Mortgage Glossary

Advance
The amount of money that we the lender may lend you.

APR
APR stands for Annualised Percentage Rate. A lender is always required to quote the APR rate when advertising a loan / borrowing rate. The lender will usually also quote the headline rate, and the APR next to it. The headline rate states the rate of interest you pay per month or per year on the mortgage, but the APR calculates the total amount of interest that will be paid over the whole term of the loan. It should also take into account any charges which the borrower has to pay during the loan period. The APR is therefore always higher than the headline rate, and is a realistic representation of the cost of the mortgage over time.

Base Rate
The UK's core interest rate, set by the Bank of England. The lender’s Standard Variable Rate (SVR) is higher than the Base Rate, but is often adjusted by reference to it.

Bonding Scheme
An agreement by members of a profession or trade to establish a central compensation fund which consumers can draw on in cases of fraud or insolvency.

Buildings Insurance
Insurance cover which protects the holder against damage to the property itself (although it can be linked with contents insurance in a combined policy). The amount insured may vary from the purchase price/valuation of the property depending on the type of location of the property. The valuer will usually provide a rebuild cost for insurance purposes.

Buy To Let
The practice of buying a house or flat for investment purposes. Income is provided by the tenants' rent, and capital growth (if any) by the property's increasing resale value.

Capital
This is the amount of money that you borrow.

Capital and Interest
In the context of mortgages, a capital and interest mortgage is also known as a repayment mortgage. It involves paying all of the interest plus repayment of a little of the capital each month; an interest only mortgage involves only paying off the interest.

Capped Rate Mortgage
A mortgage which allows your interest rate to climb no higher than a specified level, usually for a specific number of years of the loan.

Cashback
A mortgage that provides a borrower with an immediate lump sum payout on top of the sum borrowed to buy the property. This has to be paid for one way or the other, so cashback mortgages will typically be at a higher rate than other mortgages and will usually have early repayment charges for several years.

CAT Standard Mortgage
CAT standard mortgages are straight forward, clear, fair and easy to understand. They have minimum standards and mortgages which qualify as CAT standard may offer borrowers better terms.
Interest rate can be no more than 2% above Bank of England base rate, max booking fee of 150, max Early Repayment Charges of 1%, clear advertising and no compulsary insurances.

Completion
The final stage of the house-buying process, which comes after exchange of contracts. The sale must proceed after Exchange, but Completion occurs when the property's agreed sale price (less any deposit already paid) safely reaches the seller's bank account.

Compulsory
This is shorthand for compulsory insurances. Some lenders, at least for certain mortgages, insist that you take out their buildings insurance which needn’t necessarily be the most cost effective on the market. Our Mortgage Advisors will assist you to select out these products if you wish to (although sometimes of course, the mortgages can be so good that it outweighs the potential disadvantage of taking the compulsory insurance).

Contents Insurance
Insurance cover which protects the personal belongings your home contains. In the case of rented accommodation, the landlord is responsible for insuring those contents which he owns, but not those owned by his tenants.

Conveyancing
Normally carried out by a solicitor or licensed conveyancer on the buyer's behalf, conveyancing includes proving the property is really owned by its seller, making sure that all the loans secured on it are discharged, establishing its legal boundaries and searching local planning information for upcoming developments which could affect the property's value.

Council Tax
A local authority charge which replaced the Community Charge in 1993/94. Generally speaking, the more valuable your property is, the higher your Council Tax bill will be, although the amount for an identical property can vary considerably between different local authorities. In rented or buy to let accommodation, the tenants are usually responsible for the Council tax.

County Court Judgment CCJ
If a County Court rules against you for defaulting on a debt, that ruling is listed on your credit record. Having such a judgment listed against you may mean you are turned down for future loans, or be expected to pay a higher rate than other customers. The Scottish equivalent of an English CCJ is a Decree.

Cover
In the context of insurance, cover describes the specific risk a given policy protects you against. Life cover protects your family against the financial consequences of your death. Buildings cover against damage to your property, and so on.

