03/03/2022

What Does All This Mortgage Jargon Mean?

What Does All This Mortgage Jargon Mean?

There are many parts to a mortgage, as well as many different types of mortgages. With all the different terms and jargon thrown about, it can get confusing fast. With a decision as important as getting a mortgage, it helps to know what the various terms mean. This article will explain what some of this jargon means, so you know what you’re getting yourself into.

APR

APR stands for Annual Percentage Rate, which is the overall cost of a mortgage, including interest and fees.

Arrears

Going into arrears means you have missed at least one of your monthly repayments. Speak to your lender if you think this is likely to happen to you.

Affordability Check

Lenders will carry out a check to assess if your mortgage amount would be affordable for you. They will look at various factors to decide the affordability, this will include your credit history, income frequency, income versus outcome and any outstanding debt repayments.

Bad Credit Mortgage

A bad credit mortgage refers to a specialist mortgage for people with a bad credit score. It can be difficult to get a mortgage with bad credit but not impossible, speak to a mortgage advisor.

Base Rate

This is the rate of interest that is set by the Bank of England. Tracker mortgages and standard variable rate mortgages will usually follow this base rate.

Broker or Mortgage Advisor

A mortgage broker, also known as a mortgage advisor, is an expert who can help you find a mortgage, it is generally recommended to use one as you might miss out on a good deal otherwise.

They will take a look at all your financial information and use their connections with mortgage lenders, as well as specialist software, to find a deal to match your circumstances.

There are various ways to contact a mortgage advisor, in person or over the phone through a bank. You can also contact an online mortgage advisor for an even easier and simplified way to get advice.

Buildings Insurance

When you take out a mortgage, your lender will require you to get insurance that covers your home from structural damage.

Buy to Let

Buy to let means the property is bought with the sole intention of letting it to tenants. There are usually special deals for buy to let mortgages.

Conveyancing

Conveyancing refers to the legal process of buying and selling property. It is the transfer of legal title of the property from one person to another, including for a mortgage. The two phases involve the exchanging of contracts and the final completion.

For this process you’ll need to hire a solicitor, a specialist conveyancing solicitor, or a licensed conveyancer. Most lenders will insist on doing this to protect their interests.

Deposit

This is the amount you initially pay towards the cost of the property. The current minimum deposit you will need is 5% of the property’s total value. However, the more you can save and pay for a deposit the better, as this will mean lower monthly repayments, shorter mortgage term and less interest on those repayments.

A low deposit will mean higher monthly repayments, if you can afford those repayments but not the higher cost of a deposit, it can help you get on the property ladder.

Early Repayment Charge

These are penalty fees your mortgage provider may charge if you overpay more than they allow on a monthly repayment or want to pay off the whole loan earlier than originally agreed. If you feel you are likely to eventually be in a position where you can pay off your mortgage early, you might want to look into flexible mortgages (more on those below).

Equity and Negative Equity

Equity refers to the amount of the property that you own outright by paying off the mortgage loan through the deposit and monthly repayments, the bigger deposit you put down or the further down the line of paying off your mortgage you are will mean you have more equity.

Negative equity happens when the value of your property falls (usually due to a house market price crash) but you still have more to pay off on the mortgage than the property is worth. This can make it difficult to sell the house, with one option meaning you may have to stay put until the house prices rise again.

Fixed Rate Mortgage

With a fixed rate mortgage, the interest rate on the monthly repayments stay the same for the initial period of the deal. This deal can last anything from 1 to 10 years. This is great if you like to make sure you know exactly what you’ll be paying every month and protect you from interest rates rising.

The downside however, is that if the interest rates go down, you’ll be stuck paying the higher rate.

Flexible Mortgage

Flexible mortgages are usually more expensive than regular mortgages, but they allow you to overpay, underpay or even take a payment break from your mortgage. If possible, you’ll also be able to pay off your mortgage early, which will save money by avoiding the interest fees that usually comes with each monthly payment.

Foreclosure

Foreclosure is what happens when you fail to make your monthly repayments to the lender (arrears) or stop repaying entirely. Foreclosure is a legal process in which the lender forces the sale of the property in an attempt to recover the balance of the loan.

Freehold and Leasehold

A freehold property means you own the building and the land it stands on. Leasehold means you own the building, but not the land it stands on. Houses are usually freehold, whereas flats are more commonly on a leasehold.

Gazumping

This happens when an offer has been accepted on a property but not legally finalised, then a different buyer makes a higher offer, and the seller accepts that one.

Guarantor Mortgage

A guarantor mortgage means that a third party agrees to make the monthly repayments if you for some reason you aren’t able to. The guarantor is usually a parent or other relative.

Interest-only Mortgage

With this type of mortgage, you only pay the interest each month while you build up money to pay off the full mortgage at the end of the term.

Loan to Value (LTV)

Your LTV percentage is the size of your mortgage compared to the property’s value. For example, if your mortgage is £50,000 and your property is worth £100,000, your LTV will be 50%.

Monthly Repayment

This is the monthly payment you make back towards your mortgage loan, plus interest.

Mortgage term

This refers to how long your mortgage will last, the standard is 25 years but mortgages of 30 to 40 years are becoming more common.

Remortgage

Remortgaging is changing mortgage without moving house. You might do this to save money by switching to a better deal, you can also use this new mortgage to repay the original mortgage.

Stamp Duty

Stamp duty is land tax that is payable when you buy a property for more than £125,000.

Variable rate mortgage

One of the more common types of mortgage, a variable rate or tracker rate mortgage will see the interest on your monthly repayments go up and down in accordance with the interest rates.

If You Don’t Know, Ask for Help

Mortgages is almost a language in itself, there are many different terms. This guide of some of the most important terms should put you in the right direction to understanding it all better. But remember, you don’t have to know it all by yourself, if you don’t understand a term, don’t be afraid to ask.

For more expert advice you can contact us here.

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