Mortgages: Jargon buster
Arrangement fee
This is the charge imposed by a mortgage lender for setting up your home loan.
Most lenders will allow you to add this fee onto the total loan amount, though this is not the best course of action as you will end up paying interest on it for the life of the loan. Read more in our guide to mortgage fees.
Arrears
If you go into arrears it means that you have 'defaulted' at least once on your mortgage repayments, ie missed a month's payment. You will now owe a sum of money ‘in arrears’ to your lender.
If you find yourself in this circumstance you should contact your lender to seek help as soon as possible. Read our guide to mortgage arrears and repossession for more information.
Buy-to-let
A buy-to-let property is purchased with the sole intention of renting it out to a tenant as an investment. Most mortgage lenders offer special 'buy-to-let' mortgage deals for this purpose.
As this type of lending poses a greater risk to the lender, you will usually need to put down a larger deposit upfront than for a residential mortgage. Read our guide to buy-to-let.
Capped rate
On a capped-rate mortgage deal, the interest rate charged by your lender will never exceed the upper 'capped' limit, regardless of wider interest rate hikes by the Bank of England.
Such products give peace of mind in times of higher interest rates, but could mean you're in for a shock if rates have crept up significantly by the time your deal period ends. Read more on different types of mortgage deal in our guide.
Cashback
With a cashback mortgage your lender gives you a certain amount of cash on completion, which could be useful to spend on decorating, for example.
This is used as an incentive to entice you to take out the product, however it might not always be worthwhile – if you end up paying a higher interest rate, for example. It is in cases like this where you will need to find out the 'true cost' of the mortgage deal.
Collar
If your mortgage deal has a collar then it means your interest rate will not fall any lower than the specified amount. So if rates drop to 3.75% and your deal is collared at 4%, you'll miss out on the savings this lower rate will bring.
However, the financial security this gives the lender may mean that some standard fees (such as the arrangement or valuation fees) when you take out the product are waived – offsetting the risk you take.
Defaulting
If you cannot meet your minimum required monthly mortgage repayment and go into arrears on your mortgage, this is known as 'defaulting'.
If this happens you should speak to your mortgage lender about how to remedy the situation and there are also Government schemes designed to help people whose homes are at risk from repossession. See our guide to mortgage arrears and repossession for more information.
Deposit
This is the amount you are required to pay towards the cost of the property yourself.
Some mortgage lenders used to offer deals where borrowers, commonly first-time buyers, did not have to pay any deposit, however the turbulence in the mortgage market and the wider economy has led these lenders to pull such products from their range.
Borrowers typically now have to pay at least 5% of the value of their home in the form of a deposit – more to get the best deals.
Discounted-rate mortgage
A discounted-rate deal is one where the interest rate you are charged is a set amount less than your mortgage lender's standard variable rate (SVR). For example, if the lender has an SVR of 5.5% and the discount is 1% then you will actually end up paying 4.5%.
Early repayment charges
These penalty fees, also known as redemption penalties or ERCs, are imposed if you want to leave your mortgage deal at any time within a specified period – often during your initial deal.
These are designed to stop you hopping from product to product. Penalties charged tend to be between 1-3% of the value of the outstanding loan, ie the amount that you have left to pay off.
Equity
The equity in your property is the amount of money you have left after taking away the amount outstanding on your mortgage from the value of your property.
People who bought their house during the 1990s property boom saw a sharp increase in the equity contained in their property following a surge in property prices.
By contrast, people, especially first-time buyers, who have taken out mortgages for 100% of the value of their home or more in recent years are at greater risk of ‘negative equity’, where the mortgage debt is greater than the value of the property.
Equity release scheme
While equity release is the commonly used term to describe these products, there are two specific types – lifetime mortgages and home reversion schemes.
An equity release scheme allows older homeowners to release the cash tied up in their property. There is a minimum age limit to take out one of these products, usually between 55 and 65 years old, depending on the provider.
These schemes are not something to be entered into lightly and terms vary depending on the type of scheme taken out.
It is imperative that you consult an independent financial adviser who specialises in equity release if you are thinking about taking out one of these products.
Read our equity release guide for more information.
Fixed-rate mortgage
A fixed-rate deal has a set interest rate for the initial period – usually two to five years. This means you can be sure of exactly what you will be paying on your mortgage each month but your rate won't go up or down with the Bank of England base rate as a variable-rate mortgage would.
