Mortgage terminology:

Does all the terminology regarding mortgages leave you feeling confused? We have compiled a list of mortgage terminology simplified to provide you with all the information so you can have the power in proceeding forward with your mortgage and house purchase journey. Having the knowledge and understanding can lead you to feel more confident and reduce your stress throughout this process. At Windsor Hill Mortgages we aim to make our client’s process as stress-free as possible, encouraging questions and supporting you throughout. When you are purchasing a home, we want you to feel empowered and confident in knowing how the process is moving along knowing you have our help throughout, with our friendly advisors ready to answer any questions you may have.

Understanding Mortgage Terminology

Fixed-rate mortgage:

A fixed-rate refers to a type of mortgage that you could potentially have. A fixed-rate mortgage has a fixed interest rate for the period of the product. The fixed terms are normally either 2 years, 3 years, 5 years or, on rare occasions, 7-10 years. Over this period your interest rate will stay the same, and so monthly payments will not change.

 

Tracker rate mortgage:

A tracker rate tracks (hence the name) the Bank of England’s base rate and moves in line with this. The mortgage provider will add on an additional interest per month on top of the bank of England base rate. If the base rate goes down, then the interest rate on your mortgage will go down in line with this.

 

Variable-rate mortgage:

A Variable rate, as the name suggests, has interest rates that are variable. The variable rate is set by the lender and is set with the product. With a variable rate, the interest rate can increase or decrease with no warning.

 

Deposit:

A deposit is the amount of money that is required to be funded by you to go towards the cost of your property. The minimum deposit amount is usually 5%, the higher the deposit it normally means better deals are available.

Understanding Mortgage Terminology

Guarantor:

Having a guarantor is more common for first-time buyers, however, they can sometimes be required. A guarantor is a third party who agrees that the mortgage repayments will be made even if you are unable to pay yourself. A guarantor is normally a parent or guardian.

 

AIP-Agreement in principle:

An agreement in principle or in some cases known as a mortgage in principle. This is an indication that the lender would be able to lend a specific amount based upon knowing your income, debts, and spending- only finding out basic information. Receiving an AIP does not guarantee you will be accepted for a mortgage, and you could still possibly be declined after. This is not the final mortgage offer fully accepted.

 

Term:

Your mortgage term is the length of the entirety of your mortgage. If the length of your mortgage was 38 years, your mortgage term is 38 years. By the end of the term, if all payments have been made and nothing is to change, your mortgage should be fully paid off if you have chosen a repayment based mortgage.

Understanding Mortgage Terminology

Monthly Repayment:

Your monthly repayment is the total amount you pay the lender each month. For a repayment mortgage, the most common type of mortgage, the payment will cover the percentage of the mortgage and the interest to be paid.

 

Mortgage deed:

A mortgage deed is a formal contract that is between the lender and the borrower. The deed outlines the legal obligations for the borrower and states the rights the lender has if repayments are not paid.

 

APRC – Annual percentage rate of charge:

The APRC is the overall cost of a mortgage, including interest and fees on your mortgage. This is based upon assuming that you will have the mortgage for the full term.

 

Equity:

Equity is the amount of property that you outright own. This includes the deposit you had and the capital you have paid off of your mortgage.

 

Leasehold:

A leasehold is where you own the building but do not own the land on which the building stands. You will only own this for a certain time, the lease period, this can be anything up to 999 years. It may be difficult to obtain a mortgage with a lease on the property if it has less than 70 years left.

 

Understanding Mortgage Terminology

Freehold:

Unlike leasehold a freehold property you own both the property and the land in which it stands.

 

LTV-Loan to value:

Loan to value is the percentage of the mortgage to the value of the house, The figures will always be this way round for example if it was 80% loan to value it would equate to the mortgage amount being 80% and the 20% would be equity, the total amount that you own of the house.

 

Higher lending charge:

A higher lending charge can be charged by your mortgage lender. This can be incurred if you are borrowing more than 75% of the property value. The lender may do this to protect themselves against you defaulting on your mortgage.

Understanding Mortgage Terminology

Conveyancing:

Conveyancing is the legal process that you must go through when buying or selling a property. Conveyancing can be done through a solicitor or a licensed conveyancer.

 

Unencumbered:

To be unencumbered means that you own a property outright and do not have a mortgage on the property.

 

If you are going through the application or mortgage process and are unsure about some technical terms– ask your advisor to explain, our advisors are always more than happy to go into as much detail on anything as you wish to enable you to feel comfortable and aware throughout your home purchase. We always say there are no ‘stupid’ questions- so ask away, we are here to help you from start to finish.

Contact us on 01225 962 456 or find out more by exploring our website.

Mortgage expert Windsor

Published on 12th April 2022