Mortgage Term Glossary

Transcription

1 Mortgage Term Glossary Advance - The mortgage Loan. Adverse Credit - This is the term used if the borrower has suffered a poor credit history. This could include previous mortgage or loan arrears, CCJ's or bankruptcy. APR - Annual Percentage Rate. This is designed to be a way of comparing the cost of credit. It takes into account most of the upfront and ongoing costs involved with taking out a mortgage. Different Lenders work it out in different ways so you can't always rely on it. Arrangement Fee - This is a fee you pay to your Lender in return for providing you with a mortgage. Usually paid on completion or with application, these fees usually apply when you take out a fixed rate, discount or cash back mortgage. ASU - Accident, Sickness and Unemployment insurance (See also MPPI). This insurance is designed to cover the borrower s mortgage payments in case of accident, sickness or involuntary unemployment. Base Rate Tracker - The newest type of mortgage. The interest rate is variable but set at a premium (above) the Bank of England Base Rate for a period or even the term of the mortgage. The biggest advantage of this type of mortgage is that, usually there is little or no redemption penalty. This also means that interest can be saved on the mortgage without penalty, by overpayments, and these savings can be quite significant. Booking Fee - A fee paid to a lender or packager for the arrangement of a mortgage, most commonly when arranging a Fixed Rate mortgage. Brokers Fee - A fee charged by an intermediary or advisor for locating the most appropriate mortgage for the borrower. BSA - The Building Societies Association - This is the trade organisation of the Building Societies. Buy-to-Let - This is a mortgage designed for people who wish to purchase a property to rent out to others. The ability to repay this type of mortgage is often based on the projected rental income from the property as opposed to the personal income of the borrowers. Capital and Interest - Your monthly payments are partly to pay the interest on the amount you borrowed and partly to pay the outstanding mortgage - also known as a repayment mortgage.

2 Capped Rate - An interest rate charged for a set period of months or years which fluctuates with the variable rate but there is a maximum (capped) interest rate which it cannot go above. Cashback - A payment you receive when you take out a mortgage. It may be a fixed amount or a percentage of the actual amount of the mortgage. CCJ - A County Court Judgement. This relates to a decision made in the County Court which can be for not paying a debt. Once the debt is paid the CCJ is satisfied and a note is put on your credit file to reflect this. Completion - When the sale and purchase of the property are finalised and you become the owner of your new house. Alternatively, when the funds have been released by your new lender and your previous mortgage has been settled when refinancing your existing property. Contracts - The legal documents under which you and the person selling the property agree to buy and sell the property. Conveyancing - The legal process involved in buying, selling and remortgaging property. Credit Search - This is a check that your lender will carry out to determine whether you have any County Court Judgements or have a record of not paying loans, credit cards and bills. Credit Scoring - This is a way in which lenders assess whether you are a good risk to offer a mortgage to. Debt Consolidation - This is a means to repay high interest debts (such as credit cards and personal loans) by incorporating them into a new mortgage to benefit from lower interest rates and lower monthly payments. Deed - This is the legal document detailing title ownership of the property. Deposit - The amount of money you put towards buying your property. Disbursements - A solicitor's expenses for example: land registry fees, searches, faxes etc. Discounted Rate - A guaranteed reduction in the standard variable mortgage rate. This often lasts for an agreed period. Early Redemption Charges - This a fee charged by a lender if you pay off part or all of your mortgage before the agreed date, or you move your mortgage to another lender. These charges mainly apply to fixed rate, discounted rate and cashback mortgages.

