Mortgage terms glossary
The information provided is intended as a summary of common terms which may be used when arranging a mortgage and that the list is not exhaustive and may not contain the specific legal definition of certain terms
A B C D E F G H I J K L M N O P Q R S T U V W X Y ZA
- Arrears
- Mortgage payments which have not been paid as requested and have become overdue
- Applied or Nominal Interest Rate
- The rate used to calculate the interest due.
- Annual Percentage Rate (APR)
- The total charge for the loan including fees and interest expressed as a percentage.
- Advance
- The amount you borrow from the lender.
B
- Buildings insurance
- Designed to cover the fabric, fixtures and fittings of the house you are buying against damage - take it out from the day you exchange contracts.
- Bank of England base rate
- The Bank of England 'repurchase' or 'repo' rate which is main factor influencing interest rates charges by lenders.
- Balance
- The amount you owe, after taking payments (credits) and any debits into account.
C
- Conveyancing
- The legal work involved in the sale and purchase of land or property.
- Conveyancer
- Solicitor or licensed conveyancer who deals with the legal aspects of buying or selling land or property.
- Contract race
- Where the seller has received two or more offers on the property and will sell to the buyer who is ready to exchange contracts first.
- Contract
- The written agreement between the seller and the buyer of a property to transfer ownership.
- Contents insurance
- Designed to cover the contents of your home - including furniture, appliances and personal items - against damage and theft. The level of cover will vary from insurer to insurer.
- Completion
- 1. The final legal transfer of ownership of the property - when the property becomes yours.
2. The start of the mortgage. This is also known as 'drawdown'. - Collateral
- The property. The lender can take possession and sell it if the borrower does not keep up the mortgage payments.
- Closing administration charge
- A charge made by the lender to cover administration costs when a mortgage is repaid.
- CAT standard
Stands for Charges, Access, and Terms - which have to be low, easy and fair respectively. These standards were introduced by the Government for mortgages to help borrowers, especially first-time buyers.
Not all mortgages are CAT standard.
- Capital
- The balance of your mortgage loan excluding costs and interest outstanding.
D
- Drawdown deadline
- Some mortgage funds are available for a limited period only and usually these mortgages must start by a certain date - the drawdown deadline.
- Drawdown date
- Drawdown is the date when the mortgage starts.
- Deposit
- Two deposits may be payable by the buyer: 1. A reservation charge. The buyer pays this as a sign of commitment when they initially agree to buy the property.
2. The deposit. A percentage of the price of the property, paid when contracts are exchanged. - Defective title policy
- Is an insurance policy taken out where a defect in the title to the property has been discovered.
- Daily interest
- Interest is calculated on the balance outstanding each day. So, when you make a payment, interest is calculated on the new balance straightaway. This may have advantages depending upon how you intend to repay your mortgage.
E
- Exchange of contracts
- In England and Wales (not Scotland), the point when both buyer and seller are legally bound to the transaction and at which point the buyer should take out buildings insurance on the property.
- Essential repairs
- Work required on the property before the mortgage loan can be issued.
- Equity
- The difference between the value of the property and the amount of any mortgage or other loan secured against it.
- Endowment policy
- A combined life assurance and investment policy often taken out at the start of a mortgage to run for the same term. Premiums are paid by the borrower to a life assurance company, usually monthly. The company invests the premiums and the investment should provide a lump sum at the end of the policy term (which can be used to repay all or part of the mortgage) or earlier if the borrower should die.
- Endowment mortgage
- Sometimes used to describe an interest only mortgage supported by an endowment policy.
- Early repayment charge (ERC)
- A charge payable on certain types of loan if it is repaid or partly repaid within a certain period eg during a fixed-rate period or while a discount applies.
F
- Further advance
- An additional loan by the lender to the borrower, which may be for any legal purpose and secured by the existing mortgage deed.
- Freehold
- Outright ownership of the property and the land on which it stands.
- First mortgage payment
- This is higher than the normal monthly payments, because the lender doesn’t collect it until after the loan starts. So, as well as the normal monthly amount, the first payment will include an interest payment for the rest of the month in which the loan began.
- Final reminder
- A letter requesting payment and sent to a customer who is in arrears before legal proceedings start.