Credit Reference Agency
When assessing your application, a mortgage lender will study your credit records. These records are held centrally by credit reference agencies, and contain information from many different aspects of your life.

Credit Scoring
Statistical techniques are used in Credit Scoring in order to measure the likelihood that an application for a loan will be a good credit risk. Lenders will use this system when making decisions about your application.

Current Account
A bank account linked to a cheque book and/or debit card. In exchange for instant access and the ability use cheque or debit facilities, most pay little or no interest on the balance they contain.

Daily Interest
The interest on your mortgage is calculated on a daily basis so that as soon as you make a capital payment, your interest will be reduced.

Deeds
This term has been replaced by Legal Charge Document.

Please see Legal Charge Document for the definition.

Deposit
In the context of mortgages, the deposit is the initial lump sum payment which the buyer must contribute to the property's total purchase price.

Deposit Savings
A method of saving which pays regular, usually variable interest based on the amount invested.

Disbursements
These are the fees your solicitor will pay on your behalf (these fees are passed onto you) during the instruction of buying or selling your property – they include: HM Land Registry fees, stamp duty and search fees.

Discount
A mortgage which has an interest rate below the lender's standard variable rate (SVR), Bank Base Rate or Libor rate, typically for the first few months or years of the loan. The rate payable may move up and down, but the discount on SVR remains constant.

Early Repayment Charges
Fixed-rate, capped-rate, cash-back, discount rate and other incentive mortgages commonly carry early repayment charges that can in some cases persist long after the initial special rate itself has expired. This can make it prohibitively expensive to move to a rival lender in the first few years of the loan. Our advisors will issue you with a Key Facts Illustration, which will clearly define such charges is section 10.

Employment Status
A term used by lenders to describe potential borrowers' working arrangements. Self-employed applicants are sometimes seen as a greater risk than employees are. But many specialist lenders and mortgages have emerged in recent years designed specially for different types of employment status, and the Homebank Financial Services online website has a wide variety of these in its database.

Endowment Mortgage
A mortgage funded by an insurance-based savings plan, which may give you a bonus payment or additional returns by the end of the loan's term if it performs well.

Exchange of Contracts
The terms of a property's purchase become legally binding for both parties when contracts are exchanged. The buyer is then committed to buying, and the seller to selling. As a buyer, you should normally ensure that you are covered by building insurance from this date, because even if the property were damaged badly, you would still have to buy it, at the contracted price agreed.

Execution-only
A service which offers no advice, but merely carries out the customer's instructions.

Financial Services Authority
Homebank Financial Services Limited is authorized and regulated by the Financial Services Authority. The firm provides financial advice on regulated and non-regulated products.

Fixed Rate
A mortgage which fixes your interest rate at a specified level, typically for the first few years of the loan.

Flexible Mortgages
A mortgage which allows borrowers to make overpayments when they have spare cash. Other features could include the option to reduce or miss payments altogether when times are tight, and to re-borrow any overpayments. Not all flexible mortgages offer all of these features. Often useful for self-employed people whose income varies from one month to the next. The most flexible form of mortgage is a Current Account Mortgage (CAM), which can potentially save you money by linking your current account and mortgage together.

Freehold
With freehold ownership, you own both the property and the land on which that property stands. (See ‘Leasehold’ also). This is the most secure and highest type of right.

Further Advance
In addition to your initial advance, this is further borrowing against your property.

Gross
Before tax.

Ground Rent
An annual fee that is paid by the leaseholder of a property to the freehold owner of that property.

Guarantor
A person who promises to act as a Guarantor – that is be answerable – for the debt of another person.

