Mortgage Glossary
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Additional Loading or Rating
The additional interest rate which a lender may charge over and above its base lending rate, based on your financial circumstances and requirements.
Advance
Another name for the mortgage loan.
APRC
APRC (annual percentage rate of charge) represents the total cost of a secured loan or mortgage to the customer, shown as an annual percentage of the total loan amount. It includes all interest rates and charges applied over the full loan term, making it useful for comparison.
Application Processing Charge
This is a fee which we charge for the time spent in researching the mortgage market, and for the administration involved in ensuring your mortgage application is handled efficiently. The Application Processing Charge also covers many of the various fees and charges incurred in collecting information to support your application, such as references from existing lenders, and the cost of the valuation report. The fee becomes payable only upon completion of your mortgage or remortgage.
ASU Insurance
Stands for "Accident, Sickness & Unemployment" insurance (sometimes known as PPP, which stands for "Payment Protection Policy"). This type of insurance is designed to protect your monthly mortgage repayments in the event of you being unable to work due to one of the reasons specified in the insurance policy.
Base Rate
This is the UK’s core interest rate set by the Bank of England. The lender’s Standard Variable Rate (SVR) is higher than the Base Rate, but is often adjusted by reference to it.
Buildings Insurance
This insurance covers the cost of repairing or rebuilding the structure of your property following such events as fire, explosion etc. It also generally covers some of the "permanent" fixtures of your home such as washbasins, toilets etc. All lenders will insist that you have adequate Buildings Insurance in place. The Valuer will usually provide a rebuild cost for insurance purposes.
Capital & Interest Mortgage
Also known as a Repayment mortgage, this is the traditional method of repaying a mortgage loan. The Monthly repayments which you make go partly towards reducing the mortgage debt, and partly towards paying the lender's interest charges. The mortgage debt is guaranteed to be repaid at the end of the term providing you have made all your monthly repayments when due, which is one of the main attractions of this type of mortgage. It is important when taking out a Capital & Interest mortgage that suitable life cover is in place to protect the mortgage debt, otherwise your home could be at risk. It is your responsibility to ensure that adequate life cover is in place. We will introduce you to a company that offers life insurance products if you wish us to do so.
Cashback
A payment you receive, payable by the mortgage lender, on completion when you take out a "Cashback" mortgage.
CCJ
This stands for County Court Judgement and is a decision reached in the County Courts, normally for defaulting on outstanding debt. CCJs appear on your credit records, and remain there for six years. Having CCJs registered on your credit records can have an adverse effect on your ability to borrow money.
CeMAP
This stands for "Certificate in Mortgage Advice and Practice", and is an industry recognised qualification. The CeMap examinations (or equivalent) must be passed before a mortgage adviser can give unsupervised mortgage advice to the public.
Completion
The formal end of the mortgage or remortgage transaction, which comes after exchange of contracts when the money is handed over and legal formalities are dealt with.
Contents Insurance
As the name suggests, this type of insurance covers the contents of your home, i.e. furniture, personal belongings etc. against theft, and against accidental damage (if you ask for "Accidental Damage" to be included in the policy). Although the lender will not insist that contents insurance is in place, it is sensible to ensure you have adequate cover.
Conveyancing
The legal process involved in buying and selling property. This is normally carried out by a solicitor or licensed conveyancer on the buyer’s behalf.
Daily Interest
This refers to how a lender calculates the interest it charges you for your mortgage. If a lender uses a "daily interest" calculation, this means that it bases its ongoing interest charges on what you actually owe each day. Therefore, from the day after your monthly repayment is credited to your mortgage account, the lender's interest charges are based on a lower mortgage balance because your mortgage payment has reduced the amount you owe to them. A daily interest calculation is more beneficial than a monthly interest calculation.
Deposit
The amount of money you put towards buying a property.
Disbursements
Various conveyancing costs incurred during the mortgage process which can include, for example, Stamp Duty, Land Registry Fees, Local Searches etc. These fees are usually collected by your solicitor.
Discounted Rate Mortgage
This is a variable rate mortgage where the lender reduces the normal rate for a set period of time at the start of the mortgage. This reduction is guaranteed for a specified time, sometimes for a certain number of years from completion but more often until a set date in the future.
