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Mortgage Glossary - An A to Z of mortgage terms
Supplying mortgage term definitions, mortgages A to Z and glossary of mortgage terms, basic definitions of home buying terms and explanations or mortgage term meanings.
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Additional Security Fee
An Additional Security Fee (Mortgage Indemnity
Guarantee policy) is paid to take out an insurance
policy designed to indemnify the mortgagee (lender)
against loss in the event of default on the
mortgage repayment. It is normally taken out by the
lender at the start of the mortgage and the
mortgagor (borrower) is made to pay the premium!
The premium is normally calculated as a percentage
(5.8% is typical) of that part of the loan above a
certain percentage of the property value, normally
70 - 75%. It is charged as a lump sum to the
borrower and can usually be added to the mortgage
advance. It should be understood that such policies
are for the protection of the lender and NOT the
borrower.
Adverse Credit
This is the term used if the borrower has suffered
a poor credit history. This could include previous
mortgage or loan arrears, CCJ's or bankruptcy.
Other terms used to describe an adverse credit
mortgage include: Non status mortgage, Credit
impaired mortgage, Bad credit mortgage Poor credit
mortgage No credit check mortgage, No credit
mortgage, Low credit score, mortgage
Agricultural Restriction
A Freehold covenant restricting the occupancy of a
property to those engaged in agriculture.
Apportionment
Dividing the liability for property tax, water
charges etc between the seller and buyer of a
property.
APR
An interest rate reflecting the cost of a mortgage
as a yearly rate. This rate is likely to be higher
than the stated note rate or advertised rate on the
mortgage, because it takes into account point and
other credit cost. The APR allows home buyers to
compare different types of mortgages based on the
annual cost for each loan.
Arrangement Fee
This is a fee you pay to your Lender in return for
providing you with a mortgage. Usually paid on
completion or with application , these fees usually
apply when you take out a fixed rate, discount or
cashback mortgage.
Assignment
Document transferring rights of ownership from one
person to another, such as an endowment policy to
the building society in connection with a mortgage.
Can also be the document transferring the lease on
a property.
ASU
Accident, Sickness and Unemployment insurance (See
also MPPI). This insurance is designed to cover the
borrowers mortgage payments in case of accident,
sickness or involuntary unemployment.
Auction
Public sale of a property to the highest bidder.
The purchaser must immediately sign a binding
contract and should ensure that all valuations,
searches etc are carried out prior to the sale.
Authority to Inspect The
Register
Document from registered proprietor of land
allowing another party, such as the purchasers'
solicitor, to be given information from the
register of a property.
Bankers
Draft
A method of payment of funds which has all the
appearances of a cheque, but in effect is a cash
payment.
Base Rate Tracker
The newest type of mortgage. The interest rate is
variable but set at a premium (above) the Bank of
England Base Rate for a period or even the term of
the mortgage. The biggest advantage of this type of
mortgage is that, usually there is little or no
redemption penalty. This also means that interest
can be saved on the mortgage without penalty, by
overpayments, and these savings can be quite
significant.
Booking Fee
Arrangement fees, are charged in connection with
some mortgages, often they are charged in
connection with a fixed or capped rate loans. The
fee is normally non-refundable if charged upfront,
some times it is added to the mortgage debt on
completion.
Bridging Loan
Short term loan to facilitate the purchase of one
property prior to the sale of another releasing
funds that are required for the purchase.
Professional advice should always be taken prior to
considering any bridging finance as it can be a
solution which is worse than the problem.
Brokers Fee
A fee charged by an intermediary or advisor for
locating the most appropriate mortgage for the
borrower.
BSA
Building Societies Association. Represents
interests of member societies. Address 3 Savile
Row, London W1X 1AF.
Building Societies
Commission
Regulatory organisation for Building Societies.
Reporting to Treasury Ministers.
Building Society
Mutual organisation specialising in lending money
to individuals to purchase or remortgage
residential properties. Most of this money comes
from individual saving members who are paid
interest. A proportion of building society funds is
also raised on the commercial money markets. Since
the early eighties there has been a progressive
relaxation of the rules governing the allowable
sources of building society funds for lending to
allow societies to compete more effectively with
banks and there is now no restrictions as between
the allowable proportions of 'retail' and
'wholesale funding'.
Buy-to-Let
This is a mortgage designed for people who wish to
purchase a property to rent out to others. The
ability to repay this type of mortgage is often
based on the projected rental income from the
property as opposed to the personal income of the
borrowers.
