Mortgage Glossary of Terms

Author: Commercial Lifeline

Mortgage Glossary of Terms

A brief list of some of the most common Mortgage terms.

Adverse Credit The term used if the borrower has a poor credit history. This could include previous mortgage or loan arrears, bankruptcy or CCJ's. Other terms used to describe an adverse credit mortgage include:

Bad credit mortgage Poor credit mortgage Non status mortgage Credit impaired mortgage No credit mortgage Low credit score mortgage

APR (Annual Percentage Rate) The interest rate reflecting the cost of a mortgage as a yearly rate. The APR provides home buyers with the ability to compare different types of mortgages based on the annual cost of each.

Arrangement Fee The fee you pay your Lender in return for them providing you with a mortgage. Usually paid on completion or with your application, these fees usually apply when you take out a fixed rate, discount or cashback mortgage.

AST (Assured Shorthold Tenancy) A form of tenancy that gives the landlord the right to repossess their property after a set amount of time laid out in the tenancy agreement. New tenancies are automatically ASTs unless otherwise stated.

Assured tenancy The landlord can charge a market rent (the current rate for similar property in that area) and take back the property under certain conditions, as set out in the Housing Acts of 1988 and 1996.

Bridging Loan/Finance Short term loan to enable the purchase of one property before the sale of another essentially releasing funds that are required for the purchase. You should always consult a professional before considering any bridging finance as it could be a solution that is worse than the problem.

Brokers Fee A fee charged by an intermediary or advisor for locating the most appropriate mortgage for the borrower.

Buildings insurance Insurance you can take out when you buy a property that will cover the cost of any damage to the house and or contents..

Buy to Let A mortgage meant for those who wish to purchase a property to rent out to others. The decision on whether you are able to repay this type of mortgage is often based up on the future rental income from the property rather than the personal income of you the borrower.

CCJ (County Court Judgment) A judgement reached in the County Court generally realted to non payment of a loan, mortgage etc debt in general. If you pay off the debt, the CCJ will be satisfied and a note is put on your records that states this.

Chain A housing 'chain' made up of a number of buyers and sellers, essentially the line of buyers and sellers involved in each house move.

Charge Any right or interest, especially with a mortgage, to which a freehold or leasehold property may be held. Basically a charge is the claim the lender has on the property until the mortgage or loan is satisfied.

Completion The term used when the seller and buyer exchange the finances required to buy a property through their respective solicitors. At exchange of contracts a deposit, usually 10%, will have been paid. At this point the buyer becomes legal owner of the property.

Conveyance The legal process in which ownership of the property is transferred from the seller to the buyer. Generally undertaken by a solicitor, or licensed conveyancer.

Early redemption fee If you decide that you want to sell your property or remortgage then you will be redeeming you mortgage early. Most lenders charge a penalty fee, especially during any period of a fixed, capped or discounted rate. Be sure you are clear about any potential penalties when you are about to take on a mortgage.

Equity and negative 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. vThis is where the money you owe on the mortgage is greater than the value of your property.

Exchange of contracts The contract is a written agreement that lays out the terms between the buyer and the seller. When both parties exchange contracts, usually weeks before completion, the deal becomes legally binding. Often a deposit of around 10%, is paid at this stage.

Fixed Rate A set interest rate on a mortgage fixed for a period of time. This varies from lender to lender.

Freehold If you are the property owner outright then your property is freehold. Most houses are freehold wheres many flats are leasehold, since you are not the owner of the whole building containing the flats.

Gazumping If you are in the process of purchasing a property and your offer has been accepted but the seller gets a better offer, before you complete, and takes it then, you've just been 'Gazumped'.

Interest Only Mortgage A mortgage whereby 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 full mortgage at the end of the term.

Intermediary A mortgage broker or advisor who finds the most suitable mortgage for a borrower and arranges the mortgage on their behalf.

Leasehold If you buy a leasehold property you don't own the property rather the right to live there for a specified period of time, however much time remains on the lease. The owner of the property is called the freeholder or landlord.

Liability This relates more to commercial mortgages. With a commercial mortgage liability for the repayment of the loan depends on the legal structure of the business:

A sole trader will be personally liable for the mortgage debt. Personal assets could be seized if the business defaults. Partners are jointly liable for the debts of the partnership and their personal assets are at risk With a limited-liability partnership and a limited company, the liability falls firstly on the business rather than on the individual partners and directors. The lender may take a floating charge on business assets in general, rather than simply on the current property being purchased. The lender may also insist on personal guarantees as a condition of granting the loan, in which case the partners and directors may be held personally liable anyway.

Life insurance If you have a joint mortgage, life insurance can be acquired that will see the mortgage paid of should one of you pass on.

LTV (Loan to Value) The size of the mortgage as a percentage of the value of the property i.e. A £90k mortgage on a house valued at £100k would mean an LTV of 90%.

MIG (Mortgage Indemnity Guarantee) A one off payment made when you set up a mortgage a kind of insurance policy for the lender. This offers them protection against the value of the home falling to less than the mortgage. It is generally only charged to borrowers with a less than 10% deposit, but this can vary.

Mortgage A loan to buy a property where the property is used 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.

Non-Status Where a lender may not require income details from you or may accept some previous poor credit history i.e. CCJ's or previous mortgage arrears.

Payment Holiday A period during which the borrower makes no mortgage payments.

Regulated tenancy A legal right to live in your accommodation for a period of time. Your tenancy might be for a set period such as a year (this is known as a fixed term tenancy) or it might roll on a week-to-week or month-to-month basis (this is known as a periodic tenancy).You are a regulated tenant if you moved in before 15 January 1989, you pay rent to a private landlord and your landlord does not live in the same building as you.

Remortgage The taking on of a second mortgage to pay off the first. The most common reasons for doing this are that another mortgage is available at a better rate or that the value of the property has gone up allowing for the opportunity to borrow more money against the property.

Right to Buy For example, a tenant in a council owned property may purchase the property at a discount depending on length of their tenancy.

Self Certified Generally 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 inconvenient for you to provide this evidence, 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, in general it's not a good idea to self-certify just to avoid some paperwork.

Stamp Duty Tax paid by the buyer of a property set at 1% for properties over £60k, 3% for properties over £250k and 4% for properties over £500k.

Structural survey The most wide ranging check of the structure of a property. This is carried out by professional surveyor and should uncover any defects or faults with the building.

Tenancy A legal written agreement between a landlord and tenant that sets out the terms of the rental.

Term The period of years over which you take the mortgage and repay it.

Term Assurance 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.

Underwriting The process of evaluating a loan application to determine the risk involved for the lender. This involves an analysis of the borrower's creditworthiness and the quality of the property itself.

Unencumbered 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 secure a mortgage against.

Valuation Fee The fee paid by a borrower to cover the cost of the lender checking that the property is suitable security for the mortgage.

Variable Rate A type of interest rate the lender can charge. It goes up and down and your repayments change accordingly.

Vendor The person selling the property.

About the author: Commercial Lifeline are Independent UK based

Commercial Mortgage Brokers.

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