A-Z of mortgages
Annual statement
Every year you have your mortgage you should get a statement showing what you still owe and how much you have paid over the year.
Approval in principle
If you apply for a mortgage through the services of an intermediary they will usually seek an approval in principle form a mortgage lender to get an idea of the amount they may be prepared to lend you. It is not a guarantee, but an 'offer in principle', subject to certain criteria, such as employment and/or bank references, being satisfactory. It can help keep estate agents on-side!
APR
Introduced with the Consumer Credit Act of 1974, this enables a clear comparison of interest payments on borrowing to be made. It takes into account any compulsory charges that might be otherwise hidden and must be displayed very clearly so that comparisons are simpler.
Authorised firm
An authorised firm has permission from the Financial Services Authority (FSA) to carry out regulated activities, such as providing financial advice and information.
Buy-to-let mortgage
If you already have a mortgage on a property you live in, but have decided to invest in a house or flat you want to rent out, you'd typically require a buy-to-let mortgage to ensure you comply with mortgage lender conditions.
Capital and Interest
Often known as a repayment mortgage, a capital and interest mortgage pays off both the interest and the outstanding amount of any loan at the same time.
Capped mortgage
A capped mortgage may initially appear to be more expensive, but it could offer protection against rising interest rates by providing a ceiling above which it's guaranteed the mortgage interest rate won't rise (for a specific period) regardless of what happens to the Bank of England base interest rate.
Cashback mortgage
This type of mortgage offers you either a fixed sum or a percentage of the overall amount you have borrowed back in cash when you draw down the mortgage.
Court Judgments (CCJ)
You may receive a court judgment if you default on a loan, mortgage, or other financial obligation and you are taken to court. Court judgments appear on your credit report and will be taken into account by lenders, many will not look at you if you have a county court judgement – even if you pay it off later. A CCJ stays on your credit report for six years. Any company that successfully takes you to court for non payment make get a CCJ awarded against you, for example the DVLA has obtained large numbers recently as they crack down on non payment of car tax.
Credit Reference Agency
A credit reference agency, such as Experian®, records factual details about your financial behaviour and helps lenders assess how much of a risk lending to you might be. You can check what information is held on your own credit report by using CreditExpert - another Experian® service to help lower your bills.
Deposit
The deposit is the amount of capital you have available to contribute to a property purchase. For instance, if you have been offered a 90 per cent mortgage on a £100,000 property, you would require a 10 per cent deposit of £10,000 over and above any fees and taxes you will have to pay.
Discounted mortgage
A mortgage offering a discount provides lower payments for a fixed period of, for instance, 12 months. However, after this period a discount mortgage will revert to its standard rate. A discount mortgage can help buyers get off to a good start in their new home by giving them a year or more of slightly lower payments.
Early repayment charge
If you originally took out a mortgage that offered an attractive cash back deal or was a fixed, capped or discount mortgage, you may find that early repayment (or redemption) of it involves a penalty charge. This is because the lender will need to recoup the costs of the discount or cash back incentive it provided you with when you took out the mortgage product. If you moved to a new property you can usually roll any existing mortgage over to that property but it does mean that you will need to take out any extra mortgage that you need with your existing mortgage provider.
Fixed rate
Another alternative to a capped interest rate mortgage or a cash back mortgage is a fixed interest rate mortgage. This offers the security of a fixed interest rate for a pre-determined period and protects you (the borrower) from sometimes unpredictable rises in mortgage interest rates.
FSA
The Financial Services Authority is the financial services regulator for the United Kingdom.
Income multiples
Mortgage lenders usually state income multiples as a rough guide as to how much they might lend you. So for example they say they will lend 3 times your income if you apply alone or 2.5 times joint income if you apply with a partner. These days most lenders will also check affordability too so you should only ever see this as a rough guide. When they refer to income they usually will not include bonuses or overtime unless you can prove that it is guaranteed.
Interest
Lenders charge interest on the money they agree to lend you.
Interest rate
The interest rate is a way of describing the amount of interest you'll pay
Interest-only mortgage
An interest only mortgage has you paying the interest charges of the loan each month. You will not reduce the loan amount itself, so at the end of a £100,000 25 year interest only mortgage, you would owe the lender £100,000. It will be your responsibility to have another repayment vehicle to do this.
Key facts documents
All authorised lenders and brokers are required to explain their services and details about the mortgage or other financial products they are representing.
Loan-to-value (LTV)
The loan to value is the percentage of a property value that a lender will provide. This is typically in the region of 90 per cent, but can be as much as 100 per cent or could be, in the event you require a buy-to-let mortgage, 75 per cent of the total property value. This means that a lender offering a maximum LTV of 90 per cent would lend you £90,000 to help you purchase a £100,000 property. However, if you are buying a very expensive property most lenders will offer a much lower LTV. This is because the price of high value properties can fluctuate a lot more.
Mortgage
A mortgage is a loan that's secured against your home. A secured loan may also be secured against your home in addition to the mortgage that will usually be called a second (or even third) mortgage.
Mortgage broker
A mortgage broker is a go-between between lenders and borrowers (that's you, the customer!) A mortgage broker who is independent should have knowledge of more products and services than just one particular lender would offer. They make their money by selling you other products such as insurance and they also get a fee form any lender that they get mortgages for.
Remortgaging
If you have been on a special deal such as a fixed rate you will want to check what is available when that rate finishes or “runs off” as it is sometimes called. If you decide to move to another lender, without moving house you will be remortgaging. Sometimes you can also increase the size of your borrowing at the same, for example if you want to do some home improvements.
Repayment mortgage
A repayment mortgage pays off both the interest and the outstanding loan itself at the same time. So, at the start of the mortgage most of your monthly payments will be interest but over time a larger and larger proportion of your payments will be paying the actual mortgage, capital as it is called. By the time the mortgage is finished you should have repaid it all and own your home outright – lucky you!
Stamp duty
To give it its full title: Stamp Duty Land Tax is a tax payable on property that costs over £125,000. The amount you pay is between one and four per cent depending on what price band the agreed purchase price falls into. Below £125,000 and you don't pay any stamp duty.
Standard variable rate mortgage
A standard variable rate mortgage (SVR) is a mortgage all lenders have, which they base their other mortgage products on.
Secured
A secured mortgage is supported by a legal charge over an asset, usually a property, so that if you do not pay the lender can seize that asset to pay off what you owe, plus any charges that have accrued.
Tracker mortgage
A tracker mortgage tracks the Bank of England base interest rate, staying within a fraction of a percent of it, moving up and down as the base rate itself does.
Compare mortgages with LowerMyBills!
Experian® - the company behind LowerMyBills - also provides CreditExpert, which gives you access to your credit report and score enabling you to see what lenders see about you when they make a decision about which financial products or services are available to you.
The LowerMyBills.co.uk mortgage service is provided by BeatThatQuote.com Ltd, an appointed representative firm of Best Value Financial Services Ltd which is authorised and regulated by the Financial Services Authority.
YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
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