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APR:
APR stands for Annualised Percentage Rate. A lender is
always required to quote the APR rate when telling the world about
their product - its a fair way of showing you the real cost over time.
Base Rate:
The base rate is set by the Bank of England. The
lender�s Standard Variable Rate (SVR) is higher than the Base Rate, but
is often adjusted by reference to it.
Buildings Insurance:
Insurance cover which protects the
holder against damage to the property itself (although it can be linked
with contents insurance in a combined policy). The amount insured may
vary from the purchase price/valuation of the property depending on the
type of location of the property. The valuer will usually provide a
rebuild cost for insurance purposes.
Buy to Let:
The practice of buying a house or flat for
investment purposes. Income is provided by the tenants' rent, and
capital growth (if any) by the property's increasing resale value.
Capital and interest:
In the context of mortgages, a capital
and interest mortgage is also known as a repayment mortgage. It
involves paying all of the interest plus repayment of a little of the
capital each month; an interest only mortgage involves only paying off
the interest.
Capped Rate:
A mortgage which allows your interest rate to
climb no higher than a specified level, usually for the first few years
of the loan.
Cashback:
A mortgage that provides a borrower with an
immediate lump sum payout on top of the sum borrowed to buy the
property. This has to be paid for one way or the other, so cashback
mortgages will typically be at a higher rate than other mortgages and
will usually have redemption penalties for several years.
Completion:
The final stage of the house-buying process,
which comes after exchange of contracts. The sale must proceed after
Exchange, but Completion occurs when the property's agreed sale price
(less any deposit already paid) safely reaches the seller's bank
account.
Contents Insurance:
Insurance cover which protects the
personal belongings your home contains. In the case of rented
accommodation, the landlord is responsible for insuring those contents
which he owns, but not those owned by his tenants.
Conveyancing:
Normally carried out by a solicitor or
licensed conveyancer on the buyer's behalf, conveyancing includes
proving the property is really owned by its seller, making sure that
all the loans secured on it are discharged, establishing its legal
boundaries and searching local planning information for upcoming
developments which could affect the property's value.
County Court Judgement (CCJ):
If a County Court rules
against you for defaulting on a debt, that ruling is listed on your
credit record. Having such a judgement listed against you may mean you
are turned down for future loans, or be expected to pay a higher rate
than other customers. The Scottish equivalent of an English CCJ is a
Decree.
Credit Reference Agency:
When assessing your application, a
mortgage lender will study your credit records. These records are held
centrally by credit reference agencies, and contain information from
many different aspects of your life.
Current Account:
A bank account linked to a cheque book
and/or debit card. In exchange for instant access and the ability use
cheque or debit facilities, most pay little or no interest on the
balance they contain. Click here for further information on Current
Account Mortgages.
Deeds:
The formal written document which lists exactly who
owns a property and enables transfer of a property's ownership from
seller to buyer. A mortgage lender will record details of their
mortgage on these deeds (which means they can take ownership of the
property if you default on the loan payments)
Deposit:
In the context of mortgages, the deposit is the
initial lump sum payment which the buyer must contribute to the
property's total purchase price. Commonly set at around 5% to 10%.
Discounted Rate:
A mortgage which has an interest rate below
the lender's standard variable rate (SVR), Bank Base Rate or Libor
rate, typically for the first few months or years of the loan. The rate
payable may move up and down, but the discount on SVR remains constant.
Early Redemption Penalties:
Fixed-rate, capped-rate,
cashback and discount rate mortgages commonly carry early redemption
penalties which can in some cases persist long after the initial
special rate itself has expired. This can make it prohibitively
expensive to move to a rival lender in the first few years of the loan.
The Charcol online web site shows you the size of any redemption
penalty and how it changes over time.
Endowment Mortgage:
A mortgage funded by an insurance-based
savings plan, which may give you a bonus payment or additional returns
by the end of the loan's term if it performs well.
Exchange of Contracts:
The terms of a property's purchase
become legally binding for both parties when contracts are exchanged.
The buyer is then committed to buying, and the seller to selling. As a
buyer, you should normally ensure that you are covered by building
insurance from this date, because even if the property were damaged
badly, you would still have to buy it.
Fixed Rate:
A mortgage which fixes your interest rate at a specified level, typically for the first few years of the loan.
Flexible Mortgage:
A mortgage which allows borrowers to make
overpayments when they have spare cash. Other features could include
the option to reduce or miss payments altogether when times are tight,
and to reborrow any overpayments. Not all flexible mortgages offer all
of these features. Often useful for self-employed people whose income
varies from one month to the next. The most flexible form of mortgage
is a Current Account Mortgage (CAM), which can potentially save you
money by linking your current account and mortgage together.
Gross:
Before tax.
Home and Contents Insurance:
A joint term, referring to both
buildings cover and contents cover. The two policies may or may not be
bought from the same insurer, but buying them together can sometimes
save money or make life simpler.
Illustration:
In the context of mortgages, a lender's
estimate of the monthly payments you would have to make under a
particular loan arrangement, together with the costs to set it up.
Interest:
The premium which a borrower must pay a lender in return for use of the lender's money.
