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.
If it isn’t all-encompassing, it simply isn’t Compass
Securing a mortgage is only part of the story. What’s just as important is the experience you have along the way.
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