If you’re looking for a mortgage then battling through the jargon that comes with it can be time consuming and frustrating. Below we have explained some of the most common terms that you may come across in simple terms.
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Annual percentage rate
The Annual Percentage Rate, or APR, is used to compare one mortgage with another. It is the interest rate you will be charged on a particular loan (or mortgage) over the course of an average year. Lenders must display the APR to allow borrowers to make better-informed choices between one mortgage and another.
Agreement in principle
A confirmation from your mortgage lender stating that they are ready to lend you the money based on the information you have given during the mortgage application. This can also be referred to as a Decision in Principle or Mortgage in Principle.
An appointed representative is a broker who works under a network. Joining a large network can give brokers access to preferential rates from lenders. Networks also offer other advantages to the broker, such as compliance and administration packages, which means the broker should be working to the networks advice and compliance processes. The Right Advice is a trading style of The Right Retirement Limited, an appointed representative of The Right Mortgage Limited, who are authorised and regulated by the Financial Conduct Authority.
Buy to let
A buy to let mortgage is a loan specifically for a residential property which is let to tenants rather than lived in by the borrower. The property can be a new purchase or refinanced and the rates tend to be higher than standard mortgages.
The money borrowed by yourself from the lender. This is usually repaid monthly over the agreed length of time and terms.
A type of variable rate mortgage with an interest rate ceiling or cap. Meaning your payments can’t rise above this cap. This rate is normally for an introductory period.
A credit score or rating is a collection of data about an individuals borrowing / loan repayment history. The higher the score the more likely you are to repay the loan on time. This can mean you get preferential rates with some lenders. The Right Advice is partnered with Checkmyfile who provide you with access to three credit reference agencies including Equifax, Experian and TransUnion.
Your deposit is the amount of money you have ready to put towards buying your new home. The higher your deposit, the less you will need to borrow. Therefore, the higher your deposit, the less you will need to pay to borrow.
Early repayment charge
A charge that is incurred for repaying a mortgage early. It is usually charged as a certain percentage of the loan rather than a set amount.
The value of a home or property owned by the owner. It is measured by the difference between the balance of your mortgage and the market value of the property. E.g if your home is worth £250,000 and you have £100,000 left to pay on your mortgage then your equity in the property is £150,000.
Fixed rate mortgage
A fixed rate mortgage is a mortgage where the interest rate is fixed for a particular duration of the loan.
A flexible mortgage is a type of mortgage that could allow you to make over-payments, underpayments and sometimes payment holidays to suit your financial situation.
Gazumping occurs when a seller accepts a verbal offer on the property from one potential buyer, but then accepts a higher offer from someone else. It can also refer to the seller raising the asking price or asking for more money at the last minute, after previously verbally agreeing to a lower one.
A hard search is when a lender takes a full look at your credit report (and score). This type of credit check leaves a mark on your credit report, so whenever prospective lenders look at your credit report they can see you applied for credit (and whether you were accepted). Most hard searches stay on your report for 12 months (though a debt collection is visible for a period of 2 years).
The Right Advice is partnered with Checkmyfile who provide you with access to your credit report from three credit reference agencies including Equifax, Experian and TransUnion.
Help to buy
Help to buy is a government scheme which can help first time home buyers get a property with just a 5% deposit. The purchase price must be no more than £600,000. Under this scheme, you can borrow 20% of the purchase price interest-free for the first five years as long as you have at least a 5% deposit. If you live in London, you can borrow up to 40% of the purchase price.
Interest only mortgage
An interest only mortgage allows you to pay just the interest charged each month for the term of the loan. You don’t have to repay the amount you’ve borrowed until the end of the term.
This means your payments will be less than on a repayment mortgage, but at the end of the term you’ll still owe the original amount you borrowed from the lender.
An intermediary is someone or a company that brokers mortgages on behalf of an individual such as yourself and are usually referred to as mortgage brokers. The Right Advice is an intermediary.
Loan to Value (LTV)
Loan to Value (LTV) is the ratio of the value of your loan (mortgage) against the value of the property you want to buy. If you want to buy a £100,000 house and you need to borrow £80,000 to top up a £20,000 deposit, then you’re asking to borrow 80% of the property value, which makes your LTV 80%.
The mortgage term is the number of years the mortgage is taken out over. E.g. first-time mortgages are typically taken out over 25 to 30 years.
Your home may be repossessed if you do not keep up repayments on your mortgage.