Getting your head around some of the technical mortgage terms can leave you in knots. This glossary of terms aims to help you understand some of the mortgage terminology used. Please note they are intended as a general guide, and not definitive advice. For expert help, call this free phone number to speak to an L&C Mortgage adviser: 0800 694 2444. (Mon–Thur 9am–8pm, Fri 9am–5.30pm, Sat 9–5.00pm, Sun 10am–4pm)

Please select: A   B   C   D   E   F   G   H   I   J   K   L   M   N   O   P   Q   R   S   T   U   V   W   X   Y   Z  

A

Annual Percentage Rate (APR)

APR can be used to compare different credit and loan offers. The APR includes important factors such as: the interest rate to be paid; how the loan is repaid; the length of the loan agreement (or term); frequency, timing and amount of instalment payments; and certain fees associated with the loan. Lenders must disclose what their APR is before an agreement is signed. The APR varies across lenders. Generally, the lower the APR the better, which is why it’s wise to shop around.

B

Base Rate

The Bank of England Base Rate, set by its Monetary Policy Committee every month, determines lending rates in the UK. Directly or indirectly, all mortgage rates are linked to the present or past Base Rate.

Buy–to–let mortgage

A buy–to–let mortgage is intended to finance a property to be rented out. When applying for one, lenders may look at the property’s value, the rent it could attract and the size of the borrower’s income and credit history.

C

Capital–and–Interest Mortgage

Another term for a repayment mortgage.

Capped Rate Mortgage

Capped or cap and collar is a type of mortgage product. With a capped rate a variable interest rate can be paid, but there’s a ceiling so payments won’t go above a certain amount for a set period. Some deals include a collar too – which can be the lowest rate on offer.

Cashback Mortgage

A Cashback Mortgage may come with an interest–rate deal. The lender pays a sum (for example a percentage of the amount borrowed) shortly after a loan is taken up. Moving to another lender in the early years may mean repaying some or all of the cashback received.

Critical Illness Insurance

A policy that pays a lump sum in the event of the policyholder being diagnosed as having one of a list of life threatening and/or disabling illnesses.

Current Account Mortgage (CAM)

Current Account Mortgages can provide more control, for the more financially aware customer, to vary monthly payments. They can be used with repayment or interest only mortgages. For example less can be paid one month and more the next, lump sum repayments can be made (which can sometimes be drawn back), payment holidays can be made or the mortgage can be paid early

D

Discounted Rate Mortgage

Under a Discounted Rate, a lower interest rate can be paid from the outset before moving to another rate (usually the lender’s standard variable rate) after a certain timescale.

E

Early Repayment Charge

An Early Repayment Charge (ERC) is a charge incurred by a borrower who repays all or part of their mortgage during the period when the interest rate is fixed or discounted.

Endowment

A mortgage endowment is an investment taken out to cover the repayment of an interest–only mortgage when the term comes to an end. Monthly payments only cover the interest on the loan and do not pay off any of the capital. At the end of the term, the capital can be paid off using the money from the endowment policy.

Equity

Equity is the value of property in excess of charges on it. If a house is worth £150K and the mortgage is £90K and there are no other secured loans, the equity is £60K.

F

Fixed Rate Mortgage

A Fixed Rate Mortgage is a mortgage product. A fixed rate of interest is paid for a set period so it is known exactly what is being paid each month during that time. When the fixed period ends, the procedure is to usually move to the lender’s standard variable rate.

Flexible Mortgage

Usually intended for the more financially aware customer wanting more financial control, a Flexible Mortgage gives you some scope to change your monthly payments to suit your ability to pay.

H

Higher Lending Charge

This is a one–off premium that mortgage borrowers may be charged. It can protect the lender if the mortgage cannot be repaid and depends on how much is borrowed and how much deposit is put down. The premium can be high, and usually be added to the mortgage if it doesn’t exceed the lender’s maximum loan for the property value, but this can increase interest charges.

I

Income Multiples

The factors by which mortgage lenders will multiply the gross annual income of applicants to determine their maximum borrowing capability. Multiples vary among lenders.

Individual Savings Account (ISA)

ISAs can provide a way of repaying a mortgage. Their future value will depend upon investment growth, and investments can fluctuate. ISAs enjoy tax breaks with no capital gains tax on growth, reduced tax on dividend income and no tax levied upon withdrawals.