3 Endowment - An endowment is a life assurance policy that is designed to produce a lump sum to pay off an interest only mortgage. Equity - The amount of value in a property over and above the amount that is mortgaged. Exchange of Contracts - This is the point at which you and the person selling the property sign and swap identical contracts that show the price and which fixtures and fittings are being sold, as well as the date on which everything is to be completed. When contracts are signed, everything becomes legally binding and if you or the seller pull out before completion you or they will have to pay compensation. Financial Services Authority (FSA) - The independent watchdog, appointed by the Government, that regulates financial services. The FSA took over statutory regulation for all mortgage business on the 31st October 2004 and for general insurance business on the 14th January Fixed Rate - The interest charged on a mortgage is set for an agreed period. Fixtures - Any item that is attached to a property and so legally is part of the property. Flexible Mortgage - This type of mortgage is relatively new. The interest rate is variable but has the big advantage that it is calculated daily instead of annually. This means that any capital repayment of the loan will affect the interest charged on the outstanding balance immediately. By making regular overpayments, the interest saved on the mortgage over the term can be quite significant. Also, most lenders will allow funds to be drawn from the account up to the original mortgage balance or even allow payment holidays. Freehold - This is where you own the property and the land that it is on. Gazundering - This is when the person buying the property offers a new, lower sum before exchange of contracts. Gazumping - This is when the person selling the property accepts an offer and then accepts a new, higher offer from another buyer before exchange of contracts. Gross monthly repayment - This is the amount you must repay to the lender before tax relief (see MIRAS) had been applied to the interest Charges. MIRAS was abolished in April 2000 and so there is now no tax relief applied to mortgages. Guarantor - This is the person liable for the repayment of a mortgage if a borrower fails to maintain their mortgage payments. This is usually a parent or close family

4 Higher Lending Charge -This is insurance that covers the lender in case your property is repossessed and the lender cannot get back their money. Although this insurance protects the lender, you have to foot the bill. Some lenders will add the Higher Lending Charge to the mortgage on completion, whilst others will deduct the relevant amount at completion. This usually applies to high percentage mortgages of over 75% loan to value. Home Buyers Report - This is a property survey which lies between a mortgage valuation and a full survey. It is a multi-page report which gives the buyer some piece of mind about the property they are purchasing. Income Multiples/multipliers - The size of the mortgage that the lender will offer is usually worked out by multiplying your income by a set figure. Most lenders will take 3 times the gross salary of the first applicant plus 1 times the income of the second applicant or 2.5 times the joint salaries. Some lenders will allow you to borrow more than this. Income reference - This is confirmation from your employer that you earn the amount you stated when you made your mortgage application. If you are self employed, the lender may require confirmation from your accountant. Initial Disclosure Document (IDD) - This document provides information about Western Mortgage Brokers Limited and the service that we offer. The document has been designed by the Financial Services Authority (FSA) and a version should be provided to you by anyone offering to sell you a mortgage. These documents allow you easily to compare mortgage lenders and brokers. Interest Only Mortgage - With this type of mortgage, the borrower is only required to pay interest on the amount borrowed during the mortgage term. It is the borrower's responsibility to ensure that enough funds will exist (either through an investment policy or other means) to repay the mortgage at the end of the term. Intermediary - A mortgage broker or advisor who locates the most appropriate mortgage for borrowers and arranges the mortgage on their behalf. Key Facts Illustration (KFI) - This document provides information about a particular mortgage that is being offered to you. The document has been designed by the Financial Services Authority (FSA) and should be provided to you by your lender or mortgage broker before you make a commitment to apply for a mortgage. These documents allow you easily to compare mortgage products so you can make an informed decision about which is best for you. Land Registry Fee - This is the fee paid to the Land Registry to register ownership of an area of land. Leasehold - If you buy a leasehold property, you own the property for a set number of years but not the land on which the property is built, as opposed to freehold where you own both the property and the land indefinitely.

