The Glossary is in two sections, the first dealing with common mortgage terms, the second (below the first) going into more detail about insurance terminology.
Phrases you may hear during the course of getting your mortgage
This just means the mortgage on your home/property. It's called a first charge as you own the property and the bank have the first charge against it, so if you ever have to sell, they get their money first, and you get what's left.
This is an additional mortgage on your home/property. It means if you have to sell, the first charge is paid from the proceeds, then the second charge, then you get what's left. Usually people look at a second charge option if they have a large penalty to get out of their first charge mortgage, or if they want to clear debts or have bad credit and high st lenders are not willing to consider lending.
Basically a large short term loan secured against some form of asset. It's designed to allow you to do something you may not be able to do with more traditional finance. Commonly utilised for people buying at auction, where they have to immediately exchange and complete within 28 days. Can also be used for buying a property if you are trying to sell and it's taking a little more time than you thought.
If you're looking to buy a commercial premises, unusual development, like a pub/church/factory or maybe land to develop
You see this all over mortgage documents and it simply means the amount of mortgage you want expressed as a percentage. If you have a 10% deposit, the LTV is 90%.
If you're looking for a fixed rate mortgage, chances are it will have some sort of ERC if you pay it off within the fixed period. It can vary from lender to lender and is usually a percentage of the loan outstanding. If your ERC is 1%, and your current mortgage is £200,000, your ERC translates to £2,000. Most lenders will allow a certain percentage of over-payments each year without incurring the ERC.
Sometimes called the lenders follow on rate and applies to the mortgage after the initial discount period offered by the lender. It can vary with the BoE base rate, and other indicators, and is traditionally much higher than a new fixed rate mortgage. If approaching the SVR on your mortgage it's a good time to approach your broker to review.
A lender is always required to quote the APRC when advertising a loan or borrowing rate. It is a standard interest rate calculation designed to reflect the total amount of interest that will be paid over the entire period of the loan.
Simply the legal actions your solicitor undertakes during the sales process when acting on behalf of their client(s). Remember, your solicitor is not only acting for you, they are acting for the mortgage lender too, so will act in both of your best interests.
The process your solicitor undertakes while conveyancing. They are making sure everything is correct with the property/mortgage and that the transfer can be done from the old owner to the new.
Lenders will allow you to pay more than you need to each month up to a point. Many of the high st lenders will allow 10% of the loan amount to be paid back each year without incurring the ERC. This does vary from lender to lender, so it's always worth checking with your broker if you are unsure.
Exchange happens when you pay part of your deposit (most commonly 10%) and everyone is legally tied into the contract. You should have buildings insurance in place at this point and put any life policies live as you are now liable for the mortgage
Completion is the day you get your keys and can finally relax and choose your first meal as a new owner.
You fix the interest rate for a number of years so you have some certainty about the monthly payments during that period
The interest rate is flexible and can be subject to change. The individual lender terms vary but an example would be a tracker rate tracking a certain amount above the Bank of England base rate. If the base rate is 0.75%, your tracker might track 1.25% above this, meaning your mortgage rate is 2%. If the BoE puts the base rate up to 1.00%, your mortgage rate would become 2.25%
A residential mortgage is for the purpose of the owner occupying the property. A Buy to Let mortgage means you will rent out the property to a tenant. There are different criteria to satisfy for each and may be restrictions on deposit size, rental agreements and other aspects. Always best to ask your adviser for more details
A Remortgage is simply replacing the current mortgage on your property. Essentially it's starting again, looking at all the options in the mortgage market and selecting the right product for the criteria. A product transfer is simply switching your mortgage over with your current lender to their latest rates/products.
Porting is simply keeping the same mortgage but moving it to a new property. Sometimes topping up or reducing the amount of the mortgage.
The Vendor is the person selling the property and the purchaser is the one buying it.
Often referred to by the estate agents, the chain is how many properties involved in the transaction. So you may be buying from someone, who is, in turn, buying from someone else, who is buying from someone else etc. The chain is every dependent property involved with your sale/purchase
Means you will own the property, inside and out, and usually the land it is built on. There are slightly different rules for freehold flats, but this is the most common definition
Basically means more than 50% of the owners in a block have got together and purchased the freehold. So the owners of the flats also own the land between them. The flats still have leases, but extending the leases are much less complicated and much less costly for the residents.
Means you are leasing the internal space of the property for the number of years on the lease. You will not normally own the land, exterior of the building
Traditionally, mortgage companies are not keen on short leases. This had become a little more flexible recently, with some of the larger lenders relaxing their stance. However, a short lease means a less valuable property and will probably need extending. Extending a lease can be a long, costly process so make sure you check out all the costs and connotations before you purchase. If you're worried, discuss things with your mortgage adviser.
A sort of mix of freehold and leasehold, in Scotland, the property owner holds land in a hierarchical structure under the Crown and does not own land outright themselves
If someone owns their own home and wants to take some of the money out of the property, continue to live there and may not be eligible for a traditional mortgage. Companies will offer money to the client at a percentage of the home value, plus interest, and the client can stay in the property until death. Can also be used for homemovers.
