An arrangement fee is what you pay for the lender to set up your mortgage. You can usually choose between paying the arrangement fee upfront or adding it to the mortgage. If you add to your mortgage you will pay interest on it.
Buy to Let
Buy to let mortgages are designed to help people invest in property. A Buy to Let mortgage is available only on properties you do not intend to live in.Generally they require a larger deposit than a standard residential mortgage.
This gives you an extra lump sum of cash at the beginning of your mortgage, to spend on things like decorating, refurbishing your home or to pay your solicitors costs. These mortgages often come with a higher interest rate.
This covers the lender’s costs when sending the mortgage funds over to your solicitor.
The point the legal formalities of a property purchase or mortgage ends and sellers receives the money. The buyer cannot take possession before completion.
Decision in Principle (DIP)
Also known as ‘Mortgage Promise’ or an ‘Agreement in Principle’ (AIP) which is a certificate or statement from a lender to say that ‘in principle’ they would lend a certain amount to a particular prospective borrower or borrowers based on some basic information. This is not a guarantee but it can be helpful when negotiating with sellers and estate agents.
Early Repayment Charge (ERC)
This is an amount of money (a charge) you may have to pay a lender if you either move your mortgage to another lender during the special deal period or overpay by more than you are allowed within the agreed period.
Equity means ownership. Your equity in your home is the difference between what you owe on your home and what your home is worth on the open market.
Exchange of Contracts
This is the point in the transaction where the buyer is legally bound to buy the property and the vendor to sell.
An exit fee is charged for closing your mortgage account, if you switch to another lender or remortgage to another deal with the same lender.
Higher lending charge (HLC)
This is a fee charged by the mortgage lender where the amount borrowed exceeds a given percentage of the value of the property. It’s designed to cover any increased risk the lender might incur by lending to you. They may use it to buy an insurance policy called a Mortgage Indemnity Guarantee, which protects them if you default on the mortgage.
Legal fees pay for a solicitor to do the legal paperwork for you. This process is known as conveyancing.
This refers to how big your mortgage is in relation to how much your property is worth, expressed as a percentage. If you have a £150,000 mortgage on a house that’s worth £200,000, you have an LTV of 75%.
A Written offer from the lender to the borrower setting out details of the mortgage with a list of conditions. The mortgage offer is usually valid for up to 6 months.
The period over which you repay the mortgage.
This is a feature of a mortgage that allows it to be transferred between properties when you move house without penalties
If you want to pay your mortgage off in full, or if you’re in the process of re-mortgaging to another provider, then you’ll need a redemption statement. This shows you what you would need to pay, including all fees and interest owing, to pay off your mortgage.
Remortgaging is when you switch your current mortgage to a new lender without moving home. The three main reasons for people wanting to remortgage is to reduce payments, to raise money against the house or to change the type of mortgage they currently have.
Right to Buy
This is an option for a council tenant to buy the property in which they live in at a discount to the open market value.
This is a method of buying a property in partnership with a Housing Association, for people who otherwise could not become homeowners. The borrower buys a percentage of the property and rents the remainder from the Housing Association. Therefore the occupier will be paying rental and mortgage payments each month.
The seller of the property.
Interest Only Mortgage
With an interest only mortgage you make monthly repayments for an agreed period but this will only cover the interest on your loan. You’ll normally also have to pay into another savings or investment plan that will hopefully pay off the loan at the end of the term.
With a repayment mortgage you make monthly repayments for an agreed period (the term) until you’ve paid back the loan and the interest.
Interest Rate Deals
Capped or Cap
Capped mortgages are the only rate type, other than fixed rates, that will give you payment security. It guarantees your interest rate won’t go beyond an upper fixed interest rate – a limit set by the lender.
The term of a capped mortgage is usually for only an introductory period of two to five years, after which the mortgage will almost always go onto the lender’s standard variable rate or tracker rate for the remaining mortgage term.
Your monthly repayments can’t fall below a certain level which is set by the lender. Collar rates are often put on tracker mortgages.
With a discount mortgage, you’ll get a discount on the lender’s standard variable rate (SVR) for a set period of time, typically two or three years. When your discount mortgage deal comes to an end, your lender will typically transfer you automatically onto its SVR.
With a fixed-rate mortgage, the interest rate stays the same for a set period of time. This means that for every month during this set period, your mortgage repayments will remain the same. At the end of the deal, the interest rate usually reverts to the lender’s standard variable rate (SVR).
LIBOR (London Inter Bank Offer Rate) deals are not widely available but some lenders do offer them. They track the LIBOR rate for a set period of time and will move up or down with it.
This links your savings to your mortgage debt. Instead of earning interest on your savings, that money is balanced against your mortgage so you pay less interest on it. Offset mortgages are typically suited to people who also have large, stable amounts of savings. For example, if you have a £100,000 mortgage and £20,000 in savings, you would only be charged interest on £80,000 of the mortgage. This can save you a significant amount in interest and clear your debt more quickly.
Standard variable rate
With a variable rate mortgage your payments go up or down with the lender’s standard interest rate. This often changes following Bank of England base rate changes.
Stepped rate deals are available on all of the other types and usually start low in the first year and will increase each year until the end of the deal, usually there are penalties to exit these deals early
With a tracker mortgage, it moves directly in line with another interest rate – normally the Bank of England’s base rate plus a few percent. Usually they have a short life, typically two to five years, though some lenders offer trackers which last for the life of your mortgage or until you switch to another deal. If your tracker mortgage rate is low, you can take the opportunity to overpay on your mortgage, shortening the total length of time it will take you to pay off your mortgage, and cutting the amount of interest you pay.
With a variable rate mortgage, your monthly payments can go up or down, according to movements in interest rates at any time. You will need to ensure you have some savings set aside so that you can afford an increase in your payments if rates do rise.