Financial Glossary of Mortgage Terms
Please feel free to browse our financial glossary, which has dictionary style descriptions written in plain english for all of the mortgage terms you're likely to come across.
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- A a
- Accident, Sickness & 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.
- Additional Security Fee
- This is a premium charged by Lenders in order to indemnify themselves, and not the borrower, against any financial shortfall they may incur in the event of repossessing a property which must then be sold at a loss. It is applicable if the amount required is higher than a certain percentage of the property value, usually 75% loan to value; often the Lender will pay the cost of this insurance themselves between 75% and 90% loan to value. The charge may either be added to the loan or deducted from the advance on completion.
- Adverse Credit
- This is an umbrella term used of applicants with poor credit history. This may include mortgage arrears, defaults, County Court Judgements (CCJs), bankruptcy, individual voluntary agreements (IVAs) 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 comparison to be made between the different mortgage products offered by each Lender.
- Annual Rest
- The most common way of accounting for interest due on a mortgage. Under this method, the Lender charges a full year's interest to the account annually. If a part capital repayment is then made the account is adjusted accordingly.
- Annual Review Schemes
- These apply to variable rate mortgages. The borrower's repayment is set once a year, though interest is charged to the account at the going rate. This can result in larger than average changes in repayment each year during periods when market rates of interest are volatile.
- Arbitration
- Lender's have separate independent Ombudsmen or arbitration schemes. The Ombudsmen or arbitrators are available to resolve certain complaints made by you if the matter remains unresolved through internal complaints procedures.
- 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.
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- B b
- 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.
- Bankruptcy
- Bankrptcy occurs when an individual is deemed insolvent by a County Court under the provisions of the Insolvency Act 1986. A bankruptcy petition can be initiated by the individual or his creditors. Once granted, it remains in force for three (sometimes two) years. Most Lender's have a clause in their mortgage conditions which provides a right to possession on bankruptcy, though this is seldom pursued unless the account goes into arrears. A mortgage Lender can require mortgage payments to be made direct by the bankrupt person rather than via an Official Receiver or Trustee in Bankruptcy.
- 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 & 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 buy to let they do so primarily on the basis of projected rental income, rather than salary income multiples.
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- C c
- Capital & 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.
- Capital Rest Period
- This is the regularity with which a Lender calculates the outstanding balance on mortgages, and hence the size of the 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 standard variable rate 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 standard variable rate by early repayment charges necessitating repayment of the cashback if the laon 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.
- Consumer Credit Act (1974)
- Amongst other things, the Consumer Credit Act regulates the sales of certain secured and unsecured lending. Loans in excess of £25,000 are unregulated. Loans for house purchase are exempt. Regulated loans require set procedures for both pre-loan administration and defalt arrangements. The Act also sets out requirements for cooling off periods - these provide the opportunity for borrowers to change their minds.
- 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.
- Conveyancing
- This is the legal process whereby ownership of a property is transferred.
- County Court Judgement (CCJ)
- DESCRIPTION REQUIRED
- Covenant
- Covenants are promises contained in deeds. They are enforceable. There are basically two types:
- positive &
- negative
- Credit Bureau
- An organisation which maintains a database on the credit history of data subjects in order to advise Lenders and other interested parties of matters relevant to the status of the prospective customer.
- Credit Scoring
- Is a system which Lenders use to assist in making decisions about granting consumers credit. Credit scoring uses statistical techniques to measure the likelihood that an application for credit will be a good credit risk.
- 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.
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- D d
- Deed of Postponement
- An agreement whereby a second mortgagee postpones the priority of its mortgage in favour of a further charge taken by the first mortgagee.
- Default Notice
- A default notice must be issued by the Lender if it wishes to enforce a loan regulated under the Consumer Credit Act 1974 where the borrower is in default. The default notice has to set out the nature of the breach of the terms of the contract and how (and by when) this can be remedied by the borrower.
- Discounted Rate Mortgage
- This is a variable mortgage that is discounted from a Lender's standard variable 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.
- 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.
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