Mortgage terms you should know

A mortgage is a loan taken out to buy property or land or rearrange existing finance. The loan is ‘secured’ against the value of your home until it’s paid off.

Your home or property will be at risk if you don’t keep up your repayments.

Property equity is the difference between the property’s fair market value and the outstanding balance of all liens on the property. The amount of equity you have can allow you to get a better deal on your mortgage, or you may be able to borrow against this equity in the future.

An Agreement in Principle (or Decision in Principle) is the first step towards having your new mortgage approved. The lender will require your personal details, income and financial details as well as details of the property to be financed. The lender will use this information to assess whether the mortgage is affordable and also complete a credit check. If you are successful you will receive confirmation of this from the lender in the form of an agreement in principle. An estate agent will want to see this confirmation when you are viewing properties to know you are a serious buyer who can afford the property you are looking at. If you require an Agreement in Principle speak to one of our advisers today.

A deposit is the amount of money you are putting down to purchase a property. Your deposit and the loan from the lender make up the required amount to purchase the property. A higher deposit results in a lower loan to value and may help to get a lower interest rate for your mortgage.

Loan to value (LTV) is the size of mortgage a lender is prepared to offer you in relation to the value of the property you are buying or refinancing. LTV is expressed as a percentage and is calculated by taking the amount of the mortgage, dividing it by the value of the property and multiplying by 100. i.e. £150,000 mortgage on a property valued at £250,000 would be 60% LTV. 150,000/250,000 x 100.

An early repayment charge applies to some mortgages, if you pay off the borrowing earlier than agreed. The exact amount may depend on the type of mortgage you have, your lender and at what point you in the term you are repaying the mortgage. Your Mortgage Offer Letter will have the specific details of applicable ERC.

The standard variable rate is the main mortgage rate charged by a lender. This is the long-term rate of interest that borrowers will be charged once their fixed or introductory discounted or tracker period ends. A standard variable rate can move up or down at the lenders discretion. If you are currently on your lenders SVR, get in touch today to see if we can save you money.

APRC stands for “Annual Percentage Rate of Charge”. It represents the cost of your mortgage for the whole term including any fees payable. The calculation takes into account the initial rate you are on as well as any standard variable rate the loan reverts to after the initial rate has expired.

The Bank of England base rate is the official interest rate set by the Bank of England’s Monetary Policy Committee. Banks and building societies use the base rate to calculate interest rates for some mortgage products. If the Bank of England rate changes, this may have an impact on your monthly mortgage payment depending on the type of mortgage you are on.

The freeholder of a property owns the property and the land it stands on outright. You are responsible for all maintenance of the property and land.

A leaseholder owns the property for the length of the lease agreement, at the end of the agreement the ownership reverts back to the freeholder. Leasehold properties are usually flats. The length of the lease can have an effect on the property value, anything under a 70 year lease can sometimes be difficult to mortgage. You have the right to extend a lease if you have owned it for 2 years, providing the original lease was over 21 years, the cost of this will depend on the property. As well as the length of the lease you will also need to consider the cost of the service charge (maintenance of communal areas, repairs), ground rent, building insurance and any administration charges from the freeholder.

A second charge is a type of secured loan or debt secured against a property. However they have secondary priority behind the first charge, which will typically be your mortgage lender. If the property is sold the first charge will be repaid first, any second charges will then be repaid, any additional funds would then be paid to you.

MMR stands for Mortgage Market Review which came into force in April 2014. This has changed how lenders calculate how much they are willing to lend. There is now more focus on affordability and ensuring you can repay your mortgage both now and in the future should rates rise. Lenders will now typically want to know more about your spending habits to ensure you do not over commit yourself.

Conveyancing is the process of legally transferring home ownership from the seller to the buyer. If you are taking out a mortgage you will require a solicitor or conveyancer to do this. The legal work involves:

examining the contract and supporting documents and raising queries with the sellers solicitor
local authority searches
checking “title register” and “title plan” at Land Registry
checking flood risk
water authority searches
chancel repair search
environmental search
arranging exchange of contract and completion dates

Ask the experts

Our advisers will answer any questions or queries you have about new or existing mortgages. Submit any questions using the form here or simply request a callback at a time that’s convenient for you. For responses to frequently asked questions, see our FAQ section.