09 Feb 2022
The Mortgage Glossary: Mortgage Jargon Debunked – Part 2
Baffled by all the mortgage jargon out there? You’re not alone. There are lots of terms out there, so it can be hard to stay on top of them all. But knowing your stuff can help you feel in control during the mortgage process.
So, soaking up a few of the most common terms is a great way to prep before you start your mortgage hunt.
From early repayment charges to online mortgage advisors, here’s part 2 of our ‘what all the fancy words mean’ series. Missed out on part 1? Not to worry, catch up here.
Agreement in Principle
An Agreement in Principle is a document confirming how much a lender will be willing to lend you for a mortgage. Buyers can then use this to prove to estate agents and sellers how much they can afford for their property.
APR
APR stands for Annual Percentage Rate and is the total cost of a mortgage including all interest and fees.
Arrears
If you have arrears, this means you have defaulted on your mortgage payments in the past. This can affect your credit score and chances of getting a mortgage in the future. Speak with your lender as soon as you think you might struggle to pay a mortgage payment.
Base Rate
The base rate is set by the Bank of England. This is what tracker mortgages and standard variable rate mortgages will use to work out the interest rate you pay with your mortgage.
Standard Variable Rate
Once your initial mortgage deal ends, you will be placed on your lender’s default interest rate, known as the standard variable rate. This is usually more expensive than other interest rates.
This rate can change according to mortgage lenders’ own assessments of the market and competition, as well as according to the Bank of England base rate.
Capital
A mortgage consists of capital, the money you borrow, and interest, the charge added on to your mortgage by your lender.
CCJ
A CCJ, County Court Judgement, is what you’re given when you miss a payment. Once you get one, it can make it difficult to get a mortgage.
Collar
A mortgage collar is the lowest a variable or tracker rate mortgage can go to.
Help to Buy
The Help to Buy Scheme is a government-funded scheme to help first-time buyers on the property ladder. The original scheme closed in 2019 but the new Help to Buy Equity Loan is available until 2023.
Early Repayment Charge
If you want to change to a different mortgage deal or pay your mortgage completely within the tie-in period, you have to pay a fee known as the Early Repayment Charge. You will be able to read more about this when you get your mortgage offer.
Existing Borrower Transfer
This is when a borrower changes to a different mortgage deal with the same lender.
Offset Mortgage
An offset mortgage allows you to use savings to lower your mortgage costs each month. This means instead of earning interest on your savings you’ll have less interest charged on your mortgage. It could also be used to decrease the length of time it’ll take to repay your mortgage.
Overpayment Allowance
An overpayment allowance is the amount you can overpay every 12 months for your mortgage without having to pay the Early Repayment Charges. This will depend on our mortgage deal so make sure to check the details to see the allowance.
Online Mortgage Advisor
An online mortgage advisor helps match buyers with lenders based on their financial circumstances without the need for face-to-face meetings.
Right to Buy Scheme
This scheme allows tenants to buy the council houses they live in. The scheme is now allowing housing association tenants to do the same.
Shared Ownership
With shared ownership, you can buy between 25% and 75% of a property and pay rent on what’s left.
Stamp Duty
Stamp duty is a tax charged on property purchases larger than £125,000. There is an exemption for First Tome Buyers currently up to £300,000.
Valuation Survey
A valuation survey will check the worth of a property to make sure the amount you’re paying for it is correct. You should have your own survey done on top of this.
Adverse Mortgage
This is a type of mortgage available for buyers who have bad credit profiles, such as those who have previously been in debt.
Credit Score
A credit score is rated between 300 and 999, (some go to 850). The higher the number, the more creditworthy you are. This is used by lenders to work out a borrower’s trustworthiness when it comes to borrowing money. The better your credit score, the more likely you are to be accepted for a mortgage.
Defaults
This is when a borrower doesn’t pay their monthly payments. This will cause damage to their credit score and can lead to the borrower losing their home.
Repossession
Your house can get repossessed if you fall behind on monthly mortgage payments.
Tie-in Period
The tie-in period refers to the time you are unable to leave your agreed mortgage term unless you pay an early repayment charge. Usually, you should avoid a mortgage that ties you in after the introductory rate finishes.
Get In Touch
Being aware of common mortgage terms will help you feel more prepared for any meetings you have with your broker. But don’t be afraid to ask them what they mean if a term comes up that you’re not aware of. They’re there to help you and will be more than happy to explain.
If you need further help, have any questions or you’re interested in using an online mortgage advisor, we’d love to help you at Mortgages Online. Start your mortgage journey here.