Capital and
Interest
Your monthly payments are partly to pay the
interest on the amount you borrowed and partly to
pay the outstanding mortgage and ongoing costs
involved in a mortgage.
Capped Rate
An interest rate charged on a mortgage where there
is a guarantee from the mortgagee that the rate
will not exceed a certain amount usually for a set
period of 1 - 5 years but which will reduce if the
standard variable rate falls below the capped
rate.
Cashback
A payment you receive when you take out a mortgage.
It may be a fixed amount, or a percentage of the
amount of the mortgage.
CCJ
County Court Judgment. A decision reached in the
County Court which can be for not paying debts. If
you pay off the debt, the CCJ is satisfied and a
note is put on your records to say this.
Centralised Lender
"Term used to describe a mortgage lender who does
not rely on a branch network for distribution.
Originally applied to specialist lenders who
entered the mortgage market in the mid-late
eighties (National Home Loans, The Mortgage
Corporation, First Mortgage Securities, Mortgage
Express and many others). This followed some
de-regulation, which made the securitisation of
mortgage loans a viable and potentially profitable
option for lenders. (See SECURITISATION). Several
building societies now have ""centralised lending""
operations which operate quite separately from
their branch networks and rely exclusively on
mortgages from intermediary sources."
Charge
Any right or interest, especially a mortgage, to
which a freehold or leasehold property may be
held.
Charge Certificate
The certificate issued by HM Land Registry to the
mortgagee of a property with registered title.
Contains three parts - charges register, property
register and proprietorship register. Contains
details of restrictions, mortgages and other
interests. Where there is no mortgage it is called
the Land Certificate and issued to the registered
proprietor.
Chattels
Moveable items such as furniture or personal
possessions.
Chief Rent
A rent payable by the owner of a freehold property
similar to the ground rent payable by a
leaseholder. Normally only found in the North of
England. Can be bought out by freeholder.
CML
Council of Mortgage Lenders
Completion
When the sale and purchase of the property are
finalised and you become the owner of your new
house.
Contract
Legally binding agreement for sale. In two
identical parts, one signed by seller and one by
purchaser. When the two parts are exchanged
(exchange of contracts) both parties are committed
to the transaction.
Conveyance
The deed by which freehold, unregistered title
changes hands. If the property is leasehold and
unregistered it is called an assignment. If the
title is registered the deed is called a
transfer.
Conveyancing
The legal process involved in buying and selling
property.
Covenant
A promise contained in a deed.
Credit Scoring
This is a way in which a lenders assess whether you
are a good risk to offer a mortgage to.
Credit Search
A check the lender makes with a specialist company
to find out whether you have any CCJs or a bad
credit record.
Debt
Consolidation
This is a means to repay high interest debts (such
as credit cards and personal loans) by
incorporating them into a new mortgage to benefit
from lower interest rates and lower monthly
payments.
Deed
A legal document which is 'signed, sealed and
delivered' not just signed. This has special
significance in law. Title to both freehold and
leasehold property can only be transferred by
deed.
Deposit
The amount of money you put towards buying your
property.
Disbursements
A solicitors expenses for example: land registry
fees, searches, faxes etc.
Discount Rate
An interest rate which is set at a set margin below
standard variable rate usually for a period of 1 -
5 years. Used as an incentive to attract potential
new borrowers.
Early Redemption
Charges
This a fee charged by a lender if you pay off part
or all of your mortgage before the agreed date, or
you move your mortgage to another lender. These
charges mainly apply to fixed rate, discounted rate
and cashback mortgages.
Easement
A right, such as a right of way, which the owner of
one property has over an adjoining property.
Endowment
A life assurance policy that is designed to produce
a lump sum to pay off an interest-only mortgage.
There are different types of endowments.
Equity
The amount of value in a property that isn't
covered by a mortgage - simply take the amount of
the mortgage from the valuation to work out the
equity.
Equity release
You take a new, larger mortgage, or increase a
mortgage you already have and use some or all of
the extra money you have raised for home
improvements, holidays and so on.
Exchange of Contracts
This is the point at which you and the person
selling the property sign and swap identical
contracts that show the price and which fixtures
and fittings are being sold, as well as the date on
which everything is to be completed. When contracts
are signed, everything becomes legally binding and
if you or the seller pull out before completion you
or they will have to pay compensation.
Fixed
Rate
The interest charged on a mortgage is set for an
agreed period.
Fixtures
Any item that is attached to a property and so
legally is part of the property.
