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Don't know your 'capped rate mortgage' from your 'income multiples'? Cut through the confusion with our mortgage buster. For example, if you need to know what 'retention' means, select 'R' from the list below.
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Additional borrowing
Previously known as a further advance, this is an additional sum you borrow from your existing lender which is also secured on your property.
Advance
The money that you borrow.
Approval in principle
Will they or won't they give you the mortgage? An approval in principle gives you an idea of how your mortgage application will turn out. It isn't a formal mortgage offer but it's a useful indication about whether you're likely to get a mortgage offer or not because it means the lender has usually undertaken a credit check and an assessment of your ability to repay the amount you've asked for.
Before Egg make you a formal mortgage offer, we carry out further checks on the information you've given us to make sure the property you intend to borrow against is suitable.
APR - Annual Percentage Rate
Mortgages can be complicated things, but the APR is an easy way of comparing the overall cost of interest rates and fees charged by different mortgage lenders over the course of the mortgage.
Arrangement fees
A fee that a lender charges you to arrange a mortgage. Sometimes, on certain products (usually where a special interest rate applies, for example a fixed or discounted rate) your lender will charge an arrangement fee to cover some of their costs.
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Base Rate
This is a rate set by the Bank of England's Monetary Policy Committee and lenders can use it to act as the basis of any variable rates they may offer.
Bridging loan
A short-term loan that can be used to cover the period between buying a new home and selling your old one if they don't coincide.
Broker/Intermediary
The middle man. A broker will arrange a mortgage with a lender for you, but they have to tell you which lenders they use and how much they are paid to arrange mortgages with them.
Buildings insurance
All lenders will require you to take out a suitable buildings insurance policy to cover both you and them against any structural damage to your home.
Buy-To-Let mortgage
A mortgage designed for buying a property which is then going to be rented out.
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Capital
What you owe on your mortgage at any point in time, not including any interest.
Capital and interest mortgage (or repayment mortgage)
With a capital and interest mortgage, you gradually pay off both the amount borrowed and the interest on your mortgage with each monthly instalment. Over time you are reducing the amount you owe and by the end of the mortgage term the loan will have been paid off.
Capped rate mortgage
A maximum interest rate is set at the start of the mortgage so you know you won't have to pay more than a set amount. During the capped rate period the interest rate can fall below the capped rate but never go over.
Bear in mind that there are usually early repayment charges during a capped rate period.
Cash back mortgage
With this type of mortgage, you are given a percentage back - in cash - when your mortgage completes. You are then usually tied into the mortgage with an early repayment charge and will have to stay with the lender, often on their standard variable rate, for a set number of years.
Completion
The point when all the legal work has been done, the purchase money has all been paid and you now legally own your home.
Contents insurance
This is an insurance policy designed to protect the contents of your home.
Contract
The legal document that fixes a date for the completion of the sale of the property from the seller to you.
Conveyancer
Someone who does the legal work involved in selling and buying or remortgaging property.
Conveyancing
The legal work involved in selling and buying or remortgaging property.
Credit Reference Agency
An organisation that keeps details of your credit history. Lenders check Credit Reference Agencies to see if you have any known credit problems.
Credit Scoring
Many financial institutions use a credit scoring system as a way of assessing lending applications. These systems combine information provided directly by you, any information already held about you and any information from your credit search.
Credit search
A search with a Credit Reference Agency.
Critical illness insurance
If you are diagnosed as having one of a list of life threatening and/or disabling illnesses, this insurance package pays you a lump sum of money.
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Daily interest
Over time you should pay less interest on your mortgage if it's calculated daily. This is because any payments made to your mortgage that reduce its balance immediately reduce the amount of interest you pay as well.
Deeds Release fee
A charge made for the administration work involved in sending your title deeds to you or your solicitor.
Deposit
Money used as a down-payment on a property when you exchange contracts.
Disbursements
Fees like stamp duty and Land Registry fees, which you pay to the conveyancer.
Discount rate (discounted rate mortgage)
This is a discount off a mortgage lender's normal interest rates for a particular length of time.
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Early Repayment Charge
A fee lenders charge if a mortgage is paid off in full or part. This doesn't apply to all mortgages - you'll most often find this kind of fee on mortgages with initial incentives.
Endowment
This is a method of repaying an interest-only mortgage. It's a form of life assurance that pays a tax-free lump sum at the end of its term or a guaranteed amount, usually the mortgage debt, in the event of the policyholder's death.
Equity
How much your home is worth minus the amount of your mortgage. For example, if your property is worth £120,000 and you have a mortgage or a secured loan of £100,000, you have equity of £20,000.
Exchange of contracts
The point where the property sale becomes binding on both parties and a completion date is agreed.