Buying a property to rent out. If you are doing this you need a certain type of mortgage. You cannot put tenants into a property on a residential mortgage unless you have permission to let from your lender.
If your personal circumstances change and you need to move out of your home but want to rent out your property while you are away, you can ask your lender for permission to let. They will likely increase your interest rate, charge a small admin fee, and allow you to rent the property. If you are not tied into a fixed rate period on your residential mortgage, or know you will not return to live in the property then a buy to let re-mortgage might be the better option.
You want to move home, but keep your existing property and rent it out. You will need a Let to Buy mortgage on that property, getting a new residential mortgage on the one you are buying/moving to. Very similar to a buy to let mortgage.
Stamp Duty Land Tax is what you pay to the government for the transaction of buying a property. Rates vary, so it's always best to use a calculator. Our favourite is: --
A first time buyer is defined differently by different lenders. Some are if you've never owned a property, others are if you've not owned for three years etc. This only affects the product. For the purposes of stamp duty, a first time buyer is defined as someone who has never owned a property anywhere in the world: -
Your advisor may ask you for your credit report as it makes the mortgage application process much easier. It lists all your credit commitments for the broker and gives information about any adverse credit in the past, detailing late payments, missed payments, defaults and CCJ's over the past 6yrs. It's always best to get a multi agency report with all the detail your broker needs.
We recommend Checkmyfile as it lists three credit agency data for each client.
Follow the link below to get your comprehensive credit report and send it to your advisor or click the Checkmyfile banner below.
Please contact us if you have any questions or wish to discuss anything above
Phrases you may hear during when considering insurance
Pays out a lump sum to your beneficiaries in the event of your death. Can be a level or decreasing term.
Pays a pre-defined amount to you on diagnosis of a listed condition with the provider you have chosen. Similar to a life policy except you actually see the benefit should the worst happen.
If you are unable to work due to illness or injury, income protection can kick in and replace part of your salary. Ideally enough to be able to keep paying your mortgage should you have no income for a period.
A Policy that protects a family should one parent pass away. More frequently paid as a monthly amount to the surviving partner on death of the other partner. Paid out until the child is deemed no longer a dependent by whatever age was selected when the policy began, i.e. 18, 21 etc
A set amount of life cover for whatever term you choose. If you took £200K life cover until you are age 75, it might be more or less than you need to cover the mortgage, but you always know the amount your beneficiaries would have should you pass away.
Almost the opposite of Decreasing insurance. You start with a set amount of cover and that increases linked to a % per annum, or the Retail Price Index (RPI) so the amount of cover you have usually increases with (or similar to) inflation.
Usually set up to reflect the same terms as the mortgage and will decrease along with it. Only really works on a repayment mortgage. If the mortgage is £200K and 25yrs, you would set up the life policy as starting at £200K and decreasing over 25yrs. The idea is it clears the mortgage in the event of death. Can be used on a Critical Illness policy to keep costs down but is not advised.
This means the amount you pay each month will not change for the duration of the policy. Life insurance for 30yrs with a guaranteed premium of £25 per month, means you pay £25 per month, every month for the next 30yrs, the amount doesn't change.
The insurance premium will change based on time or possibly age of the client. It may start out cheaper than the nearest guaranteed premium, but could start costing more after 10yrs or so. It may start at £18 per month, but after the first year this may increase to £19.25, year two and it increases to £21.15 and so on.
Your broker should ask you if you want your Life or Protection Policy in trust. If they don't, they may not have your best interests at heart and it's worth a review. A trust simply means the policy is outside of your estate should you die. It will not need to go through probate and will pass to the trustees who can then allocate it to beneficiaries in a timely manner. There can be potential inheritance tax implications, so it would always be worth speaking you your tax adviser
Protects your home in the event of something happening to the building itself. A mortgage lender will usually insist on having this in place before exchange of contracts. A good policy should have a high reinstatement payout maximum in the event of a claim to stop you being under-insured.
Protects your possessions in the event of damage or theft. A good policy should cover personal possessions outside the home, accidental damage, garden, and allow you to specify certain valuables.
If you're lucky enough to be a landlord, this cover can assist with legal issues arising from tenancies and can offer a level of rent guarantee should they stop paying
Insuring someone key to the business, so that should they die, the business is paid a sum to help it survive without the key person, or until the key person is replaced. A type of life insurance that's paid to the business in the event of the key persons death.
Life insurance offered by employers to employees as part of their employment package. A tax efficient way of offering employees a benefit to accompany their salary.
If a Limited company partner dies, what happens to their shares? Usually they would go to that persons next of kin, who may have no idea or interest in being part of the business, nor may the existing shareholders want them to. Share protection insurance provides the company with a payout to buy the shares from the next of kin, so instead of a share in the business, they get a cash payout, which can be compulsory, to protect existing shareholders and the business long term
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