Higher Lending Charge - HLC
This is an insurance premium which you have to pay for some mortgages, usually when the Loan To Value is higher than a certain figure. It protects the lender to some extent if you default on the mortgage for any reason. It is important to understand that although you have to pay the premium, the lender benefits from any payout, and that if the payout doesn’t cover their costs they may seek further money from you. With many mortgages you can add the HLC to the loan, unless this takes your Loan To Value over a certain figure. The insurer may pursue the defaulter for reimbursement of any monies which have been paid out in respect of lenders claim.

Homebuyers Report
A professional surveyor will carry out a survey on a property which will result in a report stating the condition of a property and whether or not any repairs are necessary. This should not be confused with a ‘full structural survey’ which is generally carried out on older properties. The Homebuyers report will provide a reasonably detailed and informative report and has a slightly higher outlay than a basic valuation.

Home and Contents Insurance
A joint term, referring to both buildings cover and contents cover. The two policies may or may not be bought from the same insurer, but buying them together can sometimes save money or make life simpler.

Illustration
In the context of mortgages, a lender's estimate of the monthly payments you would have to make under a particular loan arrangement, together with the costs to set it up.

Impaired Credit
Impaired credit mortgages are specialist loans for customers whose credit problems disqualify them from using mainstream lenders' standard products. Some lenders specialise in loans like these, which are also known as adverse credit loans.

Intermediaries
This could be an individual, a firm or an organization which helps customers to choose a mortgage and introduces mortgage applications to lenders. These include: mortgage brokers, estate agents, independent financial advisors, accountants, solicitors and life assurance companies.

Introductory Fee
A charge for the administration that is involved in setting up your mortgage is required.

Interest
The premium which a borrower must pay a lender in return for use of the lender's money.

Interest Only Mortgage
With a mortgage like this, your monthly repayments cover only the interest element of the loan. You will normally need a repayment vehicle, such as an ISA, endowment or a personal pension, to repay the capital.

ISA Mortgage
A mortgage loan funded by contributions to an Individual Savings Account. The ISA aims to repay the loan's capital at the end of its term, but the interest element must be paid separately as you go along. It's important to remember that past performance is not necessarily a guide to future performance.

Leasehold
The Freehold owner of property or land allows that property or land to be leased by a tenant for a fixed period of time.

Legal Charge Document
The formal written document which lists exactly who owns a property and enables transfer of a property's ownership from seller to buyer. A mortgage lender will record details of their mortgage on these deeds (which means they can take ownership of the property if you default on the loan payments).

Letting Agent
A property agent who can help landlords locate suitable properties for purchase, and who finds tenants to occupy those properties and can manages the rental process which follows.

Loan to Value
This is the amount you want to borrow divided by the purchase price. In other words, it reflects the size of your deposit. Generally, the lower the loan to value, the safer the lender will view the loan.

Local Search
See Search

London Inter Bank Offered Rate - LIBOR
The interest rate at which leading banks lend to one another. Sometimes used as an alternative to base rate in setting the benchmark for a tracker mortgage. There are separate LIBOR rates for different periods up to a year but either “1” or “3” months LIBOR is what is normally used in setting mortgage rates.

Lump Sum Repayment
An amount of money that you pay into your Mortgage account on top of your normal monthly payment.

Money Markets
The wholesale markets in which banks and other financial institutions lend money to one another. Mortgage lenders often borrow money in these markets, particularly for funding fixed rate mortgages.

Mortgage
A long-term loan that you secure on a property.

Mortgage Broker
An agent who shops around for the best mortgage deal on behalf of his clients. This could be from the whole market or from a limited panel of lenders.

Mortgage Deed
The legal document that exists between a lender and the borrower which secures the loan against your property.

Mortgagee
The lender

Mortgager
The borrower

Mortgage Payments Protection Insurance (MPPI)
An insurance that will help protect you against loss of income by helping you meet your mortgage payments if you are unable to work due to accident, sickness or unemployment.

Negative Equity
If the loan amount outstanding exceeds the market value of the property held as security, it is known as ‘negative equity’. You should ensure that you can afford your mortgage in the event of house prices falling – a time when this situation occurs.

Net
After tax has been deducted.

