortgage on a property.
Mortgage Offer
A document issued by a lender confirming how much they will lend including the terms and conditions for the mortgage.
N (click on the word to view the definition)
Negative Equity
Where the property has a value which is lower than all the loans secured against it.
Net Profit
Relating to a self-employed person, net profit is income after running expenses and taxes have been deducted.
Non Status
A mortgage arranged under Non Status terms means that the lender is relaxing the requirement for proof of income, or is accepting adverse financial circumstances i.e. CCJ's. This usually translates into higher applied interest rates.
O (click on the word to view the definition)
Offset Mortgages
This mortgage product rewards generally higher rate taxpayers, enabling them to reduce the amount paid in interest on their mortgage by foregoing the interest they would earn on savings.
Offset mortgages allow the mortgage lender to take into consideration your savings when calculating how much you owe each month.
As a rule of thumb, it would be advisable that at least 20% of your mortgage
balance was held in savings for this to be an effective mortgage.
Ombudsman
The independent body that has responsibility for investigating complaints about member institutions. In relation to mortgages, this will either be the Banking Ombudsman, the Building Societies Ombudsman or the Financial Ombudsman Service.
Overpayments
When you're allowed to pay more than your normal monthly payment, so you can pay off your mortgage earlier if you want and save on interest charges.
P (click on the word to view the definition)
Payment Holiday
You can stop making mortgage payments altogether for a limited period agreed with the lender.
Payment Method
The method by which an interest-only mortgage is to be repaid at the end of its term. Typically this will be either an endowment, an ISA or some other investment product.
Part & Part Mortgages
Term used to refer to mortgages that combine different mortgage types. For instance, a combination of a part capital and interest mortgage with an ISA mortgage
Permanent Health Insurance
An insurance policy that pays a monthly income if the policyholder becomes ill and cannot work.
Portable
In relation to a mortgage, this refers to a mortgage that can be transferred between properties when the policyholder moves home.
PEP Personal Equity Plan
A savings plan designed to build up tax-free savings which can be used to repay an "interest-only" mortgage.
Personal Pension
This is a structured savings and investment plan designed to provide you with an income in retirement. Because you can take some of the plan as cash it could be used to repay an interest-only mortgage. Beware, unless you can somehow compensate for the reduced pension fund that this action will obviously result in, you will have less income in retirement.
Q (click on the word to view the definition)
Quotations
A document outlining the monthly cost of a mortgage and of any other expenses due under the mortgage
R (click on the word to view the definition)
Rate
The annual rate, expressed as a percentage, of interest on a loan.
Redemption
The name given to the full payment of a mortgage at the end of its term.
Redemption Charge
A charge levied by the lender when the borrower pays off a mortgage.
Remortgage
A new mortgage with a different lender even though you are not moving home. It can be of the same size, bigger or smaller.
Repayment Mortgage
Your monthly payments to your lender are partly to pay the interest you owe, and partly to pay back some of the outstanding mortgage debt. Also known as a capital and interest mortgage.
Reposession
The legal procedure by which a defaulting borrower is deprived of their interest in the mortgaged property, typically involving the forced sale of the property at a public auction.
Retention
The ability of a lender to hold back (retain) part of a mortgage until certain conditions are met.
Right to Buy
Many local authorities offer tenants the right to buy the public housing they occupy, usually at a discount and usually the scheme will depend on the length of the existing tenancy.
S (click on the word to view the definition)
Sealing Fee
A fee paid to your "old" lender when the mortgage account is closed.
Searches
These are checks carried out during the Conveyancing process to determine any planning proposals or other matters which might affect the future saleability of the property. Another search is carried out after exchange of contracts to check that the borrower is not bankrupt.
Second Charge
A subsequent charge to the first charge. Also known as a secured mortgage or secured personal loan. Essentially a loan that is secured on your property which ranks after the first charge mortgage.
Self Certification
This is a special arrangement whereby the lender relies on the borrower to certify their own income, and does not seek to confirm this by reference to the employer, (or the accounts, in the case of a self-employed person).
Self Build
A mortgage that is taken out on a property still under construction. Typically the lender will only pay out the loan in stages, corresponding to the completion of various stages in the construction.
Self Employed
A person who operates as a sole trader or in a partnership, such as small retailers or professionals such as accountants or dentists.
Shared Ownership
A scheme similar to shared equity, but in which the second part of the property is owned by a housing association.
Stamp Duty
Government tax you have to pay on the purchase price of a property worth £120,000 or more. Some special areas are exempt, we can check this for you.
Standard Variable Rate (SVR)
The interest rate applied to the mortgage account when no other overriding scheme is in force. It fluctuates and follows the Bank of England base rate, but staying a margin above.
Sum Assured
The sum insured is the maximum amount payable under an insurance policy. With reference to life assurance policies, this means the amount payable upon death.
For a general insurance policy it is the maximum amount that can be paid out in the event of a claim.
Survey
This is a technical report following an inspection of the property. It will give you a comprehensive account of the condition of the property, describing any structural or other defects.
Structural Survey
This is based on a detailed inspection of the property and is a comprehensive report on the general condition and state of repair. It is particularly advisable for older or unusual properties, or where you want to assess the possibility of making building alterations at a later date. The scope of the report is discussed and agreed with the surveyor before the inspection, and you can discuss any issues afterwards.
T (click on the word to view the definition)
Term
The period of years over which you take the mortgage.
Title Deeds
Documents that show proof of ownership.
Title Insurance
An insurance policy against any loss resulting from defects of title to a specifically described parcel of property
Tracker Mortgage
This where a lender offers a mortgage at an interest rate that is tied into, but a percentage above, the Bank of England base rate, as opposed to a percentage below their own individual standard variable rate. This means the change in interest rate is immediate if the Bank of England alters its rate. With a discount rate, some lenders have been criticised for delaying or not passing on any drop in the interest rate, but applying any increase immediately.
Transfer Deed
The document that transfers the ownership.
U (click on the word to view the definition)
Underpayments
You can under pay up to any previous over payments. You can pay less than your normal monthly mortgage payments for a limited period, but you have to build up a fund of overpayments first.
Unencumbered
A property that has no loans or borrowings secured on it.
V (click on the word to view the definition)
Valuation Report
Lenders require a standard valuation to be undertaken on the property before issuing the mortgage offer. This is to protect the lenders interest, not the borrowers. If the lenders valuation report reveals further reports or work to be undertaken, any further costs will be payable by the borrower, should the borrower choose to proceed. The lender will compare the valuation figure with the agreed buying price, and use whichever is lower when deciding on how much to lend.
Value
The price of a property under normal conditions, i.e. when the buyer is not forced to buy and the seller not forced to sell.
Variable Rate
A mortgage in which the rate of interest charged is altered at the discretion of the lender, typically but not necessarily in relation to changes in the Bank of England base rate.
Vendor
The seller.
W (click on the word to view the definition)
Currently no descriptions added for W
X (click on the word to view the definition)
Currently no descriptions added for X
Y (click on the word to view the definition)
Currently no descriptions added for Y
Z (click on the word to view the definition)
Currently no descriptions added for Z
