This is a guide to some of the terminology used relating to mortgages.

Additional Borrowing

After you have had your mortgage for a while, you may wish to borrow more. This additional borrowing is also known as a further advance. You can usually ask for this after you have been paying your mortgage for 6 months, as long as there is sufficient equity in your property.

Annual Percentage Rate (APR)

This is used by all lenders on illustrations so that you can compare one against another. It is different to the actual rate of interest you pay for your mortgage because it takes into account setting up fees and the long term effect of staying with a particular lender.

Arrangement Fee

This is a charge Lenders place on a mortgage product depending on the interest rate and amount you are borrowing. Some lenders can be more expensive than others for the same type of mortgage product.

Bank of England Base Rate

The Bank of England use this rate to help to keep inflation down to preserve the value of your money. The rate is usually lower in times of economic downturns. When the Bank of England change the rate it affects the cost of loans and mortgages.

Booking Fee

Lenders sometimes charge a Booking Fee to secure funds if there is a limited supply or they can charge this to ask borrowers to demonstrate a commitment to the mortgage application. Sometimes these are non refundable.

Capital and Interest Repayment

This is the technical term for a repayment mortgage. When you make your monthly mortgage payment some of it repays the interest charged and some of it pays for a little bit of the capital. As year go by you pay more capital and less interest.

Completion Fee

This can be another name for an Arrangement Fee or sometimes a mortgage broker will charge a Completion Fee for his services.

Deposit Amount

This is the amount you have saved towards buying a property. The more deposit you have, the more favourably the lender will react by giving you a better interest rate. The minimum is usually 10% of the purchase price.

Discount Rate Mortgage

If a lender gives you a discount from their usual Standard Variable Rate (SVR), this is called a discount rate mortgage. The amount you pay will go up or down depending on the lenders SVR, which can change even if the Bank of England rate does not change.

Early Repayment Charges

If you are within the terms of a mortgage product, a 2 year fixed for example, the lender can charge you for paying off your mortgage within the 2 year fixed rate period. This will vary from lender to lender. Some lenders will allow you to repay up to 10% without a penalty.

Equity

This is another word for the amount of money in your home. It is the difference between the value of your house and the amount you owe on a mortgage.

Estimated Property Value

When you apply for a mortgage the lender will ask you for an Estimated Property Value. They will send their own surveyor out to your property to assess this for themselves, so remember to be realistic in the value of your house.

Exit Fee

Some loans have an exit fee in addition to a setting up fee. This can be in the case of a secured loan, otherwise known as a second charge or a bridging loan.

Extended Ti-in Period

This term represents the period that you have to stay with a lender after the fixed rate or discounted rate ends. These days, very few, if any, lenders apply this to their mortgage products. It used to be popular by lenders offering very low rates at first but then keeping you on a higher rate afterwards to get back some of the discount they had given you.

Fee Free

This is a popular concept. Many people want a fee free mortgage but remember, lenders always build any fees back into the mortgage. So if they are not charging you up front, they are charging you over a period of time, which can be more expensive. I normally have this conversation when people ask me, “which is the cheapest mortgage”. The answer is sometimes surprising.

First Time Buyer

A First Time Buyer is a term for someone who has not had a mortgage before. A First Time Buyer is usually desirable by Estate Agents and by someone selling their house because it means that you do not have to sell a property before buying their home.

Fixed Rate Mortgage

This is when a mortgage has a rate which stays the same for a period of time, whatever happens to the Bank of England rate or the lenders Standard Variable Rate. It is very useful for people who wish to budget their regular monthly outgoings.

Home Mover

This is the term for someone who is buying a property but also has a property to sell. It reflects the fact that more than one transaction is taking place at the same time. However, if you are buying a second home and not selling your original property, lenders still refer to you as a home mover to differentiate you from a First Time Buyer.

Interest Calculated Daily

Most mortgages today are flexible. The interest charged onto your mortgage account is based on a daily or monthly basis. This means that you will be charged less interest than mortgage of old. Years ago, lenders charged interest yearly, so a large interest charge was added to your mortgage, which you then paid off over the course of the year. Daily is cheaper than Annually.

Interest Only

This refers to a mortgage where you only make a payment based on the interest charged on your mortgage account. Obviously this is cheaper than a repayment mortgage but there is a downside. At the end of the mortgage term, you will still owe the same as when you took the loan out and will have paid off none of the capital. Borrowers are responsible for making sure that they have a suitable repayment vehicle to pay off the loan at the end of the term.

Interest Rate

This is the interest that you being charged by your lender at any given time. It may be fixed or variable and it is always a good idea to review your mortgage on a regular basis to keep your mortgage on the best interest rate available at any time.

KFI Key Facts Illustration

Each time you ask for a mortgage illustration, a lender will give you one of these. It outlines all of the key facts about your mortgage product and lender. It will give you the relevant costs including APR and the total you will pay over the course of the mortgage. It explains what will happen to your mortgage at certain times and explains the circumstances when you can pay off the mortgage and any early redemption charges that may apply. Also, if there are any incentives, it will give details of these together with any fees you have to pay.

Loan To Value (LTV)

When you buy a property, the interest rate will depend on your LTV, the more deposit you have, the better the interest rate. Loan To Value means the amount you owe compared to the current value of your property.

Lump Sum Payment

If you decide to make additional payments to a mortgage, over and above your usual monthly mortgage payment, this can be done one of 2 ways. You can make a regular overpayment, by standing order for example, or you can make a lump sum payment. This is usually up to 10% of the amount borrowed without penalty but is different for each lender so always check first.

Monthly Repayment

This is the amount you will pay to the lender for your mortgage, usually by Direct Debit. It is determined by the amount borrowed, the length of your mortgage and the interest rate charged.

Mortgage Term

The amount of time you decide to repay your mortgage is called the Mortgage Term. This is not set in stone and can change according to your circumstances. You can shorten the term if you become more able to repay your mortgage sooner due to rises in income or even increase the term if circumstances are less favourable.

New Build Property

This is a term given to any new development. A Newly Built property usually comes at a premium because the property includes many fixtures and fittings, which do not form part of the value of the actual property itself. For this reason, many lenders restrict the amount of lending on new build properties.

Outstanding Balance

During the course of your mortgage, you will make interest and capital repayments from the original amount borrowed. Over the time this will reduce and the amount you currently owe is the Outstanding Balance.

Overpayment

Some mortgages allow you to make additional payments. This is an excellent way of reducing the outstanding balance on your mortgage. It is called an overpayment.

Porting

If you have a mortgage and decide to move during a fixed rate period, some mortgage products will allow you to transfer the mortgage product to your next home. If you are increasing your borrowing, any further borrowing would have to be on a new product.

Remortgage

The term remortgage is when you take on a mortgage to replace an existing one. This may be to get a better interest rate for your mortgage or it may be to increase the borrowing for home improvements, for example. The process is normally quite a smooth one as you are not purchasing a new property and with our help the process should take around 4 weeks.

Standard Variable Rate (SVR)

When your mortgage deal comes to an end, it is usual for lenders to start charging you their Standard Variable Rate. This varies from company to company but if you are on the SVR, it means that you can, at any time, remortgage your property to get a better interest rate usually without a penalty - See Remortgage.

Tracker Rate Mortgage

A tracker mortgage usually tracks the Bank Of England (BOE) rate. The lender decides how much they will charge you above the BOE rate for a set period of time. These are very good while interest rates are falling as your mortgage payment will go down but when interest rates are rising your mortgage payments will go up.