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Financial Services Authority (FSA)
An official body set up by an Act of Parliament to regulate financial services and protect your rights. All mortgage lenders must be authorised by the FSA. You can check that a mortgage firm is authorised through the
FSA website or by calling the FSA consumer helpline on 0845 606 1234.
First time buyer
Someone buying their first property and taking out their first mortgage.
Fixed rate mortgage
A type of mortgage where the interest rate is fixed at the start and doesn't change for a set period of time - which means that you'll know exactly what you're paying each month even if general interest rates change.
Flexible mortgage
These mortgages are generally for people that intend to repay their mortgage early but can also be used to help smooth out your finances if, for example, you're self-employed.
The key to good flexible mortgages is their daily interest calculation (instead of calculating interest annually like traditional mortgages) and the ability to make overpayments, take payment holidays, withdraw any overpayments you've made and so on.
Freehold
Ownership of the property and the land it's built on.
Freeholder
Someone who owns a property and the land it's built on.
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Ground rent
A yearly fee leaseholders have to pay to the freeholder, or landlord, who owns the land the leasehold property is on.
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Higher lending charge
A one-off amount that you may be charged to protect your lender should they need to repossess your property. It is generally payable when you want to borrow a high percentage of a property's value - usually above 75% loan to value (LTV).
Homebuyer's report
See Survey.
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Income multiples
A yardstick used by lenders to work out how much they are prepared to lend you. Income multiples are the number of times by which mortgage lenders will multiply your gross annual income to determine your maximum borrowing capability. Although multiples vary among lenders many lenders make their final decision on what you are able to afford.
Initial Disclosure Document (IDD)
This is a document that is given to you at first contact with the lender. The IDD sets out what service the lender, or brokers, can offer you including whether they can offer you advice and whose mortgage products they can sell you. It is an important document that you should read carefully and ensure that you are comfortable with.
Interest
The cost of borrowing money.
Interest calculation
The way interest on your mortgage is calculated could save you money.
Interest-only mortgage
With this type of mortgage you are only paying off interest due on your mortgage. You are not reducing the actual amount of money borrowed. These are usually set up in conjunction with investments like personal pensions, ISAs or endowment policies which are designed to repay the loan at a given date after reaching certain levels of growth.
However, there is no guarantee that any of these investments will pay off the mortgage. So, if you choose an interest-only mortgage you will be responsible for making sure that you have enough money available to repay your mortgage at the end of the term.
- Annual calculation means that you continue to pay interest on capital repayments already made during the course of that calendar year - this is the way that traditional mortgages usually work.
- Daily or monthly interest calculations are used with most flexible mortgages and enable payments (and overpayments) to have a quicker impact on the outstanding balance.
Interest rates
The cost of borrowing money, expressed as an annual percentage.
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Key Facts Illustration (KFI)
The KFI is a standard document used by all regulated mortgage lenders in the UK. As well as providing you with an illustration of how much the mortgage will cost you, it also has to point out fees and charges you must pay either at the beginning or during the life of the mortgage you intend to take out. It's worth knowing that the lender cannot go ahead with your mortgage or additional borrowing application until you have received, read and confirmed that you are happy with the KFI they have sent you.
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Land Registry fee
A fee paid to the Land Registry to register ownership of a property.
Lease
A legal agreement which gives the ownership of a leasehold property to the buyer for a fixed period of time.
Leasehold
A system where you own a property for a set period of time before handing back ownership to the freeholder or negotiating a new lease. Flats are usually leasehold.
Leaseholder
Typically someone who owns a property, but not the land it stands on, for a fixed period of time.
Legal fees
The fees charged by a solicitor or other qualified conveyancer to carry out the legal work associated with buying a property.
Letting your property
Lenders often have different requirements for properties you intend to live in or let out. If you're intending to let your property you should tell your lender or you may be in contravention of your mortgage conditions.
Life assurance
A policy designed to repay your mortgage in the event of your death.
Endowments linked to interest-only mortgages usually have in-built life cover, but if you have an ISA-linked interest-only mortgage or a repayment mortgage, you should arrange separate life cover.
Loan to value (LTV)
Loan to value (LTV), expressed as a percentage, refers to the amount of the mortgage compared to the value of the property you want to buy. For example, a £120,000 mortgage on a property worth £160,000 would have an LTV of 75%.
Local authority search
A request for information about your property which is sent to the local authority for the area in which your property is located.
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Mortgage
A loan used to buy a property.
The property acts as security for the loan and can be repossessed and sold if the mortgage repayments are not made.
Mortgage application fees
These are fees charged by the lender to organise the mortgage for you. If you do not go ahead with the mortgage these are not usually refunded.
Mortgage deed
The document that gives the lender a right to the property being mortgaged. This is normally held by the lender until your mortgage is repaid.
Mortgage offer
A formal document offering you the mortgage you have requested and detailing the terms that will apply.
