Glossary
The process of applying for a mortgage may involve a number of unfamiliar words and phrases. Here's a quick guide to some of the most common ones to help you.
Advance
The amount of money we lend you.
APR (Annual Percentage Rate)
A standard way of expressing interest rates which allows you to compare the cost of different mortgages - including those from different lenders - on a 'like-for-like' basis. It takes into account costs such as fees for valuations, legal services and administration. The APR calculation is set by legislation and assumes the mortgage will run its full term.
Application Fee (or Arrangement Fee)
A charge for the administration involved in setting up your mortgage.
Base Rate
The interest rate set by the Bank of England from which all other interest rates are calculated.
Buildings Insurance
Protects your property against the financial effects of hazards such as fire, floods and subsidence. It is a condition of taking a mortgage with us that you have adequate buildings insurance.
Capital
The amount of money you borrow.
Capital and Interest Mortgage
A mortgage where you make monthly repayments over an agreed number of years to cover both the capital you have borrowed and the interest charged. At the end of the term, provided you have made payments when they fall due, you should owe nothing. Also called a 'Repayment Mortgage'. See also 'Interest Only Mortgage'.
Capped Rate Mortgage
A variable rate of interest that is guaranteed not to go above a certain level. Your payments, therefore, go up and down as the mortgage rate changes but never above the agreed 'cap'.
CAT Standard Mortgage
A mortgage which meets standards set by the Government for fair Charges, easy Access and decent Terms. Criteria includes interest calculated daily, minimum loan amount of £10,000 and advertising must be fair and clear.
Completion Date
The day when ownership of your property is passed to you and all conditions of the mortgage come into effect. The balance of the purchase price is paid and the seller hands over the deeds. The seller must move out on this date and you can move in. Your completion date is agreed when contracts are exchanged.
Contents Insurance
Protects the items in your home, such as furniture and personal possessions, against theft, loss and damage.
Conveyancing
The legal work carried out to transfer ownership of the property from the seller to the buyer. Usually carried out by a solicitor or licensed conveyancer.
Credit Reference Agencies
Organisations licensed under the Consumer Credit Act 1974 to hold information about the credit history of individuals. Lenders refer to these agencies to assist in making decisions about your application.
Credit Scoring
Credit Scoring uses statistical techniques to measure the likelihood that an application for a loan will be a good credit risk. Lenders use this system to assist them in making decisions about your application.
Daily Interest
The interest on your mortgage is calculated on a daily basis, which means that as soon as you make a capital payment your interest is reduced.
Disbursements
The fees paid by your solicitor in the process of buying or selling your property including HM Land Registry fees, stamp duty and search fees. They are passed onto you.
Discounted Rate
A rate of interest that is charged at a set percentage below the Standard Variable Rate (SVR) for a set period of time. Payments are therefore variable but at a lower amount than the SVR initially.
Early Repayment Charge
A charge made by some lenders if some - or all - of the money you have borrowed is paid off before an agreed date.
Endowment Mortgage
A life policy used as a repayment vehicle to pay off a mortgage loan.
Equity
The difference between the value of your property and the outstanding balance on your mortgage. For example, if your property is worth £200,000 and you have a £90,000 mortgage, you have 'equity' in it of £110,000.
Exchange of Contracts
The process of exchanging contracts to buy or sell a property. The completion date is set at this time. Once the contracts have been exchanged, you are legally obliged to buy the property and the seller to sell it to you.
Fixed Rate
A rate of interest guaranteed not to change over a fixed period of time. Repayments are set at a certain level, typically for one, two or five years, at which point you are usually moved to the lender's standard variable rate.
Flexible Mortgage
A mortgage which provides the customer with a number of flexible benefits such as allowing overpayments or underpayments or taking a payment holiday.
Freehold
Freehold ownership means you own both the property and the land on which it stands. (See 'Leasehold'). Freehold rights are the highest and most secure type.
Further Advance
Further borrowing against your property in addition to your initial advance.
Ground Rent
An annual fee paid by the leasehold owner of a property to the freehold owner.
Guarantor
A person who promises to be answerable for the debt of another.
Higher Lending Charge
A single premium policy, often paid by the borrower prior to completion to insure the lender against any losses selling your property if you fail to keep up the mortgage payments. Not all lenders charge this (including The Co-operative Bank) and you are only likely to come across this fee if you borrow more than 90% of the value of your home.
HM Land Registry
The official organisation that keeps records of properties in England and Wales. Transfer of ownership now has to be registered with HM Land Registry.
Homebuyers Report
A survey carried out by a professional surveyor from which you receive a report stating the condition of a property and whether or not any repairs need to be carried out. This service is less thorough than a full 'structural survey' (which might be more useful for older properties), but provides reasonably detailed information at a slightly higher outlay than a basic valuation.
