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Glossary of common terms used during the mortgage process.

Posted: Nov 21, 2005 | C omments: 0 | Views: 285 |Share
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C halliner has
465 articles APR - This stands for Annual Percentage Rate. It enables you to compare
online
the full cost of the mortgage. Rather than just being an interest rate, it
C ontact Author includes up front and ongoing costs of taking out a mortgage. The
formula for calculating APR is set by Government Regulations and
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therefore enables direct comparison of the cost of mortgages.
Print article

Send to friend Capital and Interest Mortgage - This is when part of your monthly
payment contributes to paying off the outstanding mortgage in addition to paying the interest on the mortgage. The
Re-Publish article payments are structured so that at the end of the term, your mortgage w ill have been completely paid off. For this reason
this type of mortgage is also called a Repayment Mortgage.
Articles Categories
Capped Rate - This is a mortgage w here the lender agrees that the interest charged w ill never exceed a specific percentage.
All C ategories
This deal lasts for a set period of years. After the set period, the rate usually reverts to the lenders standard variable rate.
Finance During the capped period, the interest charges can move up and down w ith the lenders interest rate - but cannot exceed the
Accounting capped rate.
Banking
Cashback - An amount, either fixed or a percentage of a mortgage, w hich you can opt to receive w hen you complete your
C redit
mortgage. The lender may well claw back this money through a higher interest rate.
C urrency Trading
Day Trading CAT marks/standards - CAT stands for Fair Charges, Easy Access and decent Terms. They w ere created by the Government
Debt C onsolidation in an attempt to provide consumers w ith simple, clear financial products w ith straightforw ard, easy to understand terms. A
Insurance CAT mortgage w ill have no arrangement fees, no redemption fees and will have interest calculated daily. It will also have a
minimum loan of just £5000, offer you repayment flexibility and the mortgage should be portable should you move home.
Investing
Finally, you will not have to buy the lender's insurance products and there will be no penalties should you find yourself in
Loans arrears but can subsequently catch up.
Mortgage
Personal Finance Completion - This is end of the house buying process, w hen the funds are transferred and the keys are handed over. Happy
moving!
Real Estate

Taxes
Contract - A contract is a binding agreement between the buyer and seller. In the context of house buying, after the contract
Wealth Building is signed by both the buyer and the seller it is then 'exchanged' betw een the respective solicitors for a set completion date.
At that point, the contract is legally binding on both parties.

Conveyancing - This is the legal process in w hich property is bought and sold. You can do it yourself or hire a solicitor or
specialised conveyancer to perform the tasks for you. The buying of a freehold is much less complicated than the buying of a
leasehold.

Discounted Rate - This is w here the lender makes a guaranteed reduction off the standard variable rate for an agreed period
of time. After the discounted period ends, the mortgage usually moves to the lenders' standard variable rate. Watch out for
redemption penalties that overhang the initial discount period.

Early Redemption Charges - Redemption is w hen the borrow er pays off the capital and the interest on the mortgage and
thus ow ns the property outright. Early redemption fees are the charges incurred for paying off the mortgage early, either to
buy the house outright, move or re-mortgage. Always ask about early redemption charges before you agree a mortgage.

Endowment - Endowments are life assurance policies with an investment element designed to pay off the outstanding capital
on an interest-only mortgage. There are a few types of endow ments, such as 'w ith profits', 'unitised with profits' and 'unit-
linked'. In the 1980s, these w ere sold by salesman w ho seemly suggested that these policies w ere "guaranteed" to pay off
the mortgage at the end of the term. How ever, the investment returns on these policies have fallen to below what w as
previously considered to be the norm. Consequently, many policies are not worth w hat w as originally forecast and may not
fully repay the money borrow ed at the end of the mortgages' term.

Equity - In housing terminology, equity is the difference betw een the value of the property and the money owed on the
property. So if the property is valued at £200,000 and you owe £150,000 on the mortgage, you have equity of £50,000. If
you sold at that moment, you would receive £50,000. Should the value of the home be less than the mortgage outstanding
then you have negative equity.

Freehold - Ow ning the freehold means that you ow n the total rights to the property and the land on which it is built.

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HLC - This is the Higher Lending Charge (it w as previously know n as a Mortgage Indemnity Guarantee). It is levied by
around three quarters of all lenders on clients who cannot afford to put down a deposit of 10% of the price of the property.
In practice it is a type of insurance aimed at protecting the lender should you default on your mortgage when the value of
your home is less than the capital you borrow ed. The insurance only provides cover for the lender, not you, and typically costs
£1,500.
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than a full structural survey. It will help the borrower to decide w hether to purchase and help the lender to decide how much
to lend.

Interest Only Mortgage - This is a mortgage w here your monthly repayments only pay the interest on the mortgage.
Therefore, at the end of the mortgage you still have to repay the full sum you borrow ed. You are advised to have a separate
investment vehicle into w hich you make payments aimed at building up a fund capable of paying off the mortgage capital at
the end of the term. Typical investments include ISA's, a pension or an endow ment policy.

IFAs - Stands for Independent Financial Advisor. These advisors are regulated by the Financial Services Authority. To be
classified as "independent" they have to be able to offer you the full range of products from all financial product providers.
They are not entitled to describe themselves as "independent" if they can only offer products from a restricted panel of
financial companies. A Financial Advisor can be one man band or w ork for very large companies. Before they make any
recommendation, an IFA must carry out a detailed fact find so they fully understand your financial circumstances. They can
then make their recommendations to suit your personal circumstances.

ISA - An ISA is an Individual Savings Account, w hich is a tax-free method of owning shares, building up a cash savings
account or a life assurance policy. You can use an ISA to build up a capital sum to repay an interest only mortgage.

Leasehold - If your property is leasehold, ow nership of the property reverts to the Freeholder at a set date. