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GLOSSARY-OF-MORTGAGE-TERMS-BANNER

MORTGAGE FINDER ~ GLOSSARY OF MORTGAGE TERMS

100% Mortgage

This is a non-deposit mortgage.

Accident, Sickness and Unemployment Insurance (ASU)

In the event of an accident, sickness or involuntary unemployment befalling a borrower, this insurance will cover their mortgage repayments. Some Lenders attach mandatory insurance cover to their most attractive rates, although this is increasingly uncommon. Also known as: Mortgage Payment Protection Insurance (MPPI).

Adverse Credit

This is an umbrella term used of applicants with poor credit history. This may include mortgage arrears, defaults, County Court Judgements (CCJ's), bankruptcy, Individual Voluntary Agreements (IVA's) and house repossession. Borrowers with elements of adverse credit are offered higher rates than standard Full Status applicants are, usually with terms and conditions relating to the extent of their adverse credit history. Often, adverse credit mortgages are Libor-linked rates.

Annual Percentage Rate (APR)

The APR is a rate calculated using a generic formula applicable to all Lenders, which includes all the costs associated with a mortgage. This allows for easy comparisons to be made between the different mortgage products offered by each Lender.

Arrangement fee

This fee may be charged on specific products and is either payable in advance, added to the loan or deducted from the advance on completion. It covers the administrative expenses incurred whilst processing an application.

Arrears

Mortgage payments that have not been made by the due date by the borrower in accordance with the mortgage deed agreed with the lender.

Bad Credit Rating

A term used to describe a poor credit rating. Common practices that can damage a credit rating include making late payments, skipping payments or declaring bankruptcy. "Bad Credit" can result in being denied a mortgage, but there are lenders who have products that cater especially for people with bad credit. These mortgages are called non-status mortgages.

Base Rate

Every month the Monetary Policy Committee sets the Bank of England Base Rate, to which all mortgage rates are linked either directly, as Tracker mortgages, or indirectly, in all other cases.

Basic Annual Income

The amount of money earned that is guaranteed regardless of the individual or company performance.

Booking fee

This fee may be charged on specific products and is either payable in advance, added to the loan or deducted from the advance on completion. It is normally payable in order to reserve funds when a product is likely to sell out quickly.

Buildings and Contents Insurance

This insurance covers damage to the mortgaged property and/or its contents in a variety of specified scenarios. It is compulsory for all Lenders, and if the Lender's own insurance is not taken they will often charge an administration fee. Some Lenders attach mandatory insurance cover to their most attractive rates, although this is increasingly uncommon.

Buy-to-Let mortgage (BTL)

This is a mortgage for property that will be let by the borrower to other tenants. When Lenders calculate how large a loan the borrower can afford to repay on BTL they do so primarily on the basis of projected rental income, rather than salary income multiples.

Capital and Interest mortgages

With this method the monthly mortgage repayments pay off both the initial loan amount and the interest that is charged upon it. At the end of the loan term the entire debt will be repaid. Also known as: Repayment mortgage.

Capital Rest Period

This is the regularity with which a Lender calculates the outstanding balance on mortgages, and hence the size of monthly repayments. It is usually annually, monthly or daily. With Capital and Interest mortgages this can be important; an annual interest calculation means that the borrower will pay interest on capital repayments that have been made in the course of that year. In contrast a daily or monthly interest calculation means that the balance, and consequently the interest charged, will reduce with every capital repayment made.

Capped rate mortgage

This is a mortgage that is guaranteed not to rise above a specific rate (the 'cap') within a set period. Unless this is combined with another rate, such as a Discount or Tracker, the Lender's SVR will be charged if it is lower than the capped rate; if it rises above this ceiling the rate charged will remain at the capped level. There are often early repayment charges applicable if the loan is repaid within the capped period.

Cashback mortgage

This is a mortgage in which the Lender refunds a sum of money, either as a percentage of the loan or a flat figure, to the borrower upon completion. With this type of offer the borrower will typically be tied to the Lender's SVR by early repayment charges necessitating repayment of the cashback if the loan is repaid within a set period.

CCJ ~ County Court Judgement): - (Known as a Decree in Scotland)

Judgement for debt in the county court. If a judgement is settled in full within 30 days of the date of the judgement it will not appear in the credit register. In the event of a payment after that date the judgement will appear in the register but will be shown as being satisfied. This is a mortgage in which the Lender refunds a sum of money, either as a percentage of the loan or a flat figure, to the borrower upon completion. With this type of offer the borrower will typically be tied to the Lender's SVR by early repayment charges necessitating repayment of the cashback if the loan is repaid within a set period.

Completion

This is the moment when a transfer of property has legally taken place, after all legal documentation has been completed and funds have been transferred from the buyer's solicitor to the seller's solicitor.

Contents Insurance

See Buildings and Contents Insurance.

Conveyancing

This is the legal process whereby ownership of a property is transferred. Current Account mortgage: This is a fully Flexible mortgage combined with a current account. Money in the current account is automatically set against the mortgage balance and interest is only charged on the outstanding amount, meaning interest payments are reduced.

Credit Check

Enquiry made on the credit history of an applicant, normally being referred to one of the major credit agencies such as Equifax, Experian CCN or Westcott Data

Debt Consolidation

Where all existing loans are replaced by one. This can help by way of rearranging the loan term structure which allowing for the possible reduction of monthly payments.

Discounted rate mortgage

This is a variable mortgage that is discounted from a Lender's SVR by a set percentage within a set period. There are often early repayment charges applicable if the loan is repaid within the discounted period.

Discounted Tracker rate mortgage

This is a variable mortgage that is discounted from the Bank of England's Base Rate by a set percentage within a set period. There are often early repayment charges applicable if the loan is repaid within the discounted period.

Endowment

A repayment vehicle associated with Interest Only mortgages.

Equity

The difference between the amount owed on a mortgage and the current market value of the property Positive Equity: - When the market value of the property increases to become greater than the sum of the mortgage.

Negative Equity

TWhen the market value of the property decreases to become less in value than the sum of the mortgage.

Exchange of Contracts

This is the stage in England, Wales and Northern Ireland that the deposit money is paid and both parties are legally bound to fulfil the agreed conditions of sale and purchase. In Scotland the term used is ~ Missive and is effectively the agreement document upon which a contract to purchase a property is made.

Exclusive mortgage

This is a mortgage only available to intermediaries through a specific packager, in conjunction with a Lender who provides the funding.

Fixed rate mortgage

This is a mortgage that is charged at a fixed rate within a set period. There are often early repayment charges applicable if the loan is repaid within the fixed period.

Flexible mortgage

As its name suggests, this is a type of mortgage that offers considerably more flexibility than traditional mortgages. Although specific details vary between Lenders, the core features of Flexible mortgages are:. daily or monthly capital rest . ability to make overpayments at any point of the loan term without an early repayment charge In addition, many Flexible mortgages allow borrowers to: . defer payment by taking payment holidays . drawback overpayments . draw down further advances . underpay without penalty (often only to the amount of any previous overpayments )

Freehold

The buyer of a Freehold property owns both the property and the land it stands on indefinitely. See also Leasehold.

Full Status

This term describes borrowers with a good credit history who are not self-certifying their income.

Gazumping

This is when a prospective purchaser has an offer for a property accepted, before another potential buyer puts in a higher offer for the same property.

Homebuyers' Report

See Valuation Fee.

Income Multiples

These are the multiples that Lenders apply to borrowers' income in order to determine the maximum loan they will offer them.

Individual Savings Account (ISA)

A repayment vehicle associated with Interest Only mortgages.

Interest Only mortgages

With this method the initial loan amount remains the same throughout the term of the loan, while the monthly mortgage repayments only pay off the interest being charged on this amount. For this reason, Interest Only mortgages are tied to investment in one of a number of different repayment vehicles, which, ideally, should cover the initial loan amount at the end of the loan term. These repayment vehicles include endowment policies, personal pensions, ISAs etc.

Introducer fee

See Procuration Fees.

Leasehold

The buyer of a Leasehold property owns the property for a set number of years, but doesn't own the land on which it stands. See also Freehold.

