Mortgage jargon buster
When you decide to buy or sell a home, navigating the mortgage process and the jargon the comes with it can be tricky. So we’ve compiled this handy mortgage jargon buster to help you make sense of some of the confusing terms thrown around.
Remember, the best way to find out more about the mortgage market and get the most suitable mortgage option for you is to get independent mortgage advice from an expert.
If you have a standard variable rate mortgage, your mortgage payments may go up or down with the lender’s standard interest rate. This may change following Bank of England base rate changes.
The rates in tracker mortgages are set at a fixed margin, usually above the Bank of England base rate, meaning payments will always go up or down in line with base rate changes.
This is the rate that the Bank of England charges other banks and other lenders when they borrow money, and it influences the rate that many lenders charge for mortgages. It’s currently 0.1%.
A fixed rate mortgage is a loan where payments are based on a specific interest rate for a predefined length of time. The rate payable will not change during that period regardless of changes to the lender’s standard variable rate.
A repayment mortgage is a loan which allows the borrower to make monthly repayments of capital and interest over an agreed term until the loan is repaid in full.
A buy-to-let mortgage is a loan which is taken out with the intention of renting the property to tenants.
An interest-only mortgage is a loan which allows you to only pay the interest charges of the loan each month. You are not reducing any of your capital and so you must repay this in some other way, e.g. an alternative savings plan.
With a guarantor mortgage, either a parent or relative guarantees that they will pay the monthly payment in the event that you are unable to do so.
This is a document outlining how much a lender is prepared to lend you and will help you budget and make offers on properties.
It should be noted that this is not a formal mortgage offer as the lender will require a satisfactory property valuation and may also be subject to change if your personal circumstances alter in any way.
The APR shows the overall annual cost of a loan, taking into account the length of time before the mortgage must be repaid, interest rate and other costs.
If you are buying a house with a mortgage, you will need to put up a deposit amount. The deposit is a percentage of the property purchase price or Home Report valuation, whichever is lower.
For example, if you bought a home valued at £200,000, and the lender required you to have a 15% deposit, you would need £30,000.
It’s also important to note that if you choose to bid over the Home Report valuation to secure the property, you need to save that money in addition to your deposit.
So, if you bid £210,000 on a property valued at £200,000, you would need your £30,000 deposit plus the £10,000 to bid over the valuation, which means saving £40,000 in total.
LTV is the ratio of the loan amount to the property valuation expressed as a percentage. For example, if a borrower is seeking a loan of £100,000 on a property valued a £200,000, it has an LTV rate of 50%.
A charge that you may have to pay if you pay back part or all of your mortgage early, even if you change to another lender.
A mortgage application that involves more than one person as the borrower.
Some flexible mortgages allow the borrower to pay more than required monthly repayment in order that they can repay the loan in a shorter period thus saving on interest charges.
Porting a mortgage is the process of transferring your current mortgage to a new property when you move home, to avoid any early repayment charges.
Porting is only typically used when you are tied into a preferential rate mortgage, usually a fixed rate product but some tracker mortgages have lock-in periods also.
However, porting a mortgage doesn’t always make financial sense so it’s advisable to seek independent mortgage advice to work out the most suitable mortgage option for you.
Negative equity describes the situation when the amount loaned on a property is more than the market value of the property.
To ensure you and your property are adequately protected you should consider what insurance policies are needed: building and contents insurance, life and critical illness cover, and income protection.
Mortgages can be confusing, particularly if you’re new to the buying or selling process. Getting expert advice is key to ensure you find the most suitable mortgage option for you.
We recommend speaking to an independent mortgage adviser as they can look at a range of products from lots of different lenders to find the most suitable one for your needs.
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ESPC Mortgages: Independent mortgage advice
Independent financial experts advising on mortgages & protection.
Mortgages for first time buyers
We break down everything you need to know about getting your first mortgage.
The initial consultation with an adviser is free and without obligation. Thereafter, ESPC Mortgages charges for mortgage advice are usually £350 (£295 for first time buyers). YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR OTHER LOANS SECURED AGAINST IT.
ESPC (UK) Ltd is an Appointed Representative of Lyncombe Consultants Ltd which is authorised and regulated by the Financial Conduct Authority.