Glossary of Mortgage Terms
By Jon James
• Additional Security Fee
An Additional Security Fee (Mortgage Indemnity Guarantee policy) is the fee taken to get an insurance policy that will cover your lender so that if you default on payments, he will not suffer any loss. You have to pay the Additional Security Fee and the premium along with your mortgage advance. Although you are paying the premium, remember that this policy is for the protection of your lender and not for you.
• Administration Fee
The administration fee is the amount charged by your lender to start working on the documentation part of your mortgage application. It includes the home valuation fee as well. The administration fee will not be refunded even if your valuation is not done or if your application has been rejected.
• Adverse Credit
Adverse credit occurs when you have a history of bad credit, bankruptcy, CCJ, or loan arrears. Adverse credit can also be called as bad credit, poor credit, or it can be said that you have a low credit score.
• Agricultural Restriction
An agricultural restriction is a rule which will restrict you from holding a property if your occupation is in any way related to agriculture.
• Annual Percentage Rate
The Annual Percentage Rate is the rate at which you borrow money from lender. It includes all the initial fees and ongoing costs that you will pay throughout the mortgage term. As the name suggests, annual percentage rate, or APR, is the cost of a mortgage quoted in a yearly rate. The annual percentage rate is a good way to compare the offers from different lenders based on the annual cost of each loan.
Apportionment, or sharing out, is a facility that allows you to divide the responsibility for utilities, property taxes, etc. with the buyer or the seller of the property when you are either selling or buying the property.
Arrears happen when you default on your mortgage payment or any other type of debt payment. If you have arrears on the record of your current mortgage, you will face problems when you want to look at remortgaging or getting a new mortgage.
• Arrangement Fee
An arrangement fee is the amount you have to pay your lender to access particular mortgage deals. While searching for a fixed rate, cash back, or discounted rate mortgage, you will pay this fee at the time that you submit your application, it must be added to the loan upon completion of the term, or it will be deducted from the loan on completion.
An assignment is the document transferring the lease of the property or rights of ownership from a seller to a buyer. It may be an endowment policy to the building society in connection with a mortgage.
ASU is Accident, Sickness, and Unemployment insurance which covers your mortgage payments in case of an accident, a sickness, or involuntary unemployment.
An auction is the public sale of a property to the person who quotes highest bid. The highest bidder has to sign a binding contract that ensures that he do all valuations, searches, etc. before the sale of the property.
• Authority to Inspect the Register
An authority to inspect the register document is a document fro the legal or registered owner of a property allowing the solicitor of the purchaser to get information concerning the property.
• Banker Draft
A banker draft is a way to make a payment. In appearance, it is the same as a cheque, but in effect it is a cash payment. The money is given to the bank, and they issue a cheque that is certified to be good for the given amount.
• Base Rate Tracker
Base rate tracker is a type of mortgage in which the interest rate is variable, but it is set at a premium (above) the Bank of England Base Rate for a period or for the full term of the mortgage. The best part about this type of mortgage is that it has little or no redemption penalty. This means that by making overpayments, you will be able to save money on interest by paying off your mortgage earlier than the agreed upon date on the initial mortgage contract.
• Booking Fee
A booking fee or arrangement fee is charged when applying for a fixed or a capped rate loan. Booking fees are normally non-refundable if charged upfront, but sometimes the booking fee is added to your final mortgage payment.
• Bridging Loan
A bridging loan is useful when you want to purchase a property, but your ability to do so is contingent upon the sale of your old property. This is a very short term loan that is paid off as soon as your old property sells. Speak with a loan adviser before taking out a bridging loan to be sure it is the best option for you.
• Broker Fee
A broker fee is paid to your debt advisor or other intermediary that assists you in finding the best mortgage or loan deal for your circumstances. BSAThe BSA, or the Building Societies Association, is a group that works in the interest of member societies.
• Building Societies Commission
The Building Societies Commission is a regulatory organization for Building Societies. This commission reports to the Treasury Ministers.
• Building Society
A Building Society is a mutual organization that gives you money to buy or remortgage residential properties. This money comes from individual investors who are paid interest on their funds. A portion of building society funds is also raised through commercial money markets.
