The mortgage market is complex. Consumer campaigner Martin Lewis, creator of the
Money Saving Expert website, has created a mortgage best-buys table. It is a handy tool that compares thousands of mortgages in one place and is worth a try. In the meantime, this jargon buster explains some of the common terms used.
APR: APR is the Annual Percentage Rate of the total charge for credit: this is the standard way of working out the true interest rate. All lenders are legally obliged to show the APR alongside quoted interest rates for each mortgage term, this enables you to accurately compare mortgages from different lenders to work out exactly how much you will repay on your loan each month.
Bank of England Base Rate: The Bank of England Base Rate determines how much other banks and building societies pay for the loans that they take out from the Bank of England. These base rates will in turn affect the interest rate paid for loans including the loan on your mortgage.
Capital Repayment: There are two ways of repaying a mortgage either by the capital repayment or interest only route. With a capital repayment mortgage, the capital and interest elements of the loan are paid off with each monthly installment, with the balance reducing over the length of the loan term and being repaid in full at the end of the mortgage term. 'Interest Only' is where you pay the monthly interest only and must have a suitable repayment vehicle in place to repay the loan at the end of the term.
Conveyancing: This is the legal process involved when buying or selling property. Most people use a solicitor or a licensed conveyancer when buying or selling a property because there’s quite a lot of detailed work to do when transferring ownership of a property. Lenders will only use certain solicitors from a panel, we know which solicitors are on the panel and can recommend cost effective solicitors.
Disbursements: These are the fees your solicitor has to pay on your behalf (e.g. Stamp Duty, Land Registry fees and search fees) that will be added to your conveyancing bill from the solicitor on completion of the buying or selling of a property.
Discount Rate: A discounted rate mortgage offers you reduced repayments for a given term. This interest rate is discounted from the published lender standard variable rate, for an agreed period from the start of the mortgage. The standard rate can go up and down, but the discount amount remains fixed during the agreed period.
Equity: This is the positive difference between the value of your property and the amount of any outstanding loans secured against it. For example if your home was worth £300,000 and the mortgage on your property was £100,000 your equity would be £200,000.
Exchange of Contracts: This is the stage in England, Wales and Northern Ireland when both the buyer and seller have legally committed themselves to the sale and purchase of a property and are legally bound to complete the transfer.
Fixed Rate: This is a mortgage rate where the interest rate is agreed at the start of the mortgage and will not change during the term of the fixed rate.
Freehold: When you have the freehold on a property this means that you solely own the property and the land it is situated on.
Interest Charges: These are the charges made on a loan, calculated as a percentage of the total amount that you borrowed on your mortgage.
Interest Only: An interest-only loan is a
loan on which, for a set term, the borrower pays only the
interest on the
principal balance, with the principal balance unchanged. If you do choose an interest only mortgage you are responsible for ensuring that you have sufficient funds available to repay your mortgage at the end of the term.
Leasehold: This is a system used mainly in England where you own the property for a set period before handing back ownership to the freeholder. When you hold a leasehold on a property, it remains the property of the freeholder. A leasehold will set out the details of obligations of the leaseholder for repairs and maintenance of the property.
Legal Fees: These are the fees charged by a solicitor or other qualified individual to carry out the legal work associated with buying a property.
Mortgage Rate: In a nutshell this is the interest rate on a mortgage loan.
Offer of Loan: This is the formal document approving the mortgage you have requested. This document details the terms and conditions that will apply during the whole term of your mortgage.
Re-mortgaging: This is the term used when moving your mortgage from one lender to another without actually moving house. You may do this to save money. This might be possible by switching to another mortgage product with the same lender or by switching your mortgage to a competitor.
Searches: These are the enquiries made, usually by your solicitor, at the Land Registry, the Land Charges Register and Local Authorities to ensure there is nothing to cause concern about title to the land and the property you intend to buy.
Stamp Duty: Stamp Duty Land Tax (SDLT) is charged on land and property transactions in the UK. The tax is charged at different rates and has different thresholds for different types of property and different values of transaction.
Title: This is the legal right to the ownership of your property
Tracker Mortgage: This is a variable rate mortgage where the interest rate is linked directly to the Bank of England Base Rate. Therefore when the Base Rate changes, the rate on your tracker mortgage changes by the same amount.
UK Mortgage Broker: Mortgage broker based in the United Kingdom
Valuation: This is an independent assessment of the value of a property carried out by an approved surveyor and paid for by you the customer. All lenders insist that a valuation is carried out on a property. The valuation is used by the bank or building society to decide how much they are willing to lend you.
Variable Rate: This rate can go down as well as up during the course of your mortgage and is usually based on the lenders variable rate.
Source:
Fox Davidson
