Mortgage Jargon Buster
Keeping Things Simple
We know that life is too short for gibberish and it can be very easy to get lost in complex mortgage terminology. It can all be a bit daunting, especially if you are a first-time landlord. So to make life a little easier, here is a straight forward and super simple buy to let glossary to get you sorted.
Agreement in Principle
When you first start applying for a mortgage, you will be able to get an Agreement in Principle from your potential mortgage lender. The agreement will show how much you are able to borrow and can help when making an offer on a property.
Annual Percentage Rate of Charge (APRC)
The APRC is the true interest cost of your mortgage. This standard calculation takes into consideration all of the fees and interest over the entirety of your mortgage term, not just the initial period, so you know exactly how much will your mortgage cost. All lenders are legally obligated to show the APRC whenever quoting interest rates.
The arrangement fee is what the mortgage lender will charge when taking out a mortgage. You can choose to pay this upfront or you may be able to include this in your mortgage, but remember you will then have to pay interest on it as well.
Bank of England
The Bank of England is the UK’s central bank and the organisation that controls the national base rate. It also regulates the circulation of banknotes, holds the government’s bank account and has many more functions to help stability the economy.
Also known as the interest rate or Bank Rate, the base rate is the level of interest set by Bank of England that dictates the rates that all other banks and financial organisations work with. The base rate is especially important for tracker and variable mortgages, as it can impact your monthly payments.
If you purchase a property with the sole intention of renting it out to tenants for profit, this would be classed as a buy to let and you will need a specific buy to let mortgage for this property.
A capped rate mortgage is a type of variable mortgage that limits or ‘caps’ the interest that your lender can charge, so no matter how much the base rate changes, you have the peace of mind that you charges will never go past this cap.
Capital is simply the amount you borrowed to buy a property. A mortgage is made up of two parts, the interest you pay to the lender and the capital.
Some lenders will offer you a cashback incentive to pick their product. You will normally receive this cashback upon completion.
This is the very last stage of a property purchase, that takes place after the exchange of contracts. At this point, any outstanding balances will be paid on the sale and the property is legally now yours.
This is the legal process of transferring the ownership of a property from one name to another.
Your credit score, or credit rating as it is also known, is a calculation used by banks to determine how reliable you are as a borrower. Lots of factors are used to determine your score such as your spending history, whether you have missed any payments and how much debt you have. Having a good credit score can help you secure your mortgage.
Simply the sum of money that you need to put down to get the rest of the mortgage. The amount of deposit you need will depend on the amount that you are looking to borrow, and generally the bigger the deposit you can find, the more competitive the deal we can secure for you.
Discounted rate mortgage
A discounted rate mortgage is another type of variable rate mortgage that follows the lender’s standard variable rate (SVR), but with an added discount.
Early Repayment Charge (ERC)
If you decide to pay off the entirety of your outstanding mortgage or if you overpay on your monthly mortgage payments, some lenders may charge you an early repayment charge. Our mortgage brokers will check this when selecting your mortgage quotes and will let you know before you sign up, so you won’t get any nasty shocks later down the line.
Your equity is essentially the amount of the property that you own. This is generally the amount of mortgage that you have paid off plus the deposit that you initially put down.
One of the most popular types of mortgage, having a fixed rate mortgage means that your monthly payments are the same each month, regardless of any changes to the Base Rate. Lots of people choose a fixed rate mortgage for the peace of mind of knowing exactly what you are paying each month.
A flexible mortgage gives you greater freedom to overpay, underpay and potential take payment breaks without incurring additional fees.
Having a freehold means that you own the property and the land that it is on outright. The maintenance and upkeep of all elements of the land and property fall to the freeholder, so it is important to be fully insured for all occasions.
When another buyer successfully makes a higher offer on a property that is already under offer, and the seller accepts.
Higher lending charge
If you need a higher loan to value (LTV) for your property, you may incur a Higher Lending Charge.