Early Repayment Charge (ERC)
This is a charge made by a lender if you pay off all or part of your mortgage before an agreed date, usually in conjunction with a fixed or discounted rate mortgage. The Early Repayment Charges attached to a mortgage can be found within the terms and conditions of the lender's Mortgage Offer.
Endowment
This is a combined life assurance/savings policy designed to produce a lump sum to pay off an Interest Only Mortgage. As the returns payable is usually dependent on the stock market performance, this means that shortfalls - and in some instances overpayments - can occur.
Equity
The difference between the value of the property and the amount of any mortgage or secured loans outstanding on it.
Exchange of contracts
This is the point where the person buying and the person selling a property sign and "exchange" contracts which show the agreed price of the property and what fixtures and fittings are included, as well as a date when everything is to be finalised. When the contracts are exchanged, the transaction becomes legally binding and if either party pulls out, compensation will be due to the other party.
Financial Conduct Authority
The UK Regulator (the FCA) are responsible for Authorising and Regulating companies within many business sectors, including the mortgage industry.
Fixed Rate Mortgage
This is where the interest rate on a mortgage is fixed for a set period of time at the start of the mortgage. The rate is sometimes fixed for a certain number of years from completion, but more often until a set date in the future. The benefit of having a fixed rate mortgage is that you have the security of knowing exactly what your mortgage repayments are going to be each month for as long as your rate is fixed. However, the drawback is that if interest rates fall during that time and go below your own fixed interest rate, your monthly repayments will not go down. At the end of the fixed rate period, the mortgage will normally revert to the lender’s Standard Variable Rate.
Flexible Mortgage
A mortgage which offers a range of flexible options including overpayments, underpayments and payment holidays (subject to the lender's terms and conditions).
Freehold
This is where you own the property and the land it stands on.
Gazumping
This is where the person selling a property accepts an offer on it from a prospective purchaser, but then subsequently accepts a better offer from someone else.
Higher Lending Charge
This is a one-off fee charged by some lenders where the LTV (see above) is more than around 70%. The fee is used by the lender to buy insurance to protect itself in case your property has to be taken into possession and then sold for less that your outstanding mortgage debt. It is important to note that the insurance covers the lender, and not the borrower - indeed, if a claim is paid out under such insurance, the insurers generally have the right to recover the claim from you.
Illustration
In the context of mortgages, a lender’s written estimate of the monthly payments you would make under a particular loan agreement, together with the costs to set it up.
Interest Only Mortgage
This is an alternative way of arranging a mortgage, and works differently to a Capital & Interest (Repayment) Mortgage. Your monthly repayments to the lender are only made up of interest, and do not go any way towards reducing your mortgage balance. Instead, you pay a separate monthly amount into an investment policy (for example an endowment policy or an Individual Savings Account (ISA)), the aim of which is to grow throughout the term and then repay the mortgage loan. However it is not guaranteed to do so, and you may find that the proceeds of your investment policy are not enough to repay the mortgage debt. It is your responsibility to ensure that a suitable investment policy is in place to repay the mortgage at the end of the term, and also to ensure that adequate life cover is in place to cover the mortgage debt, otherwise your home could be at risk.
Impaired Credit Mortgages
Impaired credit mortgage are specialist loans for customers whose credit problems many mean they are unable to access mainstream lenders’ standard products. Some lenders specialise in loans like these, which are also known as adverse credit loans.
IPT
This stands for Insurance Premium Tax, and is a tax payable on all UK general Insurance policies.
ISA
This stands for Individual Savings Account, and is an investment product which has certain tax advantages.
Leasehold
This is where you own the property but not the land it stands on. With a leasehold property you pay a monthly rental payment to the person or company who owns the land, known as "ground rent".
Lender's Administration Charge
This is a fee charged by the lender to cover its own administration costs.
LIBOR Rate
This stands for London Inter Bank Offer Rate, and is the interest rate at which banks lend to each other. LIBOR can vary day by day and is not linked directly to the Bank of England Base Rate. LIBOR is used by some lenders as their base lending rate instead of a Standard Variable Rate which is connected to the Bank of England Base Rate. Where a lender uses LIBOR as its base lending rate it usually reviews the rate on a quarterly basis.