Interest-only Mortgage:
With a mortgage like this, your
monthly repayments cover only the interest element of the loan. You
will normally need a repayment vehicle, such as an ISA, endowment or a
personal pension, to repay the capital.
ISA Mortgage:
A mortgage loan funded by contributions to an
Individual Savings Account. ISAs provide tax-free growth, generated
mainly by stockmarket investment. The ISA aims to repay the loan's
capital at the end of its term, but the interest element must be paid
separately as you go along. It's important to remember that past
performance is not necessarily a guide to future performance.
Letting Agent:
A property agent who can help landlords
locate suitable properties for purchase, and who finds tenants to
occupy those properties and can manages the rental process which
follows.
Loan To Value:
This is the amount you want to borrow divided
by the purchase price. In other words, it reflects the size of your
deposit. Generally, the lower the loan to value, the safer the lender
will view the loan.
London Inter-Bank Offered Rate (LIBOR):
The interest rate at
which leading banks lend to one another. Sometimes used as an
alternative to base rate in setting the benchmark for a tracker
mortgage. There are separate LIBOR rates for different periods up to a
year but either �1� or �3� months LIBOR is what is normally used in
setting mortgage rates.
Mortgage Broker:
An independent agent who shops around for the best mortgage deal on behalf of his clients.
Mortgage Code:
A voluntary code of practice governing sales practice among mortgage lenders and brokers.
Mortgage Indemnity Guarantee (MIG):
This is an insurance
premium which you have to pay for some mortgages, usually when the Loan
To Value is higher than a certain figure. It protects the lender to
some extent if you default on the mortgage for any reason. It is
important to understand that although you have to pay the premium, the
lender benefits from any payout, and that if the payout doesn�t cover
their costs they may seek further money from you. With many mortgages
you can add the MIG to the loan, unless this takes your Loan To Value
over a certain figure. The insurer may pursue the defaulter for
reimbursement of any monies which have been paid out in respect of
lenders claim.
Net:
After tax has been deducted.
Non-Status Loan:
This is where your income is not disclosed and/or you have some adverse credit.
Overpayment:
A mortgage repayment bigger than the one needed
to meet the loan's minimum requirements. Mortgages that allow these
without penalty are often useful for people whose type of employment
means that from time to time they receive significant bonuses or other
influxes of money.
Payment Holiday:
A short break from regular mortgage
repayments, sometimes offered with flexible mortgages. This can
sometimes be a useful feature for self-employed people or others with
irregular income.
Pension Mortgage:
A mortgage whose capital repayment is
funded by contributions to a personal pension. The generous tax breaks
given to pension saving boost contributions by making them gross
instead of net of tax. There is an option available to take a lump sum,
of up to 25% of the value of the accumulated pension fund. This lump
sum aims to repay the loan's capital at the end of the term. The past
performance is not necessarily a guide to future performance.
Premium:
In the context of insurance, a premium is the regular sum you pay to keep your cover in force.
Remortgaging:
The process of switching your mortgage loan from one lender to another without moving house.
Redemption penalties:
See early redemption penalties
Repayment Mortgage:
A mortgage loan funded by simple monthly
repayments, calculated to repay capital and interest usually over a
term of 25 years (less if preferred).
Repayment vehicle:
The means by which a mortgage loan's capital is repaid. Examples include endowment policies, ISAs, and personal pensions.
Search:
A local authority search is an examination of local
planning records to uncover details of any upcoming developments near
the property which could affect its future value or existing
restrictions on the site.
Second-Hand Endowment Policy (SHEP):
Endowment policies
part-way through their term can sometimes be sold on the open market.
Disposing of an unwanted policy in this way often produces a better
price than the traditional route of early surrender. Also known as
Traded Endowment Policies (TEPS).
Secured (loan):
If you should default on your mortgage, the
lender can ultimately repossess your property to recover their money.
The loan is hence said to be "secured" on the property.
Standard Variable Rate (SVR):
A mortgage lender's main
interest rate. Fixed-rate and discount loans usually switch to SVR when
the special offer period expires. Conversely, tracker mortgages switch
to a fixed percentage above Bank Of England Base rate (or LIBOR)
Status:
A shorthand term for the borrower's credit record and employment situation. See "Non-Status Loan".
Surrender:
The process of cashing in an unwanted endowment
policy with the insurer who sold it to you. Doing this often produces a
poor return for the money invested to date in the policy's early years.
Survey:
An expert examination of the property you are
considering buying, aimed at discovering any structural flaws or
repairs needed which you may have failed to notice yourself.
Term:
The period of time over which your mortgage will run. Typically 25 Years or to expected retirement date if that comes first.
Tracker Mortgage:
Tracker mortgages link your interest rate
to a benchmark, such as Bank of England base rate. The rate you pay
moves up and down in line with the benchmark selected.
Traded Endowment Policy (TEP):
Another name for Second-Hand Endowment Policy (SHEP).
Underpayment:
A mortgage repayment smaller than the regular
agreed sum. Some flexible mortgages have this feature, which can be
useful for people with irregular income. |
