Part & Part

Jargon Busting

The world of mortgages has many common terms and phrases that lenders will use, and that we might use. To help you understand, here’s some of the most common Mortgage language explained:

Agreement in Principle

Also known as a Decision in Principle or a Mortgage in Principle. This is a document that gives you an idea of what a lender may be able to lend to you. Most lenders will issue this as a certificate that you can show to Estate Agents as proof of funds. An Agreement in Principle is NOT a guarantee that the lender will lend you the funds you have requested, but it’s a useful document to help you understand the likelihood, your eligibility, and a strong estimate of what you can borrow.

Arrears

If you fall behind on your mortgage payments, you would be considered by the lender to be in “Arrears”. 

Bank of England Base Rate

This rate is set by the Governments Monetary Policy Committee & heavily effects the pricing of mortgages, as well as the interest received by savers. 

CHAPS FEE

You might see fee this listed on your Mortgage Illustration. It’s a small charge from the lender for electronically transferring funds to your solicitor. 

Conveyancing

The legal part of buying property. This is done by a solicitor or a specifically licensed conveyancer. They do a selection of searches & check the legalities to make sure the property transaction goes through smoothly, protecting you. 

Credit Report

A record of your history of managing and repaying debt. A lender will always conduct a ‘hard’ credit check when you make a full mortgage application & may conduct a ‘soft’ credit check when asking for an Agreement in Principle.

‘Soft’ Credit search: This type of check doesn’t leave a visible footprint on your credit file, but the check is recorded. It won’t effect your credit & is usually conducted when you get a copy of your own credit report (which is advisable when preparing for your mortgage), or when your advisor submits a request for an Agreement in Principle with a lender, so the lender can check your initial eligibility for their products or services. 

‘Hard’ Credit Search: This is a full search of your credit profile which shows you have applied for some form of credit. It is a visible footprint. As far as mortgages go, this is commonly conducted at Full Mortgage Application

Deposit

The amount of money you put into a property purchase using your own (or gifted) funds. Some lenders offer mortgages with as little as a 5% deposit & generally, your mortgage costs may reduce the larger your deposit. 

Early Repayment Charge (ERC)

A fee charged from your lender if you exit the mortgage agreement during your fixed or tied in period. This varies from lender to lender & can be found in your Mortgage Illustration

Equity

This is the difference between your existing property’s value & your existing mortgage balance. If you sold the property, it’s the amount you would come out with after repaying your mortgage. 

Fact Find

The process you’ll for through with us, so we can learn about you, your needs & your circumstances. Sets the scene for the advice process so we know how we can best serve you. 

Loan to Value (LTV)

This is the size of your mortgage as a percentage of your properties value. For example, if your property is worth £400,000 & your mortgage is for £300,000, you are at 75% Loan to Value. Typically lower Loan to Value products are at lower interest rates than higher Loan to Value products.

Mortgage Illustration

A full breakdown of the costs & fees associated with your mortgage. We’ll always give you a copy of an illustration before we make a full application to a Mortgage Lender.

Mortgage Offer

The document everyone wants! This is your guaranteed offer after the lender has fully approved your case after all of their checks. It’s a formal document which sets out all of the terms & conditions of the offer & lists the expiry date of the offer.

Mortgage Term

How long you take the mortgage for. The shorter the term, the lower the amount of interest you will pay over the lifetime of the mortgage, but as the term gets shorter, your monthly payments increase because you’re paying the balance off faster. 

Overpayments

This is making additional payments to reduce the balance of your mortgage, above & beyond the usual monthly payment you’re required to pay. Most lenders allow you to overpay 10% of your balance per year without any penalty charges applying. This can reduce the amount of interest you repay over the life of the mortgage, & increases the equity in your home. You can make regular monthly overpayments by setting this up with your lender, or you can pay one off lump sums, whatever you prefer. This is not a requirement, just a flexible benefit available on most mortgages. 

Portability

The ability to move your mortgage to a new property in the future. Useful to avoid Early Repayment Charges when moving house or to keep your interest rate if rates are higher when you’re moving home. A common feature on residential mortgages.

Product Fee

A fee charged by the lender to secure a particular product. Lenders offer products with & without fees. Typically, a lender will charge a fee on a product with a slightly lower interest rate than it’s equivalent fee free option. Product fees can be paid upfront, or added to your mortgage, but if you add them to your mortgage, you will pay interest on that fee for the full mortgage term, which can make it more expensive.

Stamp Duty

This is the tax you pay when you buy a property in the UK. Use our STAMP DUTY CALCULATOR (link to stamp duty calculator page) to see if you have any stamp duty costs to consider. Your conveyancer or Solicitor will be able to confirm this amount for you. 

Survey

A report you pay for yourself to check the condition of the property, to make sure that the property you’re buying is in a reasonable state of repair. This helps you avoid any nasty surprises when you move in. 

Title Deeds

These are the legal documents which declare & record the ownership of land & property in the UK. When you buy a property, your name will be registered on the title deeds when you become the legal owner.

Valuation

The process of the mortgage lender valuing the property you are buying or remortgaging to ensure it is worth what you’re paying, or what you say it’s worth for remortgages. 

Underwriting

The process the mortgage lender takes to check your case  after it’s submitted to ensure they can make a full mortgage offer. The valuation, the full mortgage application, & the submitted documents from your advisor will be reviewed. 

Types of Mortgages

Fixed Rates

A type of mortgage which guarantees that your monthly payments will stay the same for a defined period of time. Great for people who want peace of mind and the ability to budget their finances.

Tracker Rates

A variable rate set at a defined percentage above a base rate, usually the Bank of England base rate, which means the lender has no influence over when the rate is changed. This rate will change whenever the defined base rate changes. Often there are no Early Repayment charges & tracker rates are known as more flexible mortgage products. Great for those who believe the Base Rate will decrease & who can afford to take the risk of the possibility of payments increasing. Also useful for people who plan to move in the very near future who don’t want to commit to a fixed term product. 

Discount Rates

A variable rate set at a defined percentage BELOW a lenders Standard Variable Rate. The discount is fixed, but the standard variable rate can change at any time at the lender’s discretion, so the lender retains a lot of power on the price of this kind of product. Payments can increase or decrease at any time. 

Standard Variable Rate (SVR)

This is the rate that you will go on to at the end of your benefit period with your existing lender. For example, if you have a 2 year fixed product & it comes to an end, you will be put on the Standard Variable rate. This rate is usually significantly higher than your existing rate, so you want to avoid going on to your SVR at all costs. We help make sure this never happens for our clients. 

Types of Mortgage Payments

Capital Repayment

Means you’re paying the capital & the interest off on your mortgage. This guarantees that at the end of your mortgage term, you will own the property mortgage free.

Interest Only

Means you’re only servicing the interest charged by your mortgage lender and are NOT paying off any of the balance. You should have a clearly defined repayment strategy for when your mortgage term expires as you will still have a mortgage balance to pay off. 

Part & Part

Means part of the mortgage is on capital repayment, & another portion of the mortgage is on interest only. This means some of the balance is being paid down, but at the end of the mortgage term, you will still be left with a balance on the interest only portion. 

Table of Contents