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Negative equity
Where the mortgage amount is greater than the value of the property.
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Offset mortgage
A flexible mortgage with a savings account attached to the mortgage account - a tax-efficient option for some borrowers. Money in the savings account is offset against the outstanding balance of the mortgage on a daily basis - so as long as you have funds in your savings account, you’re effectively paying interest on a lower mortgage amount.
Some versions, known as Current Account Mortgages, also allow you to offset your current account.
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Part and part mortgage
A mortgage that has some of the loan set up on an interest-only basis and some on a repayment basis.
Payment break/holiday
An option usually given on flexible mortgages that allows you to stop making mortgage payments for a specific period of time. Usually any interest payments that you miss by taking a payment holiday are added to your mortgage debt and you are then charged interest on that amount.
Pension plan mortgage
A type of interest-only mortgage where the loan is designed to be repaid by a lump sum from a pension plan when you retire.
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Redemption
The repayment of a mortgage loan which triggers the lender to release their security.
Remortgaging
When you move a mortgage from one lender to another without moving property.
Repayment mortgage
Part of each monthly payment you make goes towards repaying the capital amount you owe and part goes towards paying interest charged on the loan. At the end of the term (typically 25 years) the entire debt should be repaid. This is also known as a capital and interest mortgage.
Retention
A lender may hold back some of the mortgage money until certain works or repairs have been done to the property. The amount held back is known as a 'retention'.
Right-To-Buy mortgages
Mortgages for local authority tenants who qualify to buy their home under the Government's Right-To-Buy Scheme.
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Sealing fee
A charge made for the administration work involved in processing the document which shows that you have repaid your mortgage.
Secured loans
This is a loan that is secured on the property, usually in addition to your main mortgage and often with another lender.
Security
The property you intend to buy is the lender's 'security' for the loan. This means that the lender has rights over the property. If the mortgage repayments are not kept up-to-date, the lender can repossess the property and sell it to recover the debt.
Stamp duty
A Government tax on buying properties currently costing more than £125,000.
Standard Variable Rate (SVR)
Mortgage lenders' SVRs fluctuate at their discretion as economic conditions change. Until relatively recently, most of the mortgages sold were on a standard variable rate.
Subject to survey and contract
You see this stated before exchange of contracts. It means the seller or buyer can withdraw from the property sale if the survey or the contract terms are not satisfactory.
Survey
The lender's inspection of the property to assess whether it is suitable for a mortgage.
There are three levels of valuation/survey:
- Basic valuation - a basic report carried out on behalf of the mortgage lender (even though you may have to pay for it). Most lenders charge valuation fees on a sliding scale according to the value of the property. You will probably have no comeback against the surveyor for any defects or problems overlooked in the report.
- Homebuyers' report - a more detailed and expensive, but still limited, report on the readily accessible parts of the property. It may offer you some limited recourse if the surveyor, who is acting on your behalf rather than the lender's, is negligent.
- Full structural survey - the most thorough (and most expensive) report. If the property is defective, the surveyor should discover this. If major defects are not discovered then the surveyor acting for you would have some legal liability, and you would be able to claim against them.
With any level of survey, if there are potential or actual defects found, the surveyor may suggest you get additional specialist reports, which could be at your expense and may be time-consuming.
If you choose a homebuyers' report or full structural survey, you will sign a contract with the surveyor to formalise their responsibilities to you.
Applicants should always check with mortgage lenders before instructing their own valuer or surveyor. Lenders tend to work with set panels of surveyors and it is usually the lender who will instruct them. If you instruct a surveyor who is not known to your lender you may find yourself paying again for a valuation by one who is.
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Term
The length of time over which you pay your mortgage. This is agreed at the start of the mortgage, but many lenders allow you to change the term to help with repayments if it is sensible to do so.
Term assurance
Life insurance to pay off a mortgage if the borrower dies during the term of the mortgage.
There are two types of assurance
- Decreasing term assurance - if you die during the term of your mortgage, a life assurance policy should repay it - although the amount paid out reduces over time. This is most commonly used with repayment mortgages.
- Level term assurance - a life assurance policy where the sum assured will remain the same throughout the term of the policy. This type of policy is typically taken with an interest-only mortgage so that it could repay your mortgage if you die during the term.
Title deeds
The document that states ownership of the property and other information about it.
Tracker mortgage
These are mortgages with a variable rate set above or below the Bank of England Base Rate. Similar to standard variable rate mortgages, they fluctuate depending on economic conditions but, since they are linked to the Base Rate, a lender has no discretion over what to charge you.
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Valuation
See Survey.
Variable rate
This rate can go down as well as up during the course of your mortgage and is a reflection of overall interest rates and economic conditions. The advantage of having a variable rate is that the rate you pay will fall if rates generally fall. But, if rates rise then the rate you pay will rise along with it - without a ceiling.
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