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Glossary

Some Mortgage terms and their meanings:

Mortgage:

Mortgage is a specific type of loan that is given in order to buy a property. It is a legal agreement that conveys the conditional right of ownership on an asset or property by its owner (the mortgagor) to a lender (the mortgagee) as security for a loan. Given the size of the loan the borrower has to make specific repayments to the lender to pay off the mortgage. There are different types of mortgages like, remortgages, first time buyer, buy to let, moving home, house purchase, commercial mortgages etc.

Mortgage Term:

The length of time over which you agree to repay your mortgage.

Mortgagee

Another name for the mortgage lender.

Mortgagor

Another name for the borrower.

Mortgage Types:

Adverse Credit:

Adverse credit history are also known as poor credit history, non status credit history or impaired credit history. When a borrower applies for a mortgage then the lender runs a thorough check on the borrower’s financial credit standing. If anyone has an unpaid loan, past credit then that person is marked as having a bad credit history. Having an adverse credit history can be a big hurdle in getting mortgages.

Buy To Let Mortgages:

This is a mortgage for a property that will be let by the borrower. The amount of mortgage available is calculated primarily on rental income rather than personal income.

Commercial Mortgages:

Mortgage loans of this type are tailor made for purchasing any commercial property used for business purposes including shops, factories, offices and warehouses. Commercial mortgages can also be used for taking over an existing business, purchasing a brand new building or buying a new land. With commercial mortgages, the lender has a legal claim over the property until the loan has been fully repaid.

First Time Buyer Mortgages:

The recent credit crunch crisis has made things difficult for first time buyers. To go high up in the property ladder you need to accumulate a sizeable deposit. The less your deposit the higher the interest rates offered by lenders. Some lenders will offer you a mortgage in exchange for a 5% down payment (95% loan-to-value), but most will require at least 10% of the property value (90% loan-to-value).

House Purchase Mortgages:

House purchase mortgage products will be priced in brackets depending on the size of the deposit. As a rule of thumb the bigger the deposit the lower the interest rates available.

Moving Home Mortgages:

Moving home is the time when a borrower is selling their existing property and moving to a new property may be due to scale higher in property ladder or relocating for other reasons. In moving home mortgage you need to have at least 5 or 10 per cent of the purchase price to put down as a deposit on your new property. Most mortgages these days are portable, meaning that you can transfer them from the property that you originally borrowed against to the home to which you want to move.

Remortgage:

Remortgaging is an effective option if you are looking to save money or want to raise additional capital against your property. Remortgage usually involves moving your mortgage from one lender to the other without moving home. If you have come to an end of a fixed rate period or at the completion of your discounted deal then remortgage is the best option for you to look for new offers before you get transferred to your existing lender’s Standard Variable Rate ( SVR).

Right To Buy:

Council Right to buy mortgage schemes can be the best option for you if you have lived in the council house for some time. Suppose you have rented a property from the local authority for five years or more then you can buy that property at a discounted rate. The two basic parameters need to look up for right to buy are Open market value of your property ( OMV) and the discounted price you will have to pay to buy the property ( RTB Price).

Self Build Mortgages:

Self Build mortgages are a type of mortgages which is usually taken for a property you are building yourself. The basic difference between a self build mortgage and other regular mortgage is that the fund is given to the borrower in stages of building the house rather than in lump sum. However, some self-build mortgages release the money required for each stage of the build at the beginning rather than the end of the stage.

Mortgage Rates:

Fixed rate:

Fixed rate mortgages are usually considered the most safest and simplest type of mortgages. Under this a fixed rate is payable for a certain period of time and safeguards from increasing rates as your monthly payments will remain the same. If rates fall sharply during the fixed period you will be left paying relatively high rate.

Variable Rate:

Variable rate mortgages means that the interest on your mortgage loan can vary over time. Standard variable rates can be influenced by changes in the level of the Bank of England's base rate. Variable mortgages comes with an element of risk as your monthly repayments can go up or down as well.

Discounted Variable:

Discounted variable rate is another type of mortgage rate offered by lenders. The lender offers a lower rate for a certain period of time and during this period you have to pay lower repayments depending on the discounts. However, when the discount period gets over the borrower will be transferred to the lenders standard variable rate.

Tracker rate:

A tracker rate usually follows the Base rate of interest also known as Bank rate and is set by the Bank of England. Under tracker rate your repayments will fluctuate and it follows in line with the base rate movements. For Example, if your tracker mortgage is +3% and the Base rate is +3% then you pay 6%.

Offset Mortgages:

With an offset mortgage, your mortgages and savings account are combined into one single account.. It basically means the amount that you have in your savings account is counted as temporary overpayments towards your mortgage. However with an offset mortgage you can access your savings and get at them if you need.

Capped rate:

Under capped rate mortgages the interest rate cannot go above a certain agreed limit. Capped rate mortgages helps to plan your budget more effectively. When the interest comes down then the borrower has to pay a lesser monthly payments although there may also be an agreed floor level. As the capped rate is for a particular period of time so as soon as it ends the mortgage rate goes back to the appropriate variable rate.

Cash back mortgages:

Cash back mortgages provides a lump sum back when the purchase is complete. This can either be in the form of a set amount or a percentage of the amount that is borrowed (typically 2 to 5 per cent). The cash back is refundable if the mortgage is settled before a certain period set by the lender.