When you purchase a property for the sole purpose of renting it out, you can apply for a buy-to-let mortgage. The payments for this type of mortgage are calculated based on your projected rental income instead of your personal income.
• Capital and Interest
Your monthly mortgage payments consist of two parts: the interest and the capital. The interest payment is a payment on the interest balance of your loan. The capital payment is a payment on the amount that you borrowed.
• Capital Raising
Capital raising generally means remortgaging for a higher amount than you need to pay off your existing mortgage in order to use the excess money for other personal financial uses.
• Capped Rate
A capped interest rate is an interest rate that will not exceed the standard variable interest rate for a set period of time (from 1-5 years) that is decided by you and your lender. If the standard variable rate falls below your capped rate, your interest rate will decrease accordingly.
• Cash Back
Cash back is the amount you receive when you take out a mortgage, the amount may be fixed or a percentage of your mortgage amount.
CCJ stands for County Court Judgment. This is a decision reached by a county court against you when you have defaulted on your debt payments. If you clear the debt in question in a set amount of time, a satisfactory note will be put on your credit report to signify that the debt is taken care of.
• Centralized Lender
A centralized lender is a mortgage lender that does not rely on a branch network for distribution. Centralized lending is now provided by several building societies. These societies operate separately from their branch networks, and they rely exclusively on mortgages from intermediary sources.
A charge is any interest on a mortgage to which a freehold or leasehold property can be held.
• Charge Certificate
A charge certificate is a certificate issued by HM Land Registry to you with your name as the registered title for a given property. This certificate contains details of restrictions, mortgages, and other interests. It has three different parts: a charges register, a property register, and a proprietorship register. If there is no mortgage on the property, it is called a Land Certificate, and it is issued to the registered proprietor.
Chattels are moveable items in your house such as furniture or your personal possessions.Chief RentChief rent is paid by the owner of a freehold property. This is the same as the ground rent that is paid by a leaseholder.
Council of Mortgage Lenders
Completion is a term that explains that you have become the owner of your house after finishing the formalities of the sale and the purchase of the property.
• Conditional Insurance
When you take out a fixed or discounted rate mortgage, your lender may try to persuade you to take out an insurance policy that will cover any missed payments due to an illness, an accident, or unemployment.
A contract is a legally binding sale agreement. There are two identical copies signed by both the buyer and the seller, and each party keeps a copy for their records. Once both parties have signed the contract, they are committed to the terms of the agreement.
A conveyance is the deed by which a freehold, unregistered title is transferred. The deed is called an assignment if your property is unregistered or leasehold. If the property is registered, the deed is called a transfer.
Conveyancing is the legal process by which the buying and the selling of a property take place.
A covenant is an assurance given in a deed.Credit ScoringCredit scoring is the procedure by which a lender evaluates your paying capacity before offering a loan or mortgage.
• Credit Search
A credit search is done by a lender and a credit bureau to search your records for CCJs and other indicators of bad credit.
• Debt Consolidation
Debt consolidation is the process by which you take out a loan or mortgage in order to pay off a number of high interest debts. By doing this, you will only need to make one payment each month, and you will save significantly on interest charges.
A deed is a legal document that denotes the owner of a given property. You can transfer a title to both freehold and leasehold with a deed.
A deposit is the amount of money you put down toward buying a property.
Disbursements are any amount you pay to solicitors against land registry fees, searches, faxes etc.
• Discounted Rate
Discounted rates are used to attract new borrowers to lenders by setting the interest rate below the standard variable rate for a guaranteed period of time. If you repay the entire discounted rate mortgage within the first few years, your lender may charge you early redemption penalties.
• Early Redemption Penalty
An early redemption penalty is charged by your lender if you do a part or full payment of your mortgage amount before the completion of your mortgage term. These penalties will also be charged if you decide to remortgage and move your mortgage to a new lender. Early redemption penalties mainly apply to fixed rate, discounted rate, and cash back mortgages.
Easement is the right held by one property owner to make use of the land of another for a limited purpose, like a right of passage.
• Endowment Mortgage
An endowment mortgage is an interest only mortgage supported by an endowment policy. During the term of the mortgage you will pay only interest to the lender, and your premiums are alternately paid into an endowment policy which will mature over the term of your mortgage. The endowment policy is designed to pay off your mortgage as well as act as life insurance. However, you cannot depend on this amount to be sufficient to pay all of your debt.