Let to Buy mortgage (LTB)

This is a mortgage where the borrower's current property is let to other tenants and the rental income is used to cover the mortgage repayments on a new property, bought as the borrower's main residence. When Lenders calculate how large a loan the borrower can afford to repay on LTB they do so primarily on the basis of projected rental income, rather than salary income multiples.

Libor-Linked mortgage

This is a variable mortgage that is either above or below the London Inter-Bank Offered Rate by a set percentage within a set period. The Libor rate is set independently every 3 months. It is often associated with Lenders that offer loans to borrowers with elements of adverse credit.

Life Policy

See Term Assurance.

Loan to Value (LTV)

This is a percentage figure of the loan amount in relation to the property value. For instance a £100,000 property bought with a mortgage of £70,000 has an LTV of 70%. The higher the LTV, the higher the interest rate charged will be; above certain LTV's a Higher Lending Charge comes into effect.

Mortgage Payment Protection Insurance (MPPI)

See Accident, Sickness and Unemployment Insurance (ASU).

Non-Conforming

See Adverse Credit.

Offset mortgage

This is a fully Flexible mortgage which allows a borrower to keep balances (such as mortgage debt, savings account and current account) in separate accounts, but, for the purposes of interest calculation, all balances are aggregated. Money in savings or current accounts is set against the mortgage balance and interest is only charged on the outstanding amount, meaning interest payments are reduced.

Overpayment

This is a fully Flexible mortgage which allows a borrower to keep balances (such as mortgage debt, savings account and current account) in separate accounts, but, for the purposes of interest calculation, all balances are aggregated. Money in savings or current accounts is set against the mortgage balance and interest is only charged on the outstanding amount, meaning interest payments are reduced.

Pension

A repayment vehicle associated with Interest Only mortgages.

Personal Equity Plan (PEP)

A repayment vehicle associated with Interest Only mortgages.

Portability

A portable mortgage is one that can be transferred to another property without penalty if the borrower moves house within an early repayment charge period. The new interest rate that the Lender will be prepared to offer depends on whether the loan amount increases or decreases. If the latter, early repayment charges may apply.

Procuration Fee

This is commission paid by Lenders to intermediaries for introducing business to them. If the intermediary receives more than £250 they are obliged under the Mortgage Code to disclose to the borrower the exact amount they received. Also known as: Introducer Fee. See Capital and Interest mortgages.

Right to Buy (RTB)

This is when a tenant living in a council-owned property purchases it at a discount, the size of which depends on the length of their tenancy.

Self Build

This is a mortgage for property under construction. The loan is paid out in stages as the property is completed, in order to ensure the LTV does not rise too high at any point.

Self Certification mortgage (S/C)

This is a mortgage where a borrower states their income and signs a confirmation of their ability to repay a loan, without having to provide evidence such as accounts, payslips or bank statements. Consequently, S/C rates are often higher than standard Full Status mortgages.

Shared Ownership

This is a scheme operated by a Housing Association where the borrower owns part of a property, and pays the mortgage on this, while a Housing Association owns the rest of the property, and the borrower pays rent on this.

Split Loan: (Part & Part)

This is a mortgage that is taken partly on a Capital and Interest basis and partly on an Interest Only basis.

Stamp Duty

This is a government tax charged on properties with a purchase price in excess of £120,000. Properties are charged 1% from £120,001 to £250,000, 3% from £250,000 to £500,000 and 4% above £500,000. It is not payable on remortgages.

Standard Variable Rate (SVR)

This is a variable rate determined entirely at each Lender's discretion. Unless linked to Libor or the Bank of England Base Rate, the SVR is the reverting rate at the end of any special offer period, such as a Capped, Discounted or Fixed rate.

Term Assurance

This insurance repays the mortgage in the event of the insured person's death. Also known as: Life Policy.

Tracker mortgage

This is a variable mortgage that is either above or below the Bank of England's Base Rate by a set percentage within a set period.

Valuation Fee

Whether purchasing or remortgaging the Lender undertakes a valuation of the property to ensure it provides adequate security. The charge is borne by the borrower and increases exponentially with the valuation/purchase price. There are 3 levels of valuation: in order of increasing detail these are Basic, Homebuyers' Report, and Structural survey. The more detailed the valuation, the higher the fee.


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