5 LIBOR - This stands for London InterBank Offering Rate. In order for banks to conduct their business, they must have sufficient funds available in their accounts at all times. Because their balances change day by day, the banks have agreed to lend each other money for short periods of time. The rate at which they lend to each other is called LIBOR. A number of lenders now base their mortgage rates on LIBOR rather than on the Bank of England (or Scotland) Base Rate. Some lenders offer mortgages based on LIBOR's using currencies other than sterling. Licensed conveyancer - An alternative to using a solicitor. These people specialise in the legal side of buying and selling property. Local Authority Search - A check carried out by the buyer's solicitor to check that there are no proposed developments in the area of the property such as roads, railways or other buildings. The check also includes details of the planning permission for the property and whether the council has served any enforcement notices on the property. A fee is charged for this service. LTV - Loan to Value. This refers to the size of the mortgage as a percentage of the value of the property i.e. A 45,000 mortgage on a house valued at 50,000 would mean that the LTV would be 90%. MIRAS - Mortgage interest relief at source. This was tax relief on your mortgage but was abolished by the government with effect from April Mortgage - A loan to buy a home where you use the property as security against you repaying the loan. Mortgagee - The Company or Organisation that lends you the money. Mortgagor - The person taking out the mortgage. MPPI - Mortgage Payment Protection Insurance (See also ASU). This insurance is designed to cover the borrowers mortgage payments in case of accident, sickness or involuntary unemployment Negative Equity - This is where the money you owe on the mortgage is greater than the value of your property. Non-Status - This is where a lender may not require income details from you or may accept some previous poor credit history i.e. CCJs or previous mortgage arrears. Overpayment - When monthly payments to a mortgage are increased so that the mortgage is repaid before the end of the mortgage term. Flexible mortgages permit overpayments to be made without penalty allowing significant interest savings over the mortgage term. Payment Holiday - A period during which the borrower makes no mortgage payments. Normally only available to borrowers with a flexible mortgage who have previously overpaid their monthly repayments.

6 Personal Pension - This is a structured savings and investment plan to provide for your financial needs after you retire. You can use some or all of the proceed from a personal pension to pay off an interest only mortgage. Portability - A term used to describe a mortgage that can be transferred between properties when you move house. Redemption - The process of paying off your mortgage either when moving house, remortgaging or at the end of the mortgage term. Redemption Penalties - Penalties levied by the lender when a borrower pays off the mortgage before the end of the agreed redemption period. These are often charged on fixed, capped or discounted rate mortgages. Remittance Fee - A charge made by the lender for sending mortgage funds to your solicitor just before the purchase is completed. Remortgage - The process of paying off one mortgage with the proceeds from a new mortgage using the same property as security. Repayment - Your monthly payments are partly to repay the amount you borrowed and partly to pay the interest on the outstanding mortgage. This is also known as a capital and interest mortgage. Repossession - The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt. Right to Buy - A tenant in a council owned property may purchase the property at a discount depending on length of their tenancy. Sealing Fee - This is a charge made by lenders when you repay a mortgage. Searches - These are checks carried out during the conveyancing process. These checks are made with local authorities and other official organisations to check planning proposals and other matters that may affect the value of the property and it's saleability in the future Self Certified - Normally 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 extremely inconvenient for you to provide this documentation, 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-certify your income, so it's not a good idea to self-certify just to avoid some paperwork. Shared Equity - There are two main forms of this; the first is where a lender assists with the purchase of a property by retaining an equity interest in the the property of, say, 50%. The second is a scheme operated by a developer where

7 the developer retains a percentage equity of around 10% in the property. Thus the lender or developer holds a second charge over the property. The lender or developer recovers the value of their share on sale of the property. Shared Ownership - A scheme operated by a housing association where a person owns part of the property and pays a mortgage on this, while the housing association owns the rest of the property and the person pays rent on this. Stamp Duty - This is a tax payable on the purchase of a property by the purchaser. For properties with a purchase price of up to 125,000, no stamp duty is charged. For properties between 125,000 and 250,000, 1% stamp duty is payable on the purchase price. For properties between 250,000 and 500,000 it is 3% and for properties over 500,000 it is 4%. SVR - Standard Variable Rate. This is the basic interest rate that the lender charges. The rate goes up and down and your repayments are adjusted accordingly Term - The period of years over which you take the loan. Term Assurance - This is 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 illness. Title Deeds - Documents that show proof of who owns the freehold and leasehold property. Transfer deed - This is a document that, once you sign it, transfers the ownership of a property to you. Unencumbered - This is where the property is owned outright and no mortgages or loans are secured against it. Valuation Fee - A fee paid by a borrower to cover the cost of the lender checking that the property is suitable security for the mortgage loan. Variable Rate - The interest rate the lender charges. it goes up and down and your repayments change accordingly.