Help to Buy
An equity loan scheme recently being offered by the government to help first-time buyers get on the property ladder. With this scheme, buyers need only find as little as a 5% deposit.
This is a document that we will create for you to show what your monthly payments are predicted to be over the course of your mortgage.
Many mortgage lenders offer an initial rate for a introductory period, this is typically 2 to 5 years but 10 years plus are sometimes available. After the initial term the mortgage will revert to the SVR for the remainder of the mortgage. Many people choose to remortgage at this point to avoid any higher charges.
In order to keep the monthly payments to a minimum, some people choose an interest-only mortgage. This allows you to only pay back the monthly interest incurred, you only pay back the money that you borrowed at the very end of your mortgage.
This is the charge that the lender will take based on the amount that you borrowed and the current Base Rate.
This is where you own the property but not the land that it stands on. While owning the property, you essentially lease the land from the freeholder for a small annual charge. Leases are usually long term contracts, often 90 to 999 years.
Leaseholds are very common when it comes to flats, where the individual apartments are owned by landlords and the communal areas and land are owned by the freeholder.
The actual bank that has provided the funds for your purchase.
Loan to value (LTV)
This is the financial term for the ratio between the amount of deposit that you can provide compared with the amount of money that you need to borrow in order to purchase a property. For example, if you have a 15% deposit, your LTV will be 85%.
That is us! A mortgage broker is an intermediary between you and the mortgage lender. The broker will compare a range of mortgage deals currently available to find you suitable options and will approach the lender on your behalf. This saves you time, effort and potentially thousands of pounds.
Mortgage in Principle
Also known as a Decision in Principle, an Agreement in Principle or a Mortgage Promise. A Mortgage in Principle is a document provided by a mortgage lender that shows you how much you are able to borrow and the interest rates that are available for you before you make your final property purchase.
Simply put, this is the amount of time that it will take you to fully pay back your mortgage. The amount of time that you’ll take to pay off your mortgage.
If your property is valued at a lower price than when you originally paid for it.
Some mortgage lenders will allow you to pay over the normal monthly payments to pay back your mortgage early. Depending on your type of mortgage, you may incur an early repayment charge if you do, so it is a good thing to check before signing.
If you are looking to get a more competitive rate on your mortgage, you may be able to switch from one lender to another. A remortgage can also be useful if you are looking to release equity from a property.
This is where your monthly payments will include a portion of the money that you borrowed and the interest rate. The monthly payments will be higher than with an interest-only mortgage but by the end of the mortgage you will own the property outright and will have paid the mortgage back in full.
Most residential mortgages in the UK are repayment mortgages.
Right to buy
This is a scheme that allows most council tenants to buy their homes at a discount.
Also known as a Partnership Mortgage. This is when a lender gives you an additional loan alongside your mortgage in return for a share when you sell the property.
If you are unable to afford the full value of a property on your own, a shared ownership gives you the opportunity to buy part of the property and pay rent on the remainder at a discount. This is a popular scheme for first time buyers as it allows them to get on the property ladder with a smaller deposit.
Standard Variable Rate (SVR)
When your initial term has ended, your mortgage will switch to an SVR. This interest rate is typically higher than your initial rate and usually tracks the base rate.
A tracker mortgage is a type of variable rate mortgage where the monthly payments may fluctuate depending on the other rates such as the Base Rate.
Generally before a mortgage lender will agree to a full mortgage, they will conduct an independent survey to check the value of the property is accurate.
Variable rate mortgage
A variable interest rate mortgage is a type of mortgage that may change depending on other interest rates such as the Base Rate. With this kind of mortgage your monthly payments may change over time. Also see Standard Variable Mortgage and Tracker Mortgage.
Still Got Questions?
If you are still confused by complex mortgage terms, the team are on hand and happy to help. It is our job to make it easy so let us know your questions below or you can call us now on 08009499410