G
- Guarantor
- A person who promises they will pay the borrower's debt, usually if the borrower fails to.
- Ground rent
- An annual charge payable by leaseholders to the freeholder.
- Gazumping
- When the seller, having already accepted an offer but before contracts are exchanged, accepts another, higher offer from someone else.
H
- Homebuyer's survey
A surveyor's report on a property which is less extensive than a building surveyor full structural survey and is paid for by the purchaser in order to provide more detailed information than the basic valuation which is primarily for the lender's purpose.
Homebuyer's survey are more detailed than a basic valuation but more expensive.
- Higher Lending Charge
A payment to a lender for an insurance policy for the lender's benefit when they lend above a certain percentage of the property value. The policy covers the risk of selling a repossessed property at a loss (note: the insurer has a right to reclaim the cost of a lender's claim from the borrower within certain time limits). (Previously referred to as Mortgage Indemnity Premium or lender's risk fee.)
This traditionally pays for an insurance policy to protect the lender, but is now sometimes simply a fee charged by the lender.
I
- Interest only mortgage
- You only repay the interest each month. The original capital balance will remain outstanding at the end of your mortgage term.
- Initial interest
- Any payment due for the period from the day the mortgage began up to the first payment date.
- Individual Savings Account (ISA)
- The Government's tax-free saving scheme. You can make financial provisions for the future by putting money into any of three types of investment - cash savings, stocks and shares.
L
- Local authority search
- Questions to the local authority regarding plans for new road building, planning permission for any building work previously carried out, connection to the mains sewer, etc.
- Loan to Value (LTV)
- The size of a mortgage as a percentage of the value of the property or its purchase price.
- Life assurance
- An insurance policy that pays a lump sum on death. Often taken out with a mortgage to provide money for the loan to be repaid if the borrower dies during the term.
- Lessor
- The person who grants a lease - the landlord.
- Lessee
- The person to whom a lease is granted - the tenant.
- Lender
- The company such as a bank/building society where you have your mortgage.
- Leasehold
- The right to possession, but not ownership, of a property for an agreed period of time. Ultimate ownership remains with the freeholder.
- Land Registry fee
- A fee paid to the Land Registry to register ownership of a property.
- Land Registry Certificate
- Provides details of the property including a plan and, if the property is leasehold, a copy of the lease.
M
- Mortgagee
- The mortgagee is the lender who lends money in return for the mortgage granted by the borrower, who is the mortgagor.
- Mortgage term
- The term over which you agree to repay the loan.
- Mortgage
- Has a specific meaning in law but has come to mean a loan with property as security.
N
- NHBC guarantee
- A 10-year guarantee, provided by the National House Building Council, that the builder will put right serious defects on a newly-built property. Zurich Municipal and Premier Guarantee all offer similar guarantees.
- Negative equity
- When the value of the property has fallen and is less than the mortgage or any other loan secured on it.
P
- Principal
- The amount of the loan on which interest is calculated.
- Pension Plan
- An investment plan which can provide a lump sum and an income after retirement. A pension plan is sometimes used as a way of providing a lump sum to repay the capital of an interest only mortgage.
- Payment Protection
- Insurance which is designed to pay your monthly mortgage payments, usually for a specified period, if you lose your income through sickness, injury or unemployment.
R
- Repayment mortgage
- You pay interest and part of the capital each month, so your mortgage will be paid off completely at the end of the mortgage term. This is dependant upon the borrower making each of the agreed monthly payments and that the terms of the mortgage such as the amount or term are not amended.
- Repayment
- When a mortgage is repaid. (Also called redemption.)
- Remortgage
- Repaying one mortgage by taking out another secured on the same property, possibly to take advantage of a particular mortgage product or better interest rate from a different lender.
T
- Transfer deed
- A form which provides details of the transfer of ownership to be entered on the Land Registry register.
- Title deeds/title documents
- The legal documents which provide proof of ownership of a property.
- Tie in Term
- The period of time you would need to remain on certain mortgage terms to avoid an early repayment charge.
V
- Vendor
- The person(s) you are buying your new home from.
- Valuation
- An inspection of the property to ascertain its acceptability to the lender as security against the mortgage loan, for which the borrower may have to pay.