Understanding the jargon

by admin on September 29th, 2010

The A to Z of property and mortgage terms

APR
Stands for Annual Percentage Rate which helps you compare the cost of different mortgage deals. It takes into account the amount of interest you will pay, the length of the term of the mortgage, and other charges such as any arrangement fee.

Arrangement fee
Lenders sometimes charge a fee to cover the work involved in setting up your mortgage or for certain mortgage rates.

Bank of England base rate
This is also known as the Bank of England’s repo rate. This rate can go up or down from time to time and is announced by the Bank of England’s Monetary Policy Committee.

Building insurance
Insurance against the cost of rebuilding a property from scratch following structural damage, for example by flood, fire or storm.

Building survey
This is a technical report following an inspection of the property. It will give you a comprehensive account of the condition of the property, describing any structural or other defects.

Capped rate
Your interest rate won’t go above a certain level the ‘cap’ during the capped rate period. This means that you can enjoy any rate reductions, yet have the comfort of knowing that your rate won’t go above the cap.

Completion
The day on which a property becomes legally yours.

Conclusion of Missives
The Scottish equivalent of exchanging contracts.

Contents insurance
A policy insuring household contents against theft and damage.

Conveyancer
A legal expert handling all documentation for the sale and or purchase of a property. This will be a solicitor or licensed conveyancer.

Conveyancing
The legal process involved in buying and selling a property.

Credit scoring
A technique used by the lender to assist in the assessment of your application.

Daily interest
With this method of calculating mortgage interest, it is charged on the amount of mortgage outstanding daily. This means lenders take into account any changes in the amount you owe on a day-to-day basis.

Deposit
The money you pay on exchange of contracts as part of your initial contribution to the purchase of your home.

Disbursements
All the various costs itemised on your conveyancers invoice for carrying out your home buying legal work.

Discharge Fee
You have to pay this to some lenders for releasing their hold over a property once you have paid off your loan.

Early Repayment Charge
With some mortgages you have to pay an early repayment charge if certain things happen. For example, if you pay off some or your entire mortgage or you transfer to a different mortgage rate before the end of the special rate period.

Equity
The difference between the amount you owe
on your mortgage and the current value of
your property.

Exchange of contracts
The swapping of contracts between a buyer’s conveyancer and a seller’s conveyancer. Once you have exchanged contracts you are both legally bound to the transaction.

Feudal
A form of legal title applicable only in Scotland.

Fixed-rate
A rate of interest guaranteed not to change over a fixed period of time.

Freehold
A form of legal title to land which means you are the absolute owner of the property and the land it’s on.

Guarantor
Someone who guarantees to repay the mortgage if the borrower can’t or won’t for any reason. Guarantees are usually entered into where the borrower’s circumstances would not allow them to borrow enough to buy the home they want. For example, parents may act as guarantors for their children when they buy their first home.

Higher Lending Charge
Fee or premium sometimes charged by lenders if your mortgage represents a high percentage of the property value.

Household insurance
A way of referring to both buildings and contents insurance.

Interest-only mortgage
You only pay interest to your lender throughout the mortgage term and your mortgage balance doesn’t reduce.

Investment mortgage
As with an interest only mortgage, you only pay interest to your lender throughout the mortgage term and your mortgage balance doesn’t reduce. At the same time, you put money into a separate investment which should grow and pay off the mortgage as scheduled. You must make sure you keep premiums up to date on any mortgage investment products.

Key Facts Illustration
A Key Facts Illustration (KFI) sets out details of the mortgage product that a customer is interested in. All lenders are required to set out the details in a KFI in the same format, so it’s easier for you when you want to compare products. You must receive a KFI before making an application.

Land Registry Fee
Your conveyancer pays this on your behalf to register your details in the Land Registry records once you’ve bought a property or changed your mortgage lender.

Leasehold
This means you own a property for a set number of years. When the lease expires, the property returns to the freeholder. Flats are commonly sold as leasehold.

Life Assurance
A form of insurance by which someone’s life is insured. Life assurance policies can run parallel with a repayment mortgage, so the mortgage should be repaid if you die before the end of the term.

Local authority search
Part of the conveyancing process when you buy a property, carried out by your conveyancer. It gives details of any matters which, from the local council’s point of view, affect the property. It reveals any proposed changes to the local area, such as road improvements, and details any planning permission given for the property.

LTV
This means ‘Loan to Value’ and is the proportion of the value or price of the property (whichever is the lower), that you borrow on a mortgage. For example, a £63,000 mortgage on a house valued at £70,000 would mean a LTV of 90 per cent.

Mortgage deed
A legal document establishing a mortgage on a property. This is called a standard security in Scotland.

Mortgage term
The length of time over which you agree to pay back your mortgage, up to a maximum of 40 years.

Negative equity
This is when the amount you owe on your mortgage is greater than the value of your property. It particularly becomes a problem if you want to move house.

Premium
Amount you pay on a regular basis, this could be for an insurance policy depending on the mortgage product you choose.

Remortgaging
When you arrange a new mortgage on your home, with a different lender and use the new mortgage to pay off the old one. This could be to withdraw equity to spend on home improvements.

Repayment mortgage
Your monthly payments will gradually pay off your mortgage as well as the interest if your payments are strictly in accordance with the terms and conditions of the original loan.

Repo rate
This is also known as Bank of England base rate.

Retention
Holding back part of a mortgage loan by the lender until repairs to the property are satisfactorily completed.

Stamp duty
Government tax you have to pay based on the purchase price of a property worth £125,000 or more. First-time buyers are exempt from stamp duty on properties worth between £125,000 and £250,000 until March 25, 2012.

Structural engineers report
A specialist report from a structural engineer on the condition of a property.

Survey and valuation
A property survey that can include a valuation and should reveal any major faults in the property. It must be noted that valuations do not strictly involve surveys. It is recommended that a buyer should have a survey taken out.

Tracker rate
Tracker rates vary in line with changes to the Bank of England base rate. During the tracker rate period, any changes to the Bank of England base rate are passed on to you in full.

Valuation
Arranged by your lender to find out if the property is suitable to lend a mortgage on.

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