Mortgage Terminology Explained – A Glossary of Mortgage Terms

Here at The Mortgage Heroes, we’re passionate about helping people across the UK find a mortgage and the right cover, regardless of their situation and background. We have over 20 years of combined experience in the industry and have been heroes for foster care mortgages, self-employed mortgages, bad credit mortgages, first time buyer mortgages and remortgages, just to name a few.

The mortgage industry is full of its own lingo which is why we thought we’d create this little guide to help anyone wanting to double check what some of the terms and phrases actually mean.

If you’d like to find out more about how any of these terms may impact your mortgages, or there’s a term we haven’t included that you’d like more details on, please don’t hesitate to get in touch with one of our heroes today. We’d be more than happy to help.

Agreement in Principle (AIP)

Also called a decision/mortgage in principle, this refers to a written estimate from a mortgage lender which indicates how much money you can borrow. It enables you to prove to estate agents and sellers that you can get a mortgage and thus afford to buy their property.

Annual Percentage Rate of Charge (APRC)

Annual percentage rate is the overall cost of your mortgage, taking into account interest rates and compulsory additional charges. It is expressed as a percentage.

Arrangement Fee

Most lenders require you to pay an arrangement fee in order to set-up your mortgage. You can add this to your mortgage, but this will cost more as you will pay interest on it.

Arrears

You are ‘in arrears’ if you have missed your mortgage payments and have payments overdue.

Buildings Insurance

This type of insurance covers the cost of repairing damage to the structure of your property, including walls and floors as well as any fitted or permanent fixtures (like a fitted kitchen). A typical policy will usually include flooding, fires, storm damage and any other damage which is out of your control.

Capital

This refers to the money you borrow to buy your property.

Capped Rate

Capped rate mortgage deals mean the interest rate charged by your lender may fluctuate, but will never exceed a stated interest cap.

Cashback Mortgage

With a cashback mortgage you receive cash on completion of your mortgage. The amount can either be a percentage of the amount you’re borrowing or a fixed sum.

Credit Score

Your credit score represents your creditworthiness and how much of a financial risk you might be to lenders. It is based upon a number of factors and is instrumental in a lender’s decision whether to offer you a mortgage.

See more: What Credit Score Do You Need for a Mortgage?

Deposit

The deposit is a lump sum of money you pay towards your property upfront. This is usually around 20% of the property’s value.

Discount Mortgage

A type of mortgage that reduces your monthly repayments either for a set period or for your whole mortgage.

Early Repayment Charges (ERCs)

With some mortgages, you may be charged a fee for repaying the loan too early.

Equity

Equity refers to the amount of the property that you own outright (your deposit plus the capital you’ve already paid off). In other words, it is the difference between what you owe on the mortgage and your property’s current value.

Fixed-Rate Mortgage

This type of mortgage deal means the interest rate you pay will stay the same throughout the length of the deal. This in turn means your monthly payments will stay the same.

Flexible Mortgage

A flexible mortgage’s features will differ between lenders, but generally it is a type of mortgage deal that allows you to overpay, underpay or take a payment holiday.

Guarantor

A guarantor is a third-party (such as your parent) who agrees to meet your monthly payments if you fail to.

Higher Lending Charge (HLC)

A higher lending charge is a fee some lenders may apply if you are borrowing over a certain percentage of a property.

Interest-Only Mortgage

A type of mortgage where you only pay off the interest part of your debt. This means your monthly payments will be smaller, but you will be required to repay all of the capital owed at the end of the mortgage term.

Joint Mortgage

A mortgage taken out by two or more people, such as a partner, friend, family member or business partner.

Loan-to-Value (LTV)

Expressed as a percentage, loan-to-value is the portion of the property’s value that isn’t covered by your deposit.

See more: Understanding Loan-to-Value & How it Works

Mortgage Deed

A formal contract between the borrower and the lender which outlines the borrower’s legal obligations and the lender’s rights if the borrower defaults a payment.

Mortgage Repayment

The amount you pay your mortgage lender each month.

Mortgage Term

The length of time over which the mortgage is to be repaid.

Negative Equity

You are in negative equity if your property is worth less than the mortgage secured on it.

Offset Mortgage

Offset mortgages enable you to link your mortgage to your savings. Your savings are offset against the value of your mortgage, meaning you’ll only pay interest on your mortgage balance minus your savings balance.

Portable Mortgage

A portable mortgage means you are able to transfer your current mortgage and move your borrowing from one property to another without having to pay an arrangement fee.

Remortgage

A remortgage is when you change your mortgage without moving home. You either end your mortgage with your current provider and take out a new mortgage with a different lender or alternatively you negotiate another deal with your existing lender.

See more: Remortgages FAQ – The Ultimate Guide to Remortgaging

Repossession

If you default your payments too many times and fall into arrears, the lender has the power to repossess your property.

Shared Ownership

Shared ownership enables buyers to purchase a share of a property (usually between 25% – 75%) and pay a below-market-value rent on the remaining share which is owned by a housing association.

Standard Variable Rate (SVR)

A standard variable rate mortgage is a variable rate mortgage that you’ll most likely be moved onto once your initial mortgage deal (fixed rate or tracker, for example) ends.

Tie-in Period

The tie-in period is the period in which you are ‘locked in’ to your mortgage deal. If you leave your mortgage during this period, you’ll be required to pay an early repayment charge.

Tracker Mortgage

A type of mortgage where the interest rate you pay is based on an external rate (usually the Bank of England base rate).

Variable-Rate Mortgage

A type of mortgage where the mortgage rate will fluctuate.

Get Started with The Mortgage Heroes Today.

This is by no means an exhaustive list of mortgage terminology, but hopefully it helps explain some common terms you’re more than likely to hear when going through the process of applying for a mortgage.

If you’re looking to find a mortgage, contact our team today. We’re a leading mortgage broker supporting people of all backgrounds across the UK. Get in touch for a free, no obligation quote.

See more: Remortgages FAQ – The Ultimate Guide to Remortgaging

See more: A Beginner’s Guide to Fixed-Rate Mortgages

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