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mortgage glossary
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Please note that the information contained within these pages in no way constitutes advice and as such is provided for information purposes only. Please speak to a qualified mortgage adviser to obtain a detailed analysis of your individual circumstances.
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methods of repayment
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Repayment of Capital & Interest
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As well as interest payments being made, the mortgage loan amount is gradually reduced throughout the term, so at the end, nothing remains owing to the lender.
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Interest Only Mortgage
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Only interest payments are made throughout the term of the loan, with the original loan amount remaining at the end of the term.
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Investment Backed Interest Only
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Only interest payments are made throughout the term of the loan and the original loan amount remains payable to the lender at the end of the term. An investment (savings) plan, which pays out a lump sum in later years, is usually used to repay the loan amount remaining at the end of the term.
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Part Repayment, Part Investment
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This is a combination of the two payment methods, where part of the loan is fully repaid over the mortgage term, with the other part as interest only. The capital sum remaining at the end of the term is to be repaid from the proceeds of an investment plan.
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Individual Savings Account (ISA)
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A form of savings based life assurance which can be used to repay home loans.
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Pension Mortgage
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An interest only mortgage where the capital will be repaid from the tax-free cash sum that can be received from the pension fund at maturity.
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types of Interest rate
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Fixed
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The interest rate is guaranteed to stay fixed for a specified period, after which it can be expected to return to the lenders standard variable rate which applies at the time. When this happens you may have the option to transfer to a new fixed rate.
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Standard Variable Rate (SVR)
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This is the traditional type of mortgage interest rate, which fluctuates from time to time depending on the government’s economic and monetary policy.
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Discount
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A discounted mortgage is a discount to the lenders standard variable rate, lasting for a guaranteed period of time. The rate payable will vary with any change in the lenders standard variable rate and will revert to the lenders standard variable rate (without discount) at the end of its period.
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Tracker
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A tracker mortgage tracks either the lenders standard variable or the Bank of England Base Rate (BBR), lasting for a guaranteed period of time. It can track at either above or below these rates. The rate payable will vary with any change in these rates and will usually revert to the lenders standard variable rate at the end of the period.
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Capped
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This is a form of variable rate where the rate is capped at a specified level over a specified term. i.e. it is guaranteed not to exceed the capped rate during the period. The rate may fall during the period and at the end of the term will revert to the lenders standard variable rate (SVR) applying at that time.
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LIBOR
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London Inter Bank Offered Rate is the rate at which banks notionally buy and sell money to eachother. It varies from day to day and is closely linked to the base rate.
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fees which may occur in purchasing a property
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Valuation
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A fee paid by the prospective borrower for the lenders inspection of the property. Normally paid on application.
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Arrangement Fee
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Fee charged by the lender for setting up the loan. Normally payable on completion but can sometimes be added to the loan.
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Booking Fee
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Fee charged by the lender to secure mortgage funds, payable at the time the application is submitted. Normally applies only to special offer loans such as fixed or capped rates.
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Lender’s Legal Fee
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Fee charged by the solicitors acting for the lender in creating their legal charge over the property.
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Higher Lending Charge
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An Insurance Premium which guarantees repayment of parts of the loan. It offers no protection for the borrower and is solely for the benefit of the lender. This fee is normally paid if you borrow more than 75% of the value of the property. Some or all of the fee may be used by the lender to obtain indemnity insurance to act as additional security for its sole benefit. If this is the case the lender will provide you with a written explanation.
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Such Insurance will not protect you if your property is subsequently taken into possession and sold for less than the loan amount. You will remain liable to pay all sums owing, including arrears, interest and your lenders legal fees. If a claim is paid to your lender under such insurance, the insurers generally have the right to recover this amount from you. Not all mortgage lenders charge a Higher Lending Charge.
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Stamp Duty
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You may be liable to pay stamp duty on your purchase, the amount depending on the purchase price of the property. However, if the property you’re buying is in an area the Government considers to be disadvantaged, it will be exempt from stamp duty if it costs £150,000 or less.
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Revenue & Customs has an online database where you can check whether any property you’re interested in qualifies for this exemption.
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The current stamp duty rates are as follows -
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0% of purchase price up to £125,000 - 1% of purchase price £125,0001 to £250,000
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3% of purchase price £250,0001 to £500,000 - 4% of purchase price £500,001+
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fees which may become payable at completion of mortgage term
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Deeds Release Fee
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Fee charged by the lender for releasing its charge over the deeds of the mortgaged property and returning them to the client.
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Mortgage Discharge Fee
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Fee charged by the lender for releasing its charge over a property following the repayment of the mortgage.
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Early Repayment Charges
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A fee which is charged if you repay all or part of the mortgage early. This is normal if you have a fixed, discounted, capped or cashback mortgage.
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for our mortgage guide click here >>>
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