Non-status Loan
This is where your income is not disclosed and/or you have some adverse credit.

Overpayment
A mortgage repayment bigger than the one needed to meet the loan's minimum requirements. Mortgages that allow these without charges are often useful for people whose type of employment means that from time to time they receive significant bonuses or other influxes of money.

Payment Holiday
A short break from regular mortgage repayments, sometimes offered with flexible mortgages. This can sometimes be a useful feature for self-employed people or others with irregular income

Pension Mortgage
Mortgage were the capital repayment is funded by contributions to a personal pension. The tax breaks given to pension saving may boost contributions by making them gross instead of net of tax. There is an option available to take a lump sum, of up to 25% of the value of the accumulated pension fund. This lump sum aims to repay the loan's capital at the end of the term. The past performance is not necessarily a guide to future performance

Portability
The process of transferring your existing mortgage product onto a new mortgage for your new property

Premium
In the context of insurance, a premium is the regular sum you pay to keep your cover in force.

Remortgaging
The process of switching your mortgage loan from one lender to another without moving house

Redemption
When you pay off the outstanding balance of your mortgage

Remortgage
When you switch your existing mortgage to another lender

Repayment mortgage
A mortgage loan funded by simple monthly repayments, calculated to repay capital and interest over a specified term.

Repayment vehicle
The means by which a mortgage loan's capital is repaid. Examples include endowment policies, ISAs, and personal pensions.

Sealing Fee
Lenders will charge this fee for discharging a mortgage when it has been paid in full

Search
A local authority search is an examination of local planning records to uncover details of any upcoming developments near the property which could affect its future value or existing restrictions on the site.

Secured (loan)
On taking out a mortgage the lender will register a charge against your property. If you should default on your mortgage, the lender can ultimately repossess your property to recover their money. The loan is hence said to be "secured" on the property.

Self-certification
Where no proof is available, prospective borrowers are sometimes allowed to vouch for their own income. Self-employed applicants who lack the two years' record of accounts that lenders would normally require most commonly use this process, known as self-certification. Many lenders charge a small premium on self-certificate business to reflect the extra risk involved.

Stamp Duty
If your property costs more than £125,000 you will have to pay a Government tax on the conveyance of your property – the amount due depends on the amount of your property. Stamp duty rates are subject to Government policy and could change in the future.

Standard Variable Rate (SVR)
A mortgage lender's main interest rate. Fixed-rate and discount loans usually switch to SVR when the special offer period expires. Conversely, tracker mortgages switch to a fixed percentage above Bank Of England Base rate (or LIBOR).

Status
A shorthand term for the borrower's credit record and employment situation. See "Non-Status Loan".

Structural Survey
Generally recommended for older properties, this is a detailed survey carried out on your prospective property on your behalf.

Surrender
The process of cashing in an unwanted endowment policy with the insurer who sold it to you. Doing this often produces a poor return for the money invested to date in the policy's early years. You should seek independant financial advice before considering this.

Survey
An expert examination of the property you are considering buying, aimed at discovering any structural flaws or repairs needed which you may have failed to notice yourself.

Term
The period of time over which your mortgage will run. Typically 25 Years or to expected retirement date if that comes first.

Term Assurance
This will protect your family by repaying your mortgage should you (or your partner, if the property is jointly owned) die

Title
The legal right to ownership of a property

Title Deeds
Documents that show the ownership of the property

Tracker
Tracker mortgages link your interest rate to a benchmark, such as Bank of England base rate. The rate you pay moves up and down in line with the benchmark selected.

Underpayment
A mortgage repayment smaller than the regular agreed sum. Some flexible mortgages have this feature, which can be useful for people with irregular income.

Valuation
A basic assessment of the condition and the value of the property that you are hoping to eventually buy; a valuation will also provide the lender with the information they need to decide whether or not to lend on that property.

For all your mortgage terms enquiries please call us on freephone 0800 052 3604 or Click Here to contact us.