Understanding Financial Jargon
You’ll find most of the legal and technical terms involved in mortgages, buying property and protecting your home, family and income here, however please contact our expert advisers if you need any further explanation or help.
APR (Annual percentage rate)
APR is a standard calculation in the mortgage industry and allows mortgages from all lenders to be compared. It is the true cost of the mortgage over the full term set out as a yearly rate, including all fees, terms and interest. The calculation assumes that you maintain the mortgage for the full term (for example, 25 years).
It is very likely you will be charged an arrangement fee when taking out a mortgage however our advisers will be able to talk you through the conditions that apply.
If you go into arrears it means that you have ‘defaulted’ at least once on your mortgage repayments. You will owe a sum of money ‘in arrears’ to your lender. If you find yourself in this situation you should contact your mortgage lender to seek help as soon as possible.
ASU, Accident, Sickness & Unemployment cover
An annually renewable policy providing short term cover if you are unable to work due to sickness, injury or redundancy. Similar to, but not to be confused with Income Protection as it does not pay out for as long or pay out as much.
The rate set by the Bank of England, which is reflected in the interest rates charged by lenders.
An extensive survey, carried out by a qualified surveyor, to spot faults and potential problems in the property you are buying.
Buy to let
A buy to let property is purchased with the sole intention of renting it out to a tenant as an investment. Some mortgage lenders offer special ‘buy to let’ mortgage deals for this purpose.
Buy to let mortgage
The main difference with a buy to let mortgage is that the lender takes into account the rent you will earn from the property as the primary source of income. Some may also take the landlord’s personal income into account.
The amount you have borrowed on the mortgage, on which interest will be charged.
With a capped rate, you will pay a variable interest rate but your payments won’t go above a certain amount for a set period of time.
Cash back mortgages
Cash back mortgages generally pay out a cash lump sum to the mortgage loan borrower upon the completion of the mortgage.
CIC or Critical illness cover
Will pay the policy holder a lump sum on diagnosis of a range of specified illness (refer to specific policy terms and conditions for further details) – the illness may vary but generally include the major illnesses like cancer, heart attack and stroke.
When you become the legal owner of the property.
Some lenders charge completion fees in additional to an application fee, although these fees are less common. Completion fees are usually charged on the day that the mortgage completes.
The legal work involved in selling and buying property.
If you cannot meet your minimum required monthly mortgage repayment and go into arrears on your mortgage, this is known as ‘defaulting’. If this happens you should speak to your mortgage lender about how to remedy the situation and there are also Government schemes designed to help people whose homes are at risk from repossession.
This is the amount you are required to pay towards the cost of the property yourself. Borrowers typically now have to pay at least 10% of the value of their home in the form of a deposit. Typically the more deposit you are able to put down the lower the interest rate is likely to be, and typically there will be a wider range of mortgage deals to choose from.
The fees, such as stamp duty and Land Registry fees which you pay to the conveyancer or solicitor.
Discounted rate mortgage
A discounted rate deal is one where the interest rate you are charged is a set amount less than your mortgage lender’s standard variable rate (SVR). For example, if the lender has an SVR of 5.5% and the discount is 1% then you will actually end up paying 4.5%.
DTA or Decreasing Term Assurance
A form of life assurance where the sum assured reduces over the term of the policy – often used to protect a repayment (capital and interest) mortgage.
Early repayment charge
The charge some lenders make if a mortgage is paid off early.
The total value of your property less the amount of the mortgage and any other secured loans you have.
Estate agency fees
These will differ by agent, some will charge upfront fees and some may charge fees at the completion of the sale. The cost is likely to be based on a percentage of the property value, so it is best to get a quote before proceeding. It is best that you speak directly with your chosen estate agent to find out what costs apply in your case.
Exchange of contracts
The point where the property sale becomes legally binding.
External inspection valuation
This is a very simple valuation where the surveyor will estimate the value of the property by viewing it from the road.
Gives you the security that your monthly payments are the same. With this type of mortgage, you pay a fixed rate of interest for a set period typically over 2, 3 or 5 years, so you know exactly what you’ll be paying each month even if interest rates change.
You can vary the amount you pay each month and take payment holidays in some circumstances. It may help to reduce your mortgage with lump sum payments without incurring an early repayment charge.
A guarantor can guarantee the mortgage repayments for you if the lender determines you are at high risk of not making the payments.
Help to buy
The government has launched the Help to Buy scheme to make it easier for people with small deposits to buy their first property or for existing homeowners to move house.
Higher lender charge
Not all lenders charge these, but if you borrow a high percentage e.g. if you borrow more than 75% of the price of the property, you may have to pay this type of fee.
These are government schemes designed to help existing tenants and key workers (nurses, teachers and social tenants) to get onto the property ladder.
A detailed valuation that contains a report on the condition of the property, highlighting defects.
Where the level of cover provided under a policy increases over time – this is often used to ‘inflation proof’ cover and often linked to the Retail Price Index.
The money you are charged for borrowing.
With this type of mortgage you are only paying interest each month. This means that although your payments will be lower the amount you borrow will still be the same.
Where a life insurance policy is covering two individuals.
Joint life 1st death
The sum assured is paid on the death of whichever of the two lives dies first. In this case, the two lives assured are normally also joint policy holders, and the sum assured would be paid direct to the policy holder.
Land Registry fee
A fee paid to the Land Registry to register ownership of a property.
A legal contract which gives the ownership of a leasehold property to the buyer for a fixed period of time.
Provide the loan to buy the property.
The person on whose life or death the payment of the sum assured depends. The life assured is not always the same person as the policy holder.
LTA or Level Term Assurance
A form of life assurance where the sum assured under the policy remains constant over the policy term.
A loan to buy a property. The property acts as security for the loan and so can be repossessed and sold if the mortgage repayments are not made.
