Mortgage Glossary of Terms
A brief list of some of the most common Mortgage terms.
The term used if the borrower has a poor credit history. This
could include previous mortgage or loan arrears, bankruptcy or
CCJ's. Other terms used to describe an adverse credit mortgage
- Bad credit mortgage
- Poor credit mortgage
- Non status mortgage
- Credit impaired mortgage
- No credit mortgage
- Low credit score mortgage
APR (Annual Percentage Rate)
The interest rate reflecting the cost of a mortgage as a yearly
rate. The APR provides home buyers with the ability to compare
different types of mortgages based on the annual cost of
The fee you pay your Lender in return for them providing you with
a mortgage. Usually paid on completion or with your application,
these fees usually apply when you take out a fixed rate, discount
or cashback mortgage.
AST (Assured Shorthold Tenancy)
A form of tenancy that gives the landlord the right to repossess
their property after a set amount of time laid out in the tenancy
agreement. New tenancies are automatically ASTs unless otherwise
The landlord can charge a market rent (the current rate for
similar property in that area) and take back the property under
certain conditions, as set out in the Housing Acts of 1988 and
Short term loan to enable the purchase of one property before the
sale of another essentially releasing funds that are required for
the purchase. You should always consult a professional before
considering any bridging finance as it could be a solution that
is worse than the problem.
A fee charged by an intermediary or advisor for locating the most
appropriate mortgage for the borrower.
Insurance you can take out when you buy a property that will
cover the cost of any damage to the house and or contents..
Buy to Let
A mortgage meant for those who wish to purchase a property to
rent out to others. The decision on whether you are able to repay
this type of mortgage is often based up on the future rental
income from the property rather than the personal income of you
CCJ (County Court Judgment)
A judgement reached in the County Court generally realted to non
payment of a loan, mortgage etc debt in general. If you pay off
the debt, the CCJ will be satisfied and a note is put on your
records that states this.
A housing 'chain' made up of a number of buyers and sellers,
essentially the line of buyers and sellers involved in each house
Any right or interest, especially with a mortgage, to which a
freehold or leasehold property may be held. Basically a charge is
the claim the lender has on the property until the mortgage or
loan is satisfied.
The term used when the seller and buyer exchange the finances
required to buy a property through their respective solicitors.
At exchange of contracts a deposit, usually 10%, will have been
paid. At this point the buyer becomes legal owner of the
The legal process in which ownership of the property is
transferred from the seller to the buyer. Generally undertaken by
a solicitor, or licensed conveyancer.
Early redemption fee
If you decide that you want to sell your property or remortgage
then you will be redeeming you mortgage early. Most lenders
charge a penalty fee, especially during any period of a fixed,
capped or discounted rate. Be sure you are clear about any
potential penalties when you are about to take on a mortgage.
Equity and negative equity
The amount of value in a property that isn't covered by a
mortgage - simply take the amount of the mortgage from the
valuation to work out the equity. This is where the money you owe
on the mortgage is greater than the value of your property.
Exchange of contracts
The contract is a written agreement that lays out the terms
between the buyer and the seller. When both parties exchange
contracts, usually weeks before completion, the deal becomes
legally binding. Often a deposit of around 10%, is paid at this
A set interest rate on a mortgage fixed for a period of time.
This varies from lender to lender.
If you are the property owner outright then your property is
freehold. Most houses are freehold wheres many flats are
leasehold, since you are not the owner of the whole building
containing the flats.
If you are in the process of purchasing a property and your offer
has been accepted but the seller gets a better offer, before you
complete, and takes it then, you've just been 'Gazumped'.
Interest Only Mortgage
A mortgage whereby the borrower is only required to pay inerest
on the amount borrowed during the mortgage term. It is the
borrowers responsibility to ensure that enough funds will exist
(either through an investment policyor other means) to repay the
full mortgage at the end of the term.
A mortgage broker or advisor who finds the most suitable mortgage
for a borrower and arranges the mortgage on their behalf.