Flexible mortgage
A flexible mortgage deal will allow you to overpay, underpay or even take a 'payment holiday' from your mortgage.
This can be useful if you get regular bonuses from your work and want to put this extra cash towards paying off a chunk of your mortgage, or if there are certain leaner months during the year where you might struggle to meet the standard repayment.
Each lender will have its own definition of 'flexible', so make sure that the deal you choose adequately meets your needs.
Visit our guide to flexible mortgages to find out more.
Guarantor
A guarantor is a third party who agrees to meet the monthly mortgage repayment should the main applicant find themselves unable to do so. This is more commonplace where first-time buyers are concerned, with the guarantor being their parent or guardian.
Homebuy schemes
These are governmental schemes designed to help existing tenants and key workers (doctors, nurses etc) to get onto the property ladder.
The scheme is extended to other potential first-time buyers depending on the individual's circumstances.
Homebuy schemes are similar to, but not to be confused with, shared ownership schemes. Click here for more information about getting onto the property ladder.
Lifetime mortgages
See Equity release schemes.
Mortgage term
This is the amount of time you are taking the mortgage out for, for example 25 years.
Mortgage deed
The mortgage deed is the formal contract between lender and borrower, outlining the legal obligations of the borrower, and the rights the lender has should the borrower fail to make a repayment (see Defaulting).
Offset mortgage
An offset mortgage is linked with your savings and sometimes your current account. The credit in these accounts is offset against your mortgage debt to reduce the amount you pay interest on.
You do not get interest on your savings or current account but you will pay less interest on your mortgage as a result. Interest rates are generally higher than for standard mortgages so you'll need a high credit balance to benefit overall.
Portability
Your mortgage broker or lender will be able to tell you if your mortgage is portable or not. A portable mortgage will enable you to transfer borrowing from one property to another, sometimes to avoid additional fees or keep a specific discounted rate.
Remortgage
If you're looking to change your mortgage to a different deal but you're not looking to move home then you are 'remortgaging'.
Some lenders will offer more competitive deals to existing customers to tempt them into staying with them, while other lenders will actively seek out remortgage business to attract new customers. For more on remortgaging read our guide to switching mortgages.
Self-certification mortgage
Also known as 'self-cert', these mortgages target self-employed people.
Applicants who run their own business or don't technically have an employer (for example, someone who is working on a freelance basis) are granted a mortgage without having to confirm their income by way of a P60, payslips, accounts etc.
These mortgages have virtually disappeared now.
Shared ownership
Shared ownership schemes are designed to allow people who would otherwise be unable to get a foot on the property ladder to do so.
The home buyer will enter into an agreement, usually with a local housing association, which sees them take out a mortgage on a share of the property and pay rent on the remainder. The portion that is owned will vary depending on the circumstances.
Standard variable rate
More commonly known as the SVR, the standard variable rate is the default mortgage interest rate your lender will charge.
While you are likely to pay less than this when you first take out your mortgage depending on the type of deal you choose, when your 'tie-in' period is up, your interest rate will move to the lender's SVR.
This rate can be higher than the one you were previously paying, so you should consider shopping around and remortgaging to a better deal at this point.
However, as the Bank of England base rate has fallen significantly in recent months you may not save money by switching so check the terms of your mortgage carefully.
Sub-prime/non-conforming
A sub-prime mortgage, also known as a non-conforming mortgage, is geared towards those with a less than perfect credit history. This could be bankruptcy or county court judgements (CCJs), or you could have fallen into arrears in the past.
These products, because of the circumstances, have higher rates, but mean that those who couldn't otherwise obtain finance for their property purchase can do so. See our guide to improving your credit score.
It is now much harder to get a mortgage if you have had credit problems than before the credit crunch.
Tie-in period
This is the period during which you are 'locked in' to your mortgage deal and will pay an early repayment charge to move your mortgage elsewhere – for example, if you have a two-year fixed-rate mortgage deal, your 'tie-in period' might be two years.
Once an initial deal is up, you will move from your introductory rate to your mortgage lender's 'standard variable rate' (SVR), which is usually higher, so if you don't have to pay early repayment charges to switch to a new deal at this point you will usually save money by doing so.
You should avoid mortgages that tie you in after your deal period has ended.
Valuation
Lenders carry out a valuation to verify that the property is worth the amount you want to borrow. Some lenders will insist you use a specified firm, however there can be a certain amount of leeway for you to carry out a valuation yourself.