Mortgage application fees
Fees charged by the lender to organise the mortgage for you. These are not usually refunded if you then do not go ahead with the mortgage. Some lenders will only charge such fees for specific mortgage deals.
The legal agreement which gives the lender a legal right to the property.
The length of time over which the mortgage will be repaid.
MPPI or Mortgage Payment Protection Insurance
Fundamentally the same thing as ASU (Accident, Sickness and Unemployment cover).
Offer of advance
The formal offer of a mortgage from a lender.
Your main current account, savings account or both are linked to your mortgage. Each month, the amount in these accounts is offset against your outstanding mortgage before working out the interest you owe. You are unlikely to earn interest on your savings which are offset against your mortgage.
The point at which your policy comes into effect.
The policy holder is the owner of the policy and responsible for paying the premiums. The sum assured will be paid to the policy holder unless other arrangements are made.
Your mortgage broker or lender will be able to tell you if your mortgage is portable or not. A portable mortgage may enable you to transfer borrowing from one property to another, sometimes to avoid additional fees or keep a specific discounted rate.
The company providing the cover i.e. life assurance or buildings and contents.
Paying off a mortgage.
If you are looking to change your mortgage to a different deal, but you’re not looking to move home then you are ‘remortgaging’.
Where the premium is subject to review and potential increase over the term of the policy.
Renewable Term Assurance
A term assurance of life assurance policy that contains an option, which can be exercised at the end of term, to renew the policy for the same sum assured without further medical evidence.
With this type of mortgage (also known as capital and interest) you repay part of the amount borrowed together with the interest being charged each month. In the earlier years, the majority of your monthly repayment is made up of interest, however towards the latter part of your mortgage term the situation is reversed with the majority of your monthly payment reducing the amount borrowed.
This is a ‘front end’ charge levied by several home lenders. The idea is you’re asked to pay the fee (typically £100 to £300) to secure the funds you are intending to borrow. It is sometimes described as an administration or booking fee.
Self certification mortgage
Also known as ‘self cert’, these mortgages were developed for self-employed people. Applicants who ran their own business or don’t technically have an employer were granted a mortgage without having to confirm their income by way of a P60, payslips, accounts, etc. In the current economic climate, these mortgages have virtually disappeared but they might re-appear again in the future.
Shared ownership schemes are designed to allow people who would otherwise be unable to get a foot on the property ladder to do so. The home buyer will enter into an agreement, usually with a local housing association, which sees them take out a mortgage on a share of the property and pay rent on the remainder. The portion that is owned will vary depending on the circumstances.
Conveyancing is the legal process to transfer the ownership of a property from the seller to the buyer. If you are buying a property, your solicitor generally works on behalf of the mortgage lender, who usually insists on certain searches before they will release them money for your property.
When you buy a property you may need to pay stamp duty. If the purchase price is £125,000 or less you don’t have to pay any, if it’s more, you pay between 1 – 5% of the whole purchase price.
Standard variable rate
This is a rate set by the lender, your payments may rise and fall in line with the Bank of England base rate changes, but not necessarily at the same time or by the same amount or at all. Your lender may not necessarily pass on the change in base rate immediately.
This is a detailed report that can include tests on drains and utilities. It could be very useful if you’re thinking about building an extension for example.
A sub-prime mortgage, also known as a non-conforming mortgage, is geared towards those with a less than perfect credit history. This could be bankruptcy or county court judgements (CCJs), or you could have fallen into arrears in the past. These products, because of their circumstances, have higher rates, but mean that those who couldn’t otherwise obtain finance for their property purchase can do so. It is now much harder to get a mortgage if you have had credit problems than before the credit crunch.
Subject to survey and contract
Wording included in any agreement before the exchange of contracts. This wording allows the seller or buyer to withdraw from the property sale.
Terminal illness cover
An option included in life assurance policies whereby the life company will pay out if the policy holder is terminally ill – this should not be confused with Critical Illness Cover (CIC).
This is the period during which you are ‘locked in’ to your mortgage deal and will pay an early repayment charge to move your mortgage elsewhere – for example, if you have a 2 year fixed, your tie-in period might be for 2 years. Once an initial deal is up, you will typically move from your introductory rate to your mortgage lender’s standard variable rate (SVR), which is usually higher, so if you don’t have to pay early repayment charges to switch to a new deal at this point you may well save money by doing so.
The legal documents which set out the ownership of a property.
Tracker rates are usually linked to the Bank of England base rate, which means they’ll change in line with changes to the base rate.
If a policy is written in trust, then you can help determine who should benefit from the policy when it is eventually paid.
The role of the underwriter is to look at individuals based on knowledge of that individual – e.g. medical history, hereditary illnesses, occupation, sporting activities. For the life assurance, they will assess the risk and decide whether to offer cover and if so at what price. For mortgages they will decide whether to lend.
Utmost good faith
Is a minimum standard that requires both the parties (life company and life assured) to act honestly towards each other and to not mislead or refrain from providing critical information to the other.
This is the most basic type of survey and is the mortgage lender’s inspection of the property to assess whether it is suitable for a mortgage.
Valuation and survey fees
You will need to get a valuation and survey carried out on the house you want to buy. A valuation will value the property and tell you how much it is worth, whilst a survey will tell you about the structure of the property and any faults that it may have. There are 3 levels of valuation / surveys 1. A basic valuation, 2. Homebuyers survey, 3. Full structural survey.
Waiver of premium (WOP)
Is an additional option that can be taken out with most forms for protection. The insurance company will pay the premiums due on a life assurance policy if the policy holder is unable to do so because they are unable to work due to accident or illness. The insurance company will pay the premiums for you until you are able to return to work.
If you do not make a will then you will die Intestate and will lose control over the proceeds of your estate.