Glossary of common terms used during the mortgage process.
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Glossary of Common Mortgage Terms in the UK
Navigating the mortgage process involves understanding a variety of terms. This glossary will help you become familiar with 34 key terms used during the mortgage process.
Key Terms:
APR (Annual Percentage Rate)
APR accounts for the total cost of a mortgage, including initial and ongoing fees, allowing you to compare the expenses associated with different mortgages. The calculation is government-regulated to ensure standard comparisons.
Capital and Interest Mortgage
Also known as a Repayment Mortgage, this involves paying both the interest and part of the principal each month. By the end of the term, the entire loan is paid off.
Capped Rate
In this type of mortgage, the interest rate will not exceed a specified percentage for a set period. Afterward, it typically reverts to the standard variable rate. While rates may fluctuate during the capped period, they won't surpass the cap.
Cashback
A sum received upon completing a mortgage, either fixed or percentage-based. However, it may result in a higher interest rate in the long run.
CAT Standards
These stand for Fair Charges, Easy Access, and Decent Terms, designed to offer simple financial products with clear terms. A CAT mortgage features no arrangement fees, daily interest calculations, and flexibility in repayments.
Completion
The final step in house buying, where funds are transferred, and keys are exchanged. Happy moving!
Contract
A legally binding agreement between buyer and seller. Once signed and exchanged between solicitors, the contract commits both parties to a completion date.
Conveyancing
The legal process of transferring property ownership. This can be handled personally or by a professional solicitor.
Discounted Rate
Offers a guaranteed reduction on the standard variable rate for a specified time. Be aware of any penalties that may apply after the discounted period ends.
Early Redemption Charges
Fees for paying off your mortgage early, including instances of buying outright, moving, or refinancing. Always inquire about these charges beforehand.
Endowment
Life assurance policies that aim to repay capital on interest-only mortgages. Their value can vary, and they might not meet the originally projected returns.
Equity
The difference between your property's value and the remaining mortgage balance. Negative equity occurs when this difference is less than zero.
Freehold
Ownership of both the property and the land it's on.
Higher Lending Charge (HLC)
Previously known as Mortgage Indemnity Guarantee, this fee applies to those unable to pay a 10% deposit. It covers lender risks if property value drops below the owed amount.
Homebuyer’s Report
A survey offering more detail than a basic mortgage valuation, but less than a full structural survey. It helps you and your lender assess the property's value.
Interest-Only Mortgage
You're responsible for repaying the full principal at the end, with monthly payments covering only the interest. A separate investment vehicle is recommended to accumulate the necessary repayment funds.
Independent Financial Advisor (IFA)
Advisors must be legally regulated and able to offer a complete range of financial products. They provide tailored recommendations after assessing your financial situation.
ISA (Individual Savings Account)
A tax-free way to save or invest, useful for building funds to repay interest-only mortgage principals.
Leasehold
Ownership rights for a property for a set period, reverting thereafter to the freeholder. Common in multi-occupancy buildings like apartments.
Life Insurance
Also known as Mortgage Protection Insurance, it provides a lump sum on death to cover mortgage repayment. Variants include Level Term and Decreasing Term Life Insurance.
Lock-In Period
The minimum duration you're obliged to remain with a lender, during which early repayment may incur penalties.
Loan to Value (LTV)
The ratio of your mortgage to the property's value. A 90% LTV means a £157,500 loan on a £175,000 property. Be mindful of potential premiums on high LTV mortgages.
Mortgage
A long-term loan for property purchase, with the property as security. Failure to adhere to repayment terms can lead to repossession by the lender.
Mortgage Advisor
Since 2004, mortgage advisors must be registered with the Financial Services Authority, ensuring they comply with professional conduct and offer consumer protections.
Negative Equity
Occurs when a home's value is less than the mortgage balance plus any secured loans. Often linked to dropping property values.
Portable
Refers to the ease of transferring a mortgage to a new property, crucial for avoiding penalties during a lock-in period.
Repayment Mortgage
Another term for a Capital and Interest Mortgage.
Searches
Investigations during conveyancing to identify any issues affecting property ownership rights, such as proposed constructions or legal restrictions.
Self-Certification
Useful when income documentation is unavailable. You self-certify your income, possibly resulting in a higher interest rate due to the lender assuming increased risk.
Stamp Duty Land Tax
A tax on property purchases, with rates varying based on the purchase price and property location. Certain areas classified as 'disadvantaged' may offer exemptions.
Structural Survey
A comprehensive inspection of a property's condition, identifying potential issues requiring maintenance.
Variable Rate
Interest rates that fluctuate with the lender's standard rates, affecting your mortgage payments.
Valuation
Conducted by the lender to ascertain property value and secure the mortgage amount. Borrowers typically cover this cost unless specified otherwise in mortgage agreements.
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