Flexible Mortgage
This type of mortgage is relatively new. The
interest rate is variable but has the big advantage
that it is calculated daily instead of annually.
This means that any capital repayment of the loan
will affect the interest charged on the outstanding
balance immediately. By making regular
overpayments, the interest saved on the mortgage
over the term can be quite significant. Also, most
lenders will allow funds to be drawn from the
account up to the original mortgage balance or even
allow payment holidays.
Freehold
This is where you own the property and the land
that it is on.
Gazumping
This is when the person selling the property
accepts an offer and then accepts a new, higher
offer from another buyer before exchange of
contracts.
Gross monthly repayment
This is the amount you must repay to the lender
before tax relief (see MIRAS) had been applied to
the interest Charges. MIRAS was abolished in April
2000 and so there is now no tax relief applied to
mortgages.
Ground rent
A fee that a leaseholder has to pay the freeholder
every year.
Guarantor
This is the person liable for the repayment of a
mortgage if a borrower fails to maintain their
mortgage payments. This is usually a parent or
close family relative.
Home Buyers
Report
This is a property survey which lies between a
mortgage valuation and a full survey. It is a
multi-page report which gives the buyer some piece
of mind about the property they are purchasing.
Income
Multiples/multipliers
The size of the mortgage that the lender will offer
is usually worked out by multiplying your income by
a set figure. Most lenders will take 3 times the
gross salary of the first applicant plus 1 times
the income of the second applicant or 2.5 times the
joint salaries. Some lenders will allow you to
borrow more than this.
Income protection
insurance
This covers accident,sickness and unemployment. It
provides a monthly payment if you cannot work for
an extended period due to an accident,sickness or
unemployment.
Income reference
This is confirmation from your employer that you
earn the amount you stated when you made your
mortgage application. If you are self employed, the
lender may require confirmation from your
accountant.
Interest Only Mortgage
With this type of mortgage, the borrower is only
required to pay inerest on the amount borrowed
during the mortgage term. It is the borrowers
responsibility to ensure that enough funds will
exist (either through an investment policy or other
means) to repay the mortgage at the end of the
term.
Intermediary
A mortgage broker or advisor who locates the most
appropriate mortgage for borrowers and arranges the
mortgage on their behalf.
Land Registry
Fee
This is the fee paid to the Land Registry to
register ownership of an area of land.
Leasehold
If you buy a leasehold property, you own the
property for a set number of years but not the land
on which the property is built, as opposed to
freehold where you own both the property and the
land indefinitely.
Licensed conveyancer
An alternative to using a solicitor. This people
specialise in the legal side of buying and selling
property.
Local Authority Search
A check carried out by the buyer's solicitor to
check that there are no proposed developments in
the area of the property such as roads, railways or
other buildings. The check also includes details of
the planning permission for the property and
whether the council has served any enforcement
notices on the property. A fee is charged for this
service.
LTV
Loan to Value. This refers to the size of the
mortgage as a percentage of the value of the
property i.e. A £45,000 mortgage on a house
valued at £50,000 would mean that the LTV
would be 90%.
MIG
Mortgage Indemnity Guarantee. This is insurance
that covers the lender in case your property is
repossessed and the lender cannot get back their
money. Although this insurance protects the lender,
you have to foot the bill. Some lenders will add
the MIG on completion of the mortgage, whilst
others will deduct the relevant amount at
completion. This usually applies to high percentage
mortgages of over 75% loan to value.
MIRAS
Mortgage interest relief at source. This was tax
relief on your mortgage but was abolished by the
government with effect from April 2000.
Mortgage
A loan to buy a property where you put up the
property as security against you paying back the
loan.
Mortgagee
The Company or Organisation that lends you the
money.
Mortgagor
The person taking out the mortgage.
MPPI
Mortgage Payment Protection Insurance (See also
ASU). This insurance is designed to cover the
borrowers mortgage payments in case of accident,
sickness or involuntary unemployment.
MRP
Mortgage Repayment Protection. This is insurance
you take through the lender when you take out the
loan.
Negative
Equity
This is where the money you owe on the mortgage is
greater than the value of your property.
Non-Status
This is where a lender may not require income
details from you or may accept some previous poor
credit history i.e. CCJs or previous mortgage
arrears.
Overpayment
When monthly payments to a mortgage are increased
so that the mortgage is repaid before the end of
the mortgage term. Flexible mortgages allow
overpayments to be made without penalty allowing
significant interest savings over the mortgage
term.
