Jargon Buster

The world of finance can be a bewildering place, full of strange terminology and abbreviations which can often appear to be a completely different language. We have produced this jargon-buster for the benefit of both first time buyers and established borrowers, to help remove some of the confusion that jargon can sometimes cause.

Advance

This is the actual amount of money that the lender agrees to lend you.

Agreement / Decision in principle

A certificate which some lenders will give you that shows the amount they will probably be prepared to lend you. This is not a guarantee, but can be helpful when signing up with estate agents.

Annual statement

A statement from your mortgage lender, sent every year, showing among other things what you've paid and what you still owe.

APR

This stands for Annual Percentage Rate. It takes into account all fees and other costs in connection with the mortgage as well as the lenders interest rate. The APR is ntended to help you compare the terms offered by different lenders and all lenders must quote an APR in addition to the actual rate of interest applied annually to your mortgage.

Bridging Loan

A temporary loan which enables you to complete the purchase of a new home if you have to do this before completing the sale of your existing house.

Capped mortgage

A mortgage that has a maximum limit on the interest rate you'll have to pay during a special deal period.

Cashback mortgage

A mortgage that comes with a cash sum (often a percentage of the amount you're borrowing).

Completion

The point at which the money to buy your new home is released to the seller, ownership is transferred to you and you can then move in.

Conveyance

The legal document which transfers ownership of unregistered freehold land (see ‘freehold’)

DDM

Direct Debit Mandate – this is an arrangement with banks in order to transfer funds automatically. Mainly used for paying bills monthly. All lenders require mortgage payments to be paid by DDM.

Deposit

The amount of money that you're putting into buying a home (not including the mortgage money you're borrowing).

Disbursements

The fees your solicitor has to pay (e.g. stamp duty, land registry, search fees, etc.) which will be added to your solicitor’s bill.

Early Repayment Charge (ERC)

If you redeem (i.e. pay off in full) a mortgage before a specified date you may be asked to pay an early repayment charge in order to recover any losses incurred by your lender as a result.

Equity

The difference between the value of your property and the amount of any outstanding loans secured against it.

Exchange of Contracts

This is the point at which you are legally bound to buy the property, all contracts have been signed and confirmed. To exit a purchase/sale at this stage it is likely a penalty will apply.

First/Second Charge

A mortgage/loan is a secured loan on your home; this means that if you fail to repay it, your lender may be able to sell your home to get its money back. First charge means that company will be paid before any susequent charges i.e. Second Charge will be paid second etc.

Fixed rate

A Fixed Rate Mortgage is a loan where the interest rate is fixed for a specified period of time. 2 - 5 year fixed periods tend to be very popular but you can fix for longer if required. The big advantage to the borrower is that a fixed rate provides peace of mind that your payments will never change over the initial fixed period. Excellent for people who wish to set a fixed budget for their mortgage repayments. Fixed rate mortgage payments = fixed monthly budget. After the fixed rate period most mortgages products return to the lender's variable rate. Some lenders will charge an arrangement fee for the fixed rate and may also make an 'early Repayment charge' ( see glossary ) should you choose to pay off the loan before the end of the fixed rate period. Too find out more about this type of mortgage call us on 0845 071 4414

Freehold

The term used to indicate ownership of a property and the land on which it stands where both belong to the owner indefinitely.

FSA

The Financial Services Authority - the UK's financial watchdog.

Higher Lending Charge

This is a charge made by a lender when the amount you borrow is above a certain percentage, typically 90-95% of the property valuation. This was often referred to as a Mortgage Indemnity Guarantee (MIG).

Homebuyers Report

This is a detailed survey and valuation report. This covers the structural condition and potential maintenance costs as well as confirmation of the market value.

Income multiples

The factor by which your earnings are multiplied to find out how much you can borrow.

Interest Only Mortgage

A mortgage where you only pay the interest charges of the loan each month. This means you are not reducing the loan amount (or capital) itself, and this will need to be repaid in some other way.

Interest Rate

The figure that determines how much interest you pay. Usually linked to the Bank of England's rates and can move up or down.

KeyFacts documents

Standard documents that all authorised lenders and brokers must give you to explain their services and details about the mortgage you're interested in.

KFI

Key Features Illustration – This is the mortgage illustration which details all of the descriptions, conditions, costs and fees associated with the mortgage.

Lease

A document which grants possession of a property for a fixed period of time and sets out the obligations of both parties, landlord and tenant, such as payment of rent, repairs and insurance.

Leasehold

The arrangement by which property is let by lease by a landlord to a tenant for a fixed period of time.

Loan-to-value

The percentage of money you want to borrow compared to the cost of the property.

Mortgage broker

A mortgage broker helps you understand the various mortgage types and deals available to them. A mortgage broker may recommend a mortgage for you or they may provide you with information to enable you to make your own choice.

Mortgagee

A building society, bank or other company which lends money against the security of a charge over the property purchased.

Mortgagor

A person who borrows money, usually to buy a property (i.e. you as the borrower).