Even having a working knowledge of mortgage glossary can be beneficial in dealing with the professionals within the industry. Here are some words and terms you'll often find used in regards to mortgages.
APR – the percentage interest rate over the term of the mortgage
Arrangement fee – also known as application fee or booking fee. The amount charged by the lender for organising your mortgage.
Arrears – a situation where you have missed at least one mortgage payment. A long period of arrears means you could lose your home.
Base rate – the Bank of England interest rate. Lenders use this rate to set tracker mortgages, and as a starting point for their own lending rates.
Booking fee – same as an arrangement fee.
Buy-to-let – a property which is bought to be rented out rather than as a main residence. A special mortgage is needed for this purpose, and the rates can be higher than a standard mortgage.
Capital – the initial amount of money you borrow on a mortgage.
Credit score or credit rating – the score every borrower is given to determine how much they can borrow. Bad credit scores are often down to debt problems in the past.
Early repayment charge – a penalty sometimes charged by a lender if you want to get out of a mortgage deal early.
Equity – the difference between the value of your property and the mortgage outstanding.
Fixed-rate mortgage – a deal of usually between two and five years where your mortgage payments are fixed by the lender.
Guarantor – someone who guarantees that they will make your mortgage payments if you can’t.
Higher lending charge – less common these days, a fee which lenders may charge if lending more than 90% of a property’s value.
Interest-only mortgage – this type of loan allows the borrower to pay off the interest on their mortgage only, not the capital. The original sum lent still needs to be repaid at the end of the term.
Key facts illustration – the basic elements of the mortgage summarised for the borrower.
Loan-to-value (LTV) – the proportion of the property’s value which you intend to borrow on a mortgage.
Mortgage term – the length of time over which the mortgage has to be paid back.
Negative equity – the unfortunate situation where the value of a property is less than the mortgage outstanding on it.
Offset mortgage – A type of mortgage which allows borrowers to offset their mortgage interest against savings interest.
Overpayments – most lenders will allow you to make extra payments of up to 10% of the mortgage’s value every year. Doing so will shorten the length of your mortgage and decrease the interest you pay.
Remortgage – the process of negotiating a new mortgage on an existing property.
Repayment mortgage – a mortgage whereby you pay back both the interest and the capital. At the end of the mortgage, you fully own the property.
Tracker mortgage – mortgage deals which are linked to the Bank of England base rate, and payments rise or fall depending on the base rate.