Jargon Buster

APR
APR stands for “annual percentage rate” in relation to a mortgage or other loan.  It is a useful way of comparing mortgages, because all likely fees and charges are included when considering the level of the mortgage interest rate.

Arrangement fee
Some mortgages and financial products come with an arrangement fee which can range from a few pounds to over £1,000.  You need to weigh up your options carefully; some mortgages with low arrangement fees may have a relatively high interest rate, for example.  This is one area where an expert mortgage advisor can give you great advice that can save you money in the long term.

Bank of England base rate
This is an interest rate set by the Bank of England and will influence the interest rates charged by lenders on their mortgage and remortgage deals.

Capital and interest mortgage
This refers to a standard repayment mortgage where each monthly payment is paying off the capital of the amount you borrowed along with the interest. At the end of the term, your mortgage will be cleared provided all repayments have been made.

Capped rate
This product means your interest rate has a ceiling, a restriction that is usually only available for a limited benefit period of, say, two or three years.  So regardless of how high a lender’s standard variable rate goes, the rate you’ll pay will not go above the ceiling level during the capped period.

Cash back mortgage
If you take out this particular type of mortgage the lender will pay an agreed lump sum of money to you upon completion of your mortgage.

Completion
Completion is the last stage in the mortgage process when the property is legally transferred to you.  For remortgages this is the day the mortgage transfers from one lender to another.

Conveyancer
This is a professional legal expert, usually a solicitor, who handles the contractual arrangement between you and your mortgage lender. They will be responsible for registering your property with the land registry and ensuring that your mortgage deed is correctly executed.

Credit crunch
This is the popular term for the worldwide recession and economic pressure that led to the major financial institutions tightening their criteria for lending, making it more difficult to obtain credit than it was previously.

Credit scoring
Your likely ability to repay any particular advance is assessed by a credit agency.  They do this by reviewing your previous borrowing and repayment history and score you accordingly.

Detailed building survey (full structural)
The most detailed kind of survey that you can request when buying a home, a surveyor will assess the building thoroughly from foundations to roof.  A detailed building survey will include an appraisal of the construction of the property and a technical analysis of any significant defects, along with a suggestion of work that would need to be done to fix the defects.

Discounted rate
This means that the lender’s standard variable rate will be discounted by a set percentage for a set period of time. Mortgage payments will still go up and down in line with any changes the lender makes to the standard variable rate however the discount will still remain.

Early repayment charge
This is a fee charged by some lenders if you repay your mortgage early during a benefit period and is also known as a redemption penalty.

Equity
Equity is the difference between the current house value and the outstanding amount of mortgage balance.  Negative equity applies if the outstanding mortgage balance is higher than the current value of the house.

Financial Ombudsman Service (FOS)
According to their website, they are the UK’s “independent expert in settling complaints between consumers and businesses providing financial services”.  Each year they deal with over a million complaints covering a wide range of financial matters.

Fixed rate mortgage
The interest rate for your mortgage is fixed for a certain period of time and will not vary during that period, regardless of what happens to the Bank of England base rate or the lender’s standard variable rate. This particular rate is often attractive to those who wish to budget, because the exact mortgage repayment will be the same for the period of fixed rate.  Note that after the fixed rate, the interest rate will change; usually to the lender’s standard variable rate.  This could be considerably higher than the fixed rate repayments being made.

Flexible mortgage
This type of mortgage gives you greater control of your mortgage, including extra benefits such as making overpayments, underpayments or taking payment holidays.

Higher Lending Charge
Regardless of the level of your income or any other factor, lenders normally only lend up to a maximum ratio of the property’s value.  If any more money is advanced above that maximum ratio then it would be subject to a higher lending charge to reflect the lender’s perceived increased risk.

Interest only mortgage
During the term of your mortgage you only pay the interest each month and the capital balance remains unpaid, meaning that at the end of the mortgage term you will still owe the amount you originally borrowed. The capital is usually repaid from the proceeds of a separate investment such as an endowment policy, individual savings account or a pension.

Loan to value (LTV)
Loan to Value is the mortgage loan as a percentage of the value of the property or purchase price.  For example a particular buy to let mortgage could be expressed as a ‘75% LTV buy to let mortgage’ which means that you would be able to borrow no more than 75% of the property’s value so you’d have to find a deposit of at least 25% to apply for a buy to let mortgage in this case.  Loan to value ratios vary for different mortgage products.

KFI
KFI stands for “Key Facts Illustration” and sets out all the details relating to a particular mortgage product. It includes items such as interest rates, monthly payments, fees and charges over the term.

Inflation
Each month a Government department called the Office for National Statistics (ONS) collects price information on over 120,000 products and services from a wide range of retailers across the UK.  It then works out how much more all those products or services cost now than they did one year ago.  This difference is, in very simple terms, the rate of inflation.

Mortgage Deed
This is a legal document that gives the lender a legal interest in the property covered by the mortgage.  Signed by both homeowner and lender, the mortgage deed confirms that the homeowner has used the property as collateral for the mortgage loan.  In the event that a homeowner stopped repaying the mortgage, the mortgage deed would allow a lender to legally pursue repossession of the property concerned.

Mortgage payment protection
This is a voluntary monthly premium that would ensure that your mortgage is paid on your behalf by your insurer for a certain amount of time (typically up to 12 or 24 months) if you’re not able to pay your mortgage for reasons contained within the policy such as redundancy, sickness or an accident.

Portable mortgage
This means that you can transfer your existing mortgage product with the same lender to a different property without incurring charges. However, this does depend on your lender and will need to be agreed with them.

Remortgage
Remortgage means switching your mortgage from one lender to another without having to move house.  You need to be aware of any early repayment charge that may be applied on your existing mortgage and a remortgage may incur an arrangement fee as well. 

Standard Variable Rate
A standard variable rate (SVR) varies from lender to lender, and although the SVR can change at the lender’s discretion, the level of the SVR is often influenced by changes in the Bank of England’s base rate.

Term (of a loan or mortgage)
This refers to the number of years that you agree repay your mortgage over.

Tracker Mortgage
The interest rate on a tracker mortgage usually tracks the Bank of England base rate either by a set percentage above or below for a set period of time.