If you buy a leasehold property you don't own the property rather
the right to live there for a specified period of time, however
much time remains on the lease. The owner of the property is
called the freeholder or landlord.
This relates more to commercial mortgages. With a commercial
mortgage liability for the repayment of the loan depends on the
legal structure of the business:
A sole trader will be personally liable for the mortgage debt.
Personal assets could be seized if the business defaults.
Partners are jointly liable for the debts of the partnership
and their personal assets are at risk
With a limited-liability partnership and a limited company,
the liability falls firstly on the business rather than on the
individual partners and directors. The lender may take a floating
charge on business assets in general, rather than simply on the
current property being purchased.
The lender may also insist on personal guarantees as a
condition of granting the loan, in which case the partners and
directors may be held personally liable anyway.
If you have a joint mortgage, life insurance can be acquired that
will see the mortgage paid of should one of you pass on.
LTV (Loan to Value)
The size of the mortgage as a percentage of the value of the
property i.e. A £90k mortgage on a house valued at
£100k would mean an LTV of 90%.
MIG (Mortgage Indemnity Guarantee)
A one off payment made when you set up a mortgage a kind of
insurance policy for the lender. This offers them protection
against the value of the home falling to less than the mortgage.
It is generally only charged to borrowers with a less than 10%
deposit, but this can vary.
A loan to buy a property where the property is used as security
against you paying back the loan.
The company or organisation that lends you the money.
The person taking out the mortgage.
Where a lender may not require income details from you or may
accept some previous poor credit history i.e. CCJ's or previous
A period during which the borrower makes no mortgage
A legal right to live in your accommodation for a period of time.
Your tenancy might be for a set period such as a year (this is
known as a fixed term tenancy) or it might roll on a week-to-week
or month-to-month basis (this is known as a periodic tenancy).You
are a regulated tenant if you moved in before 15 January 1989,
you pay rent to a private landlord and your landlord does not
live in the same building as you.
The taking on of a second mortgage to pay off the first. The most
common reasons for doing this are that another mortgage is
available at a better rate or that the value of the property has
gone up allowing for the opportunity to borrow more money against
Right to Buy
For example, a tenant in a council owned property may purchase
the property at a discount depending on length of their
Generally when a borrower applies for a mortgage he or she will
be asked to provide pay slips or company accounts to prove their
income. If it is difficult or inconvenient for you to provide
this evidence, you can choose to self-certify your income. This
involves signing a declaration which states your income sources
and amounts. Lenders will charge you higher rates than average
and offer you a more limited range of mortgages if you choose to
self-certifyyour income, in general it's not a good idea to
self-certify just to avoid some paperwork.
Tax paid by the buyer of a property set at 1% for properties over
£60k, 3% for properties over £250k and 4% for
properties over £500k.
The most wide ranging check of the structure of a property. This
is carried out by professional surveyor and should uncover any
defects or faults with the building.
A legal written agreement between a landlord and tenant that sets
out the terms of the rental.
The period of years over which you take the mortgage and repay
An insurance policy designed to repay the mortgage on the death
of the insured person. Level Term Assurance covers a principal
sum throughout the policy term and pays out the full amount on
death. Reducing Term Assurance is designed to repay the balance
outstanding on a repayment type mortgage upon death. Term
Assurance may also pay out early on the diagnosis of a terminal
The process of evaluating a loan application to determine the
risk involved for the lender. This involves an analysis of the
borrower's creditworthinessand the quality of the property
Where the property is owned outright and no mortgages or loans
are secured against it.
A simple check of the property in order to find out how much it
is worth and whether it is suitable to secure a mortgage
The fee paid by a borrower to cover the cost of the lender
checking that the property is suitable security for the
A type of interest rate the lender can charge. It goes up and
down and your repayments change accordingly.
The person selling the property.
About the Author
Specialists in Bridging Finance and Commercial Mortgage lending Commercial
Lifeline. Independent UK based Commercial Finance
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