Interest Only Mortgage
A mortgage where your monthly payments only cover the interest incurred on the mortgage. The capital is usually repaid at the end of the mortgage term using proceeds from an investment vehicle taken out for that purpose. See also 'Repayment Mortgage'.
Intermediaries
An individual, firm or organisation which helps customers to choose a mortgage and introduces mortgage applications to lenders. These include estate agents, mortgage brokers, independent financial advisors, solicitors, accountants and life assurance companies.
Leasehold
Where the Freehold owner of land or property allows the property or land to be leased by a tenant for a fixed period of time.
Loan to Value (LTV)
A way of showing the amount of the loan against the value of the property. For example, a mortgage of £70,000 on a property worth £100,000 has an LTV of 70%.
Lump Sum Repayment
The payment of an amount of money into your account on top of your normal monthly payment.
Mortgage
A long-term loan secured on a property.
Mortgage Deed
The legal document between lender and borrower which secures the loan against your property.
Mortgagee
The lender.
Mortgagor
The borrower.
MPPI - Mortgage Payments Protection Insurance
Protects you against loss of income by helping you meet your mortgage payments should you become unable to work because of an accident, illness or unemployment.
Negative Equity
Where the loan amount outstanding exceeds the market value of the property held as security. Customers should ensure they can afford their mortgage, in the event that house prices fall and this situation occurs.
Overpayments
You pay an extra amount into your mortgage each month, with the aim of saving a substantial amount of interest in the long run or funding future underpayments.
Payment Holiday
You stop paying your mortgage altogether for an agreed period. Interest will continue to mount up and you will be required to either increase your mortgage term or make higher monthly payments. Subject to our agreement and payment holiday policy at the time.
Portability
If you move house you may be able to transfer your existing mortgage product onto a new mortgage for your new property if you stay with the same lender.
Purchaser
The person or persons who buy the property.
Redemption
When you pay off the outstanding balance of your mortgage.
Re-mortgage
When you switch your existing mortgage to another lender.
Repayment Administration Fee
A fee charged by lenders for discharging a mortgage when it has been repaid in full.
Repayment Mortgage
See 'Capital and Interest Mortgage'.
Repayment Vehicle
An investment (usually an ISA, endowment policy or pension) which is used to repay an interest only mortgage at the end of the term.
Secured
A secured loan is underpinned by your property (includes assets such as Title Deeds to your house, life policies etc). If you do not repay your mortgage, the lender has the right to sell these assets.
Shared equity ownership
You own 100% of the property. You arrange for a mortgage for typically between 50-80% of the home's value, a third party (including Local Authority, Registered Social Landlord, Housing Association, the Government, or another lender) provides an equity loan for the remainder, a deposit is useful and not always compulsory. The loan is typically interest only (not capital repayment) secured on your home; you pay interest to the third party in addition to your mortgage. When you sell your home you repay the equity loan provider in line with the percentage of the funds originally lent i.e if they lent you 20% of the purchase value you must pay them 20% of sale proceeds.
Shared ownership
You jointly own your home in partnership with a third party such as a Local Authority, Registered Social Landlord, Housing association ordeveloper. Shared ownership schemes are usually offered on specific housing developments rather then being available on any property for sale. You arrange for a mortgage typically between 50-80% of the home's value, the third party funds the remainder, a deposit is useful and not always compulsory. You will pay rent to the third party in addition to your mortgage. Many schemes provide the option for you to increase the share of the property that you own.
Stamp Duty
A government tax you have to pay on the conveyance of your property if it costs more than £175,000. The amount due depends on the value of the property. Current arrangements for stamp duty are subject to government policy and may change in the future.
Standard Variable Rate (SVR)
A rate of interest set by a lender on a mortgage. This can vary. Repayments for customers on their lender's SVR go up and down as the mortgage rate changes (usually move in line with Bank of England base rate).
Structural Survey
A detailed survey carried out by a professional surveyor on your behalf. This is generally recommended for older properties.
Term
The number of years over which you pay back your mortgage.
Term Assurance
Protects your family by repaying your mortgage should the worst happen and you (or your partner, if you hold the property jointly) die.
Title
The legal right to ownership of a property.
Title Deeds
The documents showing the ownership of a property.
Tracker Mortgage
A mortgage where the interest rate is guaranteed to be a set amount above or below the Bank of England base rate for a set period of time. Payments, therefore, vary in line with changes to that rate.
Underpayments
You pay less than your normal monthly amount, with the agreement of the lender. Some lenders (including The Co-operative Bank) require you to build up some overpayments first.
Valuation
A basic assessment of the condition and value of the property you are buying which gives the lender the information needed to decide whether or not to lend on it.
Variable Rate
A mortgage interest rate which can rise and fall in line with changes in interest rates in the economy as a whole.
Vendor
The person or persons selling a property.
If you are experiencing trouble with paying your mortgage, we can help and give you advice, please ring our mortgage helpline on 0161 829 4668 or view the paying your mortgage section.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