There are different types of endowments, but here an endowment is a life insurance policy that will pay off your interest only mortgage.
Equity is the amount of value in your home. It is the value of your home less the amount left to be repaid on your mortgage.
• Equity Release
Equity release is a means of releasing money from the value of your home either in a lump sum or in monthly installments. This money may be used for home improvements, debt consolidation, or other large expenses.
• Exchange of Contracts
Exchange of contracts occurs when the buyer and the seller of a property sign and swap the contracts which detail the property, the price, the date, and the terms of the arrangement. When the contracts are signed, they become legally binding, and legal action can be taken against anyone who breaks the contract.
• Existing Liabilities
Existing liabilities are all financial commitments outside of your mortgage. Existing liabilities may include bank loans, credit card debt, maintenance payments, etc.
• First Time Buyers (FTB or FTP)
A first time buyer is one who has never owned property before.
• Fixed Rate
A fixed rate is when you pay a fixed amount of interest on a loan for a fixed period of time. Lenders provide fixed rate loans for short periods of time (three-six months) all the way up to 25 years. Early redemption penalties apply if you pay off the mortgage before the end of the fixed rate term.
• Flexible Scheme
A flexible scheme is a new way of calculating mortgage interest charges. Lenders calculate interest on a daily basis instead of on an annual basis. The new interest rates will only affect the remaining balance of the mortgage. By making regular overpayments, you can repay the loan faster thereby saving a lot on interest charges.
A fixture is an item attached to your property, and therefore it is legally part of the property.
Freehold means that you have ownership of a property for an indefinite period of time. This is in contrast to leasehold which means that the property is only under your control for a limited period of time.
• Further Advance
A further advance is an add-on loan to your existing mortgage from your existing lender. The money from a further advance may be used for home improvements, to purchase a freehold property, or for personal purposes such as debt consolidation.
A guarantor is a person who guarantees the lender that the borrower is eligible for a loan or mortgage. If the borrower fails to make payments, the guarantor will make them.
Gazumping occurs when a seller agrees to sell a property to one person, and they proceed to decline that offer in favor of a higher one.
• Ground Rent
Ground rent is the amount which a leaseholder needs to pay to the freeholder each year.
• Home Buyer Report
A home buyer report is made by a lender after a mortgage valuation has been done and before the full survey takes place in order to give the borrower a complete understanding of the property they are thinking of buying.
• Income Multipliers
An income multiplier is a type of calculation that a lender will use to calculate the amount a borrower can receive. The most common income multiplier is three times a single income or two and a half times joint income. The lender will choose the one that yields the higher figure. Lenders are more flexible if your LTV ratio is low.
• Income Protection Insurance
With income protection insurance, your monthly payments will be covered in the case of illness, accident, or unemployment.
An intermediary is a mediator who finds the best mortgage for you, and they also arrange the mortgage for you on your behalf.
• Land Registry Fee
A land registry fee is paid when you want to register your ownership of a property or when you want to change the registered title of a property.
Unlike freehold in which a property is owned, leasehold is when a property is owned, but the land that it is built on is not owned by the leaseholder. Their control of the property is only for a set number of years.
• Licensed Conveyancer
A licensed conveyancer is like a solicitor in that they specialize in the legalities of buying and selling property.
• Local Authority Search
A local authority search is made by the solicitor of the people that plan to buy your property. They check to make sure there are no planned developments on the property such as roads or buildings. They will check for any planning permissions or enforcement notices posted on your property.
LTV, or loan to value, is the percentage derived from dividing the value of your property by the amount of your mortgage. A low LTV is much less risky for lenders than a 100% LTV.
• Loan Consolidation
Loan consolidation happens when a loan is taken out to repay another loan with a higher interest rate or to repay a number of high interest debts. Loan consolidation is often achieved through remortgaging.
A MIG, or mortgage indemnity guarantee, is insurance one takes out to cover their lender in the case that their property is repossessed, and the lender is unable to get their money back. A MIG is paid for upon completion of a mortgage.
MIRAS, or mortgage interest relief at source, was a tax relief given to those with mortgages, but this relief was abolished by the government in April of 2000.
