Taking out your first mortgage can seem a daunting prospect, and even modern clear English mortgage documents can contain unfamiliar words and phrases. It is important to understand what you are taking on which is where our comprehensive glossary of mortgage related terms will help.
APRC: APRC means the Annual Percentage Rate of Charge. This allows you to compare the cost of two different mortgages by showing the mortgage cost over the whole of its term.
APR: the Annual Percentage Rate. This allows you to compare different mortgages by showing the mortgage cost over the initial fixed period.
Arrangement Fees: fees charged to you by the mortgage lender for taking out your mortgage.
Bank of England Base Rate: the cost of borrowing for banks and other financial institutions, set by the Bank of England. If the Bank of England’s rate changes, the standard variable rate for mortgages will rise or fall in line with it.
Buildings Insurance: insurance which covers the homeowner for damage to the property. Mortgage lenders require buildings insurance.
Buy to Let Mortgage: a mortgage taken out to finance a property which will be let out to provide an income rather than lived in by the owner.
Capital: this is the initial amount you borrow, which will need to be paid back over the term of the mortgage together with the interest.
Capped Rate: if a mortgage has a capped rate the interest rate can vary but it will have a fixed level, the cap, above which it cannot climb. The cap usually comes to an end after a specified period.
Cashback: some lenders will offer a sum of cash as an incentive to take out a mortgage. This sum is paid to you on completion of the mortgage
Completion: the date upon which the mortgage deed is signed and dated and the mortgage begins. If you are a first time buyer with your first mortgage this will be the day that you get the keys to the property and you are able to move in.
Credit Rating: the summary of your previous financial dealings as shown by the records kept by credit reference agencies. This is used to determine how much of a risk you are to lenders and may influence the amount you are able to borrow, and the terms on which you are able to borrow.
Deposit: the amount of cash you will need to put towards the purchase price in addition to the sums financed by the mortgage.
Discounted Rate: a mortgage interest rate which is set at a fixed discount below the lender’s standard variable rate or the base rate. Discounted rates are usually for a limited, set, period.
Early Repayment Charges: the additional charges you will have to pay the lender if you wish to end the mortgage before the end of the term. These compensate the lender for the loss of interest you would otherwise have paid them.
Equity: the amount of cash you would have left after repayment of the mortgage should you sell the property.
Fixed Rate: An interest rate which is fixed at one point rather than varying in line with the lender’s standard variable rate. It is usual for fixed rates to be for a limited period, after which the mortgage reverts to the lender’s standard variable rate.
Flexible Mortgage: a mortgage which allows you to pay more or less than your set monthly repayment without penalties.
Initial Rate: the interest rate which is applied for a set period at the beginning of the mortgage term. Many homeowners will choose to remortgage when the initial rate expires.
Interest: the additional sum you pay each month to the lender as the charge for borrowing.
Interest Rate: the rate at which you pay interest. This is usually expressed as a percentage.
Interest Only Mortgage: with an interest only mortgage your monthly repayments only include interest. They do not include any capital, meaning that at the end of the mortgage term you will need the means to repay the capital you have borrowed.
Loan to Value: the ratio of the amount of the mortgage loan compared to the value of the property. The loan to value will determine whether or not you are able to borrow, and upon what terms. Generally lower loan to value loans are available at a lower interest rate.
London Inter-Bank Offered Rate (LIBOR): this rate is the rate at which banks borrow money from each other. It will affect the standard variable rate.
Mortgage: a mortgage is a loan which is secured on a property. The charge on the property means that the lender can sell the property if you fail to keep up the repayments as they are due.
Mortgage Advisor: a person or firm who has permission to advise on regulated mortgages.
Mortgage Lender: the bank, building society or other financial institution offering mortgage loans.
Offset Mortgage: a mortgage where the homeowner also has savings with the mortgage company. With an offset mortgage the lender calculates the interest by deducting the amount of your savings from the amount outstanding on the loan, and only charges you interest on the difference. This can save some homeowners significant sums of money and/or help them to repay their loans early.
Overpayment: paying more than you are obliged to by the repayment schedule, either on a regular or one-off basis. This can reduce the total amount of interest payable on the mortgage and/or reduce the term.
Payment Holiday: a break from paying mortgage instalments, agreed with the lender. Often a feature of flexible mortgages. This can help if you have a transient change of circumstances for example a change of job or a new baby.
Remortgaging: the process of switching your mortgage from one lender to another. Homeowners often choose to remortgage when initial fixed, capped or discounted rates come to an end so that they always have the best deal available.
Repayment Mortgage: a mortgage where the monthly repayments include a proportion of the capital as well as interest, so that at the end of the term the whole of the capital and interest is repaid.
Residential Mortgage: a mortgage used to buy property for the home owner to live in themselves.
Standard Variable Rate: this is the lender’s standard rate. Many lenders offer fixed, discounted or capped rates as incentives and at the end of the incentive period the mortgage will revert to the standard variable rate which is usually at a higher level. The standard variable rate can rise or fall.
Term: this is the length of the mortgage. Traditionally mortgages were taken out over 25 years but the term can be longer or shorter. The longer the term, the greater the interest you will have to pay.
Tracker Mortgage: a mortgage where the interest rate keeps step with the Bank of England Base Rate.
Valuation Fee: the fee charged by the lender to value your property for mortgage purposes.