Mortgage Glossary and Terminology
Annual Percentage Rate (APR)
A percentage figure, calculated by using a standard formula that takes into account interest rates and associated costs over the term of a mortgage, used to compare the mortgage rates charged by different lenders.
Assignment
The transfer of ownership of the property from one person to another. Ownership is 'assigned' to you through the contract.
Base rate
The Base Rate is the lowest level at which a bank will charge interest. This is used as a benchmark to set the borrower's interest rate. The bank will usually charge interest above the base rate at a level designed to reflect the lenders risk in giving the loan.
Buildings insurance
An insurance policy designed to insure the fabric of the building rather than its contents.
Bridging loan
A temporary loan to bridge the gap if you have to complete the purchase of your new home before you've sold your current one. Some lenders only offer bridging loans secured by a solicitor's undertaking. This is a personal legal guarantee by the solicitor that something will be done - usually the repayment of a mortgage or production of title deeds.
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Capped rate
A pre-arranged maximum rate of interest you can pay on a mortgage during a set period of time.
Charge
A technical word for the security or collateral a company relies on when lending money on property.
Collateral
An asset pledged as security to a lender until a loan is repaid. In the case of a mortgage loan, the collateral is likely to be your property - if you default on your repayments the lender may sell your home to recoup the balance.
Completion
The point at which all business has been completed. Ownership of the property is transferred to the buyer.
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Contents
As in "Contents Insurance" - refers to the contents of your home covered by the policy.
Contract
An agreement between buyer and seller that binds both parties to the purchase and sale of the property. Each party signs a seperate copy and these are exchanged.
Conveyance
The technical term for the legal process of transferring property from one person to another.
Discounted rate
A standard variable rate mortgage that offers a discount for a fixed period of time. The discount will be set at a certain percentage below the standard variable rate and the interest rate will move up and down in line with the variable rate.
Early repayment charge
A fee designed to compensate the lender for the interest that would've been paid had the mortgage run the full term, in the event of the borrower paying the laon off early. Not all mortgages feature these charges.
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Excess
The amount you will have to pay before your building or contents insurance policy takes effect to cover any claim you might make. The amount varies so always check what the excess is before buying a policy. The cost of the insurance cover can be affected by the level of the excess.
Exclusions
Items not covered by an insurance policy. Always check the exclusions of a policy before purchase.
Extended cover
A requested extension of insurance on items not covered by the basic policy
Fixed rate mortgage
A mortgage with fixed interest rates over a set period.
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Flexible mortgage
A mortgage that offers some flexibility over repayment, although some product restrictions may apply. As an example, a flexible mortgage could allow you to pay off your mortgage early or make overpayments.
Freehold
The legal word for the ownership of land and the property that stands on it, where both belong to the owner indefinitely.
Ground rent
The annual rent paid by a leaseholder to the person or company owning the freehold. It's usually paid by people living in leasehold flats to the company owning the land on which the block was built. Ground rent is not the same as a service or maintenance charge, which leaseholders may pay to cover such things as the management, maintenance and repair of the block of flats or property.
Higher lending charge
A fee charged by a lender where the amount borrowed exceeds a given percentage of the value of the property.
Home insurance
Home insurance comes in two forms: contents insurance and buildings insurance. Contents covers possesions within the home, buildings covers the fabric of the building.
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Lease
The legal document that details the agreement between the freeholder and those who occupy their property for a specified period of time and at an agreed price or rental.
Leasehold
The legal word for the ownership of a lease. It can refer to residential or commercial properties and cover any terms and conditions.
Lender
An individual or comapny which agrees to the lending of money on the basis that it will be repayed with an agreed rate of interest.
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Lump-sum payments
One-off payments, on top of your regular repayments, that can be used to pay off your mortgage early - if your lender allows you to. With some mortgages there may be an Early Repayment Charge associated with making overpayments above a given percentage.
Mortgage
A mortgage is a loan in which you, as the borrower, offer your property and land as security until such time as the loan is repaid. it is the property and land you are offering as security that you are buying.
Mortgage indemnity cover/guarantee
A type of insurance policy that covers the lender against loss if you stop paying your mortgage.
Offset mortgage
Offsetting is a way of managing your money using your current account, savings account and offset mortgage. You can 'offset' the credit balances you have in your current and savings accounts against your mortgage balance and pay interest (at the mortgage rate) on the difference only. This means that you could potentially reduce the total amount of interest you have to pay on your mortgage. You will not, however, earn interest on your credit balances. When offsetting credit balances against the mortgage, you have the option of keeping your mortgage repayments as they are, thereby paying the mortgage off more quickly, or keep the original term and reduce your monthly repayments (please note your mortgage repayments may vary). Either option may provide substantial savings.
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Premiums
The technical term for the payments you make in return for your insurance cover.
Registered land
Land whose title is registered at - and usually guaranteed by - Her Majesty's Land Registry.
Remortgaging
The process of moving your mortgage from one lender to another, or choosing a different type of mortgage from your current lender.
Stamp duty
A sliding scale of tax paid to the government on the purchase price of any property costing £120,000 or more. Between £120,001 and £250,000 it's set at 1%. From £250,001 to £500,000 it's 3% and for properties valued at more than £500,000 it's 4%.
Standard Variable Rate
A mortgage lender's main interest rate, which fluctuates with changes in the base rate. Repayments on a Standard Variable Rate mortgage will therefore move up and down in line with changes to the rate. The benefit comes when interest rates are low.
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Title deed
Documents that provide evidence of property ownership.
Tracker mortgage
A mortgage with an interest rate that follows the movement of the Bank of England's base rate - up or down according to the state of the national economy.
Valuation
A service provided by an independent expert to determine the value of any property you might want to buy or sell.