Interest Calculation

The frequency with which mortgage lenders calculate the outstanding balance on mortgages – annually, monthly or daily – is an important consideration on a repayment mortgage. Mortgage costs may also depend on other factors such as the mortgage term, life insurance and income protection insurance.

Interest–only Mortgage

Under interest only mortgages, monthly repayments can be made for an agreed period but this will only cover the interest on the loan. There is the option to pay into another savings or investment plan that may hopefully pay off the loan at the end of the term.

L

Letting Property

Lenders have different mortgage schemes for residential and let properties. Landlords letting property should let their lenders know or they could contravene their mortgage terms.

Life Assurance

A Life Assurance policy can be taken out with term insurance or a mortgage protection policy. The monthly payments can be relatively low and the insurance can pay off what the borrower owes if they die before they have finished repaying the loan.

Loan to Value (LTV)

A percentage figure indicating the size of the mortgage on a property in relation to its value. A house worth £120K with a mortgage of £60K would have a loan to value of 50%.

O

Other Charges

1. Buildings and Contents Insurance

   Insuring a home is important. All mortgage lenders insist adequate buildings insurance is in place, in order to safeguard the money they are lending. Lenders should not insist on borrowers taking their own block insurance. They may reserve the right to charge an administration fee for checking the policy is adequate if it is arranged elsewhere.

2. Legal Fees

   Unless the scheme specifically states the product carries free basic legal work, extra costs can be incurred relating to the mortgage application. The solicitors acting would normally be working on the borrower’s and lender’s behalf. If the recommendation carries free basic legal work, please note this may only cover the very basic work.

3. Release Fee (sealing fee)

   An administrative charge imposed by some mortgage lenders for releasing the title deeds of a property when a mortgage is repaid in full. It may vary considerably from lender to lender.

P

Payment Protection Insurance

Payment Protection Insurance (PPI) can cover mortgage repayments if an individual no longer receives a salary due to accident, sickness, unemployment or death, for a fixed period of time. PPI can pay out out a sum of money to help cover monthly repayments on mortgages if a claim is made.

Permanent Health Insurance (PHI)

A form of cover that pays the policyholder an income for a specified time (usually after a preliminary deferment period) in the event of prolonged illness resulting in loss of earnings.

Portability

A portable mortgage is one that can be transferred from one property to another.

R

Redundancy

If the borrower becomes redundant there are a number of options it can choose to help them keep up with their mortgage payments. There are government mortgage rescue and support schemes available and there is the opportunity to safeguard against payment problems by taking out Mortgage Protection Insurance.

Repayment Mortgage

Also referred to as a capital–and–interest mortgage. Part of each monthly payment made goes towards repaying the capital amount you owe and part goes towards paying interest charged on the loan. At the end of the term the debt will be repaid.

S

Standard Variable Rate (SVR)

Mortgage lenders’ SVRs fluctuate at their discretion as economic conditions change. When the initial rate–control period on a mortgage finishes the SVR will be the payable rate.

Stamp Duty

This is a land tax payable when purchasing a property or land in the UK. The amount payable depends upon the purchase price.

T

Tracker Mortgage

These are mortgages with a variable rate. Tracker mortgages may fluctuate in accordance with prevailing economic conditions.

V

Valuations and Surveys

When a new mortgage on a property (whether house purchasing or a remortgage) is taken out, the mortgage lender needs to value it in order to ensure that it offers sufficient security. There are three levels of valuation/survey:

1. Basic Valuation
   Is carried out on behalf of the mortgage lender even though the borrower may have to pay for it. Most lenders charge valuation fees on a scale depending on the value of properties. The report is basic, and usually all lenders disclaim any responsibility for the condition of the property.
2. Homebuyers’ Report
   A more detailed report to a set format on the readily accessible parts of the property. It may offer some limited recourse should the surveyor, who is acting on the borrower’s behalf, be negligent.
3. Full Structural Survey
   The most thorough report. If the property is defective, the surveyor should discover this. If major defects are not discovered then the surveyor would have some legal liability, and redress could be claimed. With any level of survey, if there are potential or actual defects found the surveyor may suggest specialist reports are required.

Your home or property may be repossessed if you do not keep up repayments on your mortgage

The mortgage comparison and advice service is provided by London & Country Mortgages Limited (L&C) which is authorised and regulated by the Financial Services Authority. Registered in England and Wales No. 01988608. Registered Address: Beazer House, Lower Bristol Road, Bath, BA2 3BA. L&C is a whole of market mortgage broker. Mortgages available to over 18’s only. Calls may be recorded. Service Provider Page.