Payment
Holiday
A period during which the borrower makes no
mortgage payments. Normally only available to
borrowers with a flexible mortgage who have
previously overpaid their monthly repayments.
PEP
Personal Equity Plan. This is a tax free way to own
shares or unit trusts. You can also use PEPs as a
way to repay an interest only mortgage with some
lenders.
Personal Pension
This is a structured savings and investment plan to
provide for your financial needs after you retire.
You can use some or all of the proceed from a
personal pension to pay of an interest only
mortgage.
Portability
A term used to describe a mortgage that can be
transferred between properties when you move
house.
Redemption
The process of paying off your mortgage either when
moving house, remortgaging or at the end of the
mortgage term.
Redemption Penalties
Penalties levied by the lender when a borrower pays
off the mortgage before the end of the agreed
redemption period. These are often charged on
fixed, capped or discounted rate mortgages.
Remittance Fee
A charge made by the lender for sending mortgage
funds to your solicitor just before the purchase is
completed.
Remortgage
The process of paying off one mortgage with the
proceeds from a new mortgage using the same
property as security.
Repayment
Your monthly payments are partly to repay the
amount you borrowed and partly to pay the interest
on the outstanding mortgage. This is also known as
a capital and interest mortgage.
Repossession
The legal process by which a borrower in default
under a mortgage is deprived of his or her interest
in the mortgaged property. This usually involves a
forced sale of the property at public auction with
the proceeds of the sale being applied to the
mortgage debt.
Right to Buy
A tenant in a council owned property may purchase
the property at a discount depending on length of
their tenancy.
Sealing
Fee
This is a charge made by lenders when you repay a
mortgage.
Searches
These are checks carried out during the
conveyancing process. These checks are made with
local authorities and other official organisations
to check planning proposals and other matters that
may affect the value of the property and it's
saleability in the future before making a loan.
Self Certified
Normally when a borrower applies for a mortgage he
or she will be asked to provide pay slips or
company accounts to prove their income. If it is
difficult or extremely inconvenient for you to
provide this documentation, you can choose to
self-certify your income. This involves signing a
declaration which states your income sources and
amounts. Lenders will charge you higher rates than
average and offer you a more limited range of
mortgages if you choose to self-certify your
income, so it's not a good idea to self-certify
just to avoid some paperwork.
Shared Equity
A scheme operated by a developer where the
developer retains a percentage equity of around 10%
in the property. Thus the developer holds a second
charge over the property. The 10% owing may be
interest free or may incur interest and be added to
the total amount owing on the property.
Shared Ownership
A scheme operated by a housing association where a
person owns part of the property and pays a
mortgage on this, while the housing association
owns the rest of the property and the person pays
rent on this.
Stamp Duty
This is a tax payable on the purchase of a property
by the purchaser. For properties with a purchase
price of up to £60,000, no stamp duty is
charged. For properties between £60,000 and
£250,000, 1% stamp duty is payable on the
purchase price. For properties between
£250,000 and £500,000 it is 3% and for
properties over £500,000 it is 4%.
Structural survey
This is the most wide ranging check of the outside
and inside of a property. This is carried out by
professional surveyor and it should pick up all but
the most hidden faults.
SVR
Standard Variable Rate. This is the interest rate
that the lender charges. The rate goes up and down
and your repayments are adjusted accordingly.
Term
The period of years over which you take the
mortgage and when you have to repay it.
Term Assurance
This is an insurance policy designed to repay the
mortgage on the death of the insured person. Level
Term Assurance covers a principal sum throughout
the policy term and pays out the full amount on
death. Reducing Term Assurance is designed to repay
the balance outstanding on a repayment type
mortgage upon death. Term Assurance may also pay
out early on the diagnosis of a terminal
illness.
Tie-in period
As a condition of a special mortgage deal, you may
have to agree to stay with the lender for a period
of months or years after the deal has ended. If you
move your mortgage elsewhere during this period,
you may have to pay an early redemption charge.
Title Deeds
Documents that show proof of who owns the freehold
and leasehold property.
Transfer deed
This is a document that, once you sign it,
transfers the ownership of a property to you.
Unencumbered
This is where the property is owned outright and no
mortgages or loans are secured against it.
Valuation
A simple check of the property in order to find out
how much it is worth and whether it is suitable to
lend a mortgage on.
Valuation Fee
A fee paid by a borrower to cover the cost of the
lender checking that the property is suitable
security for the mortgage loan.
Variable Rate
The interest rate the lender charges. it goes up
and down and your repayments change
accordingly.
Vendor
The person selling the property.
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