A mortgage is a loan that allows someone to buy a property. The property itself is the security for the loan.
The mortgagee is the company or organization that finances your mortgage.
The mortgagor is the person taking out the mortgage to buy a property.
MPPI, or mortgage payment protection insurance, is insurance one takes out in the case of an accident, an illness, or involuntary unemployment that would render them incapable of making their monthly mortgage payment.
MRP, or mortgage repayment protection, is insurance taken out through your lender during the term of your loan.
• Negative Equity
Negative equity occurs when the money you owe to your mortgage lender is greater than the value of your property. People find themselves in negative equity situations when they take out 100% LTV mortgages.
Overpayment happens when you pay more than the regular monthly payment on your mortgage so that the mortgage is repaid before the end of the mortgage term. With overpayments, you can save money on interest, but you may also be charged an early redemption penalty.Payment HolidayA payment holiday is a period during which you make no mortgagee payments. This is normally available with flexible mortgages only.
A PEP, or personal equity plan, allows you to own shares or unit trusts without paying any taxes.
• Personal Pension
A personal pension provides for your financial needs after retirement. You make structured payments into your pension savings during your working years. Often, some of this money may be taken out to pay off your mortgage liabilities.
Portability is a term used to describe a mortgage that can be transferred between properties when you move from one house to another.
Redemption is when you pay off your mortgage, when you remortgage, or when you move to a new house.
• Remittance Fee
A remittance fee is charged by a lender for sending the amount of a mortgage to your solicitor.
A remortgage is a loan taken out from a new lender or a loan renegotiated with your existing lender to pay off your existing mortgage. This is done to decrease the interest rate you are paying or to raise extra capital.
• Repayment Mortgages
A repayment mortgage is when part of your monthly payment goes toward the interest and another part of the payment goes toward the principal. This is also known as a capital and interest mortgage. If payments are made regularly, the entire sum of the loan will be repaid by the end of the term.
Retention is the amount that your lender keeps pending until certain conditions of your mortgage are met.
Repossession is a legal process by which your mortgaged property comes under the control of your lender due to incomplete repayment. Your property may then be sold at public auction.
• Right to Buy
Right to buy means that you are legally able to purchase the property at a discounted rate if you have been a tenant for a long enough period of time.
• Sealing Fee
A sealing fee is an amount charged by your lender when you repay your mortgage.
• Self Certification of Income
Self certification of income means that you confirm how much you earn, and the lender does not need proof of your income from a third party. Self Certification is useful for self employed people or contract workers.
• Shared Ownership
Shared ownership is a scheme devised by housing associations that requires you to pay mortgage payments on the part of a property that you own while you also make monthly rent payments on the portion of the property owned by the building association.
Solicitors are the people who give legal advice and carry out all the legal work for mortgage and remortgage transactions.Stamp Duty Stamp duty is a tax paid to the government on the purchase of a property.
The SVR, or standard variable rate, is the base rate of the lender. It is subject to change at any time depending on the lender. The SVR will fluctuate based on the Bank of England Base Rate.
• Structural Survey
A structural survey is the thorough inspection of a property carried out by a professional surveyor.
Tenure means the type of rights a person has over a property or the land it stands on. Tenure could be freehold or leasehold, for example.
The term of a mortgage is the number of years over which you plan to pay your mortgage off.
• Tie-in Period
A tie-in period is an amount of time for which you are bound to a lender. Tie-in periods often exist with special mortgage deals like fixed, capped, or discounted rates. If you move your mortgage to a different lender during this period, you are subject to an early redemption fee.
• Title Deeds
A title deed is a legal document that validates the ownership of your property. A title deed proves your true and legal right to your property.
• Transfer Deed
A transfer deed is a legal deed used for transferring the ownership of your property to a buyer.
The term unencumbered means that you own your property outright with no mortgages or loans against it.
A property valuation is a survey conducted on a property by a qualified surveyor in order to assess the value of the property. This valuation is done on behalf of your lender so that they are able to confirm the value of your property.
• Variable Rate
A variable rate means that your interest rate may change from month to month thereby causing your payments to fluctuate monthly.
A vendor is the person from whom you purchase a property.
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Article Source: Glossary of Mortgage Terms