Flexible mortgages:

Flexible mortgages are also known as ‘open plan’ or ‘freedom mortgages’ . Flexible mortgages are usually developed to cope with the borrower’s lifestyle or drastic changes in the borrower’s financial situations. Flexible mortgages allow the borrower to pay off the mortgage with fluctuating monthly payments. Some flexible mortgages provider also gives out the option of ‘payment holidays’ under which the borrower don’t have to make any payment and can even borrow back money if they have repaid some of the capital borrowed. Some of the features of Flexible mortgage are monthly overpayments, lump sum payments towards the mortgage, reducing payments during difficult financial conditions etc.

Current Account Mortgages:

Current Account Mortgages are usually combines the borrower’s bank account with the mortgage. The account displays the outstanding balances that have been borrowed giving an opportunity to the borrower to view how much they have left to pay off. The biggest advantage of current account mortgage is that when the interest is calculated on the sum borrowed then the funds in the current account are taken off the mortgage.

Mortgage Repayment Types:

Capital and Interest Repayment:

Capital and Interest mortgages are also known as repayment mortgages and it is one of the most popular methods among borrowers. This type of repayment method usually involves the borrowing of a sum of money for a certain period, normally 25 years. The monthly payment covers both the interest payable on the loan and the capital borrowed. As the capital is repaid each month, the outstanding loan is reduced. As a result, the interest content gradually reduces and the capital content increases as a proportion of the monthly payment.

Interest Only Repayment:

With interest only repayment method the borrower agrees at the start of the mortgage contract that they will only pay the monthly mortgage interest to the lender each month and that the total capital borrowed will be paid in lump sum at the end of the term. However the repayment of the capital is usually funded by the maturity proceeds of an investment plan, such as an endowment policy, the tax free cash sum of a pension, a unit trust savings plan such as an ISA.

A

Arrangement Fee:

Sometimes an arrangement fees is charged to reserve a particular mortgage product. This fee is non refundable.

Administration fee:

This is a non refundable fee which covers the processing of your mortgage application and setting up of your account.

Arrears:

The term "in arrears" is used to describe a mortgage account if a borrower has failed to keep up the monthly mortgage payments.

Annual Percentage Rate (APR):

APR stands for Annual Percentage Rate. A lender is always required to quote the APR when advertising a loan or borrowing rate. The APR calculates the total amount of interest that will be paid over the entire period of the loan. It must also take into account charges which the borrower has to pay in order to obtain the mortgage and during the loan term (such as lenders fees, valuation and legal fees etc). The purpose of APR is to help you compare the true cost of borrowing.

B

Bank base rate:

This is the interest rate set by the Bank of England.

C

County Court Judgement (CCJ):

A decision made in the county court, usually for non-payment of a debt. A CCJ will be registered on your credit file and may affect your credit rating. Once the debt has been repaid, this will also be noted on your file.

Credit Scoring:

A technique used by the lenders to assess the credit worthiness of potential borrowers.

Conveyancing:

Another word for the legal term for transferring ownership of a property from one person to another.

E

Early Repayment Charges:

Certain mortgage products are subject to an additional charge for the early settlement of your mortgage. These are called Early Repayment Charges and are payable if the mortgage is repaid within a specified period of time.

F

Financial Conduct Authority:

An agency in the UK that regulates the financial services industry. Their aim is to protect the consumers, ensure that the industry remains stable and promote health competition between financial services providers.

H

Higher Lending charge:

This is a fee sometimes payable by the borrower to insure the lender against potential loss if a home has to be repossessed or sold.

L

Loan to Value (LTV):

The amount of mortgage required expressed as a percentage of the value or purchase price. For example, a £75000 mortgage raised on a house valued at £100000 would be a 75% LTV.

M

Mortgage Overpayments:

Mortgage Overpayments is paying an amount to the mortgage lender which is more than the required and agreed monthly repayment. A mortgage overpayment reduces the amount of the mortgage debt and the amount of interest that is added onto it. Each overpayment that you make will reduce your total mortgage balance, and therefore the interest that is accruing each day. Out of your normal monthly mortgage repayment, a slightly smaller portion is going towards the interest and, consequently a larger portion towards repaying the mortgage.

N

Negative equity:

This is when the amount you owe on a mortgage is greater than the value of your property.

P

Portable Mortgage:

If a mortgage is “portable”, it can be transferred from one property to another.

Payment Holiday:

On some products you can arrange to stop making mortgage repayments altogether for a limited period agreed with the lender and up to your agreed borrowing limit.

R

Regulated Mortgages:

A loan provided to an individual who gives the lender a first charge on his/her home as security for the repayment of the loan.

S

Savings Mortgage:

A Savings mortgage, also known as Offset mortgage, links your savings with your mortgage. Rather than paying you interest on your savings, you can offset your savings against your mortgage.

Standard Variable Rate (SVR):

The variable base rate is the basic rate of interest charged on a mortgage. This may change in reaction to market conditions resulting in your monthly repayments going up or down.

U

Underpayments:

On some mortgages, you can arrange to pay less than your normal monthly subscriptions for a limited period, up to your agreed borrowing limit.

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