The ultimate mortgage jargon-buster (A–Z glossary)

The world of mortgages is full of technical language. So, to clear the confusion, here’s an A–Z glossary of the most common terms, with a simple explanation of what they all mean.

Common terms used by a mortgage broker (and what they mean)

Agreement in principle (AIP)

Otherwise known as a mortgage promise, an AIP is a conditional estimate from a lender which indicates how much they might lend you for a mortgage.

Base rate

A base rate is the official interest rate set by the Bank of England which indicates how much it costs financial institutions to borrow money.

Capital payment

A capital payment is a payment made beyond the interest amount to reduce the outstanding balance on a mortgage.

Conveyancing

Typically handled by solicitors, conveyancing is the legal process of transferring property ownership from a seller to a buyer.

Early repayment charge (ERC)

An ERC is charged by lenders when a borrower pays off some or all of the lending amount before an agreed date stipulated in the lending terms.

Exit fee

Otherwise known as a redemption fee, an exit fee is charged by the lender when you formally close your mortgage account.

Fixed-rate mortgage

A fixed-rate mortgage is a loan with an interest rate that remains the same over a stipulated period, be it two, five or ten years.

Gifted deposit

Usually given by a family member, a gifted deposit is a sum of funds provided to a homebuyer to pay for all or part of the mortgage deposit.

Guarantor

A guarantor is legally responsible to pay a debt (such as a mortgage repayment) if the borrower defaults on a payment. This is now confusingly referred to as Joint Borrower Sole Proprietor.

Joint mortgages

A joint mortgage is a mortgage product taken out by two or more people, all of whom share equal responsibility for making repayments on time.

Maturity date

A maturity date is an agreed final date when a mortgage is due to be paid off in full. At which point, the lender will release its claim on the property.

Mortgage deposit

A mortgage deposit is the percentage of the property price paid upfront to secure a home.

Mortgage offer

A mortgage offer is written confirmation from a lender which states they are willing to lend you an amount to purchase or remortgage a property.

Negative equity

Otherwise known as upside-down, negative equity is when the outstanding balance on a loan exceeds the current market value of your property.

Overpayment

A mortgage overpayment is when you repay more than the set monthly amount, usually to lower the total interest paid over a loan’s lifetime.

Payment holiday

Agreed by your lender, a payment holiday is the temporary pause or monthly payment reduction in your mortgage repayments.

Stamp duty

Stamp duty is a mandatory tax applied when you purchase a property or plot of land over the value of £125,000. For first-time buyers in the UK, there’s 0% stamp duty on properties up to £300,000 and 5% on properties from £300,001 to £500,000.

Standard variable rate

A standard variable rate is an interest rate automatically applied by a lender once an initial fixed rate comes to an end.

Valuation

Conducted by lenders, a valuation is a limited inspection of a property to confirm its current market value and loan-to-value (LTV) ratio.

Variable rate

Fluctuating with the Bank of England base rate, a variable rate can change over time which influences your monthly mortgage repayment amount.