Licensed Conveyancer
Although these firms specialise in the legal side of buying and selling properties, they are not generally accepted by lenders as an alternative to using a solicitor.
LTV
This stands for "loan to value", and refers to the amount of a mortgage as a percentage of the value or purchase price of a property. For example, a £90,000 mortgage on a house worth £100,000 would represent a LTV of 90%. Generally the lower the loan to value, the safer the lender will view the loan.
Monthly Interest
This refers to how a lender calculates the interest it charges you for your mortgage. If a lender uses a ‘monthly interest’ calculation, this means the lender effectively takes a ‘snapshot’ of your account once each month (usually at the end of the month), and bases its interest calculation on what you owe on that date. Therefore, regardless of the date your monthly repayment was actually credited to your mortgage account, your interest charges will not be recalculated until the end of the month.
Mortgage Offer
This is a formal document from the lender stating how much it is offering to lend you and on what terms.
Portability
When a product is described as "portable" it means that you may be able to transfer it to a new property if you should move home (subject to the lender's terms and conditions).
Procurement Fee
The total amount paid by the mortgage lender to a mortgage adviser/intermediary, whether directly or indirectly, in connection with providing applications from customers to enter into regulated mortgage contracts with the mortgage lender.
PPP Insurance
See ASU Insurance.
Redemption Charges
These are the expenses charged by a lender for the general administration involved in closing your mortgage file.
See also Early Repayment Charges
Redemption Penalties
Remittance Fee
This is a charge made by the lender for sending the mortgage funds to your solicitor in order for the mortgage transaction to be completed.
Remortgage
This is where you take out a new mortgage on your property with a new lender, even though you are not moving home. Your previous lender is paid off with funds from your new mortgage.
Repayment Mortgage
See Capital & Interest Mortgage
Repayment Types
See Capital & Interest Mortgage and Interest Only Mortgage
Search
A local authority search is an examination of local planning records to uncover details of any upcoming developments near the property that could impact its future value or existing restrictions on site.
Secured Loan
If you should default on your mortgage, the lender can ultimately repossess your property to recover their money. The loan is therefore said to be ‘secured’ on the property. A second charge mortgage is a type of secured loan.
Self-Certification of Income
This is where you confirm in writing how much you earn, and the lender does not need confirmation of your income from a third party.
Solicitors
Solicitors are required for all mortgage and remortgage transactions to carry out the legal work involved. Ocean Finance will provide solicitors to carry out the appropriate legal work and meet their costs, if you are happy for us to do so.
Stamp Duty
Stamp Duty or Land Tax is a tax levied by the government on house purchases. The amount of Stamp Duty will depend on the value of the property and if you are a first-time buyer and whether you’re buying a main, secondary residential property or buy to let property.
SVR
This means Standard Variable Rate, and is the way which most lenders define their standard lending rate (some lenders use the LIBOR rate instead, see heading on "LIBOR Rate" above). A lender's Standard Variable Rate is linked to the Bank of England Base Rate, however whilst the SVR will generally go up and down in line with changes to the Bank of England Base Rate, it is Normally set by the lender at a slightly higher rate. Lenders calculate their own SVR's, and they therefore vary from lender to lender.
Tenure
This refers to the type of ownership of a property and the land it stands on, i.e. Leasehold or freehold (known as ‘feuhold’ in Scotland).
Term
This refers to the number of years you take the mortgage out over, at the end of which it must be repaid.
Tie-In Period
If you have a special mortgage deal such as a fixed or discounted rate, you may have to agree to stay with the lender for a period of time after the special deal has ended. Moving your mortgage within this period can incur early redemption penalties.
Title Deeds
This is an extremely important set of official documents which confirm the ownership of a property.
Transfer Deed
This is a legal document which is used when there is to be a partial change in ownership of a property, for example where someone is being added to or removed from the Title Deeds of the property.
Valuation
This is an inspection of a property to find out how much it is worth and whether it is suitable to lend a mortgage on. It is carried out by a professional surveyor on behalf of a lender. It is not an in-depth survey, however an in-depth survey can be arranged at an additional cost providing you let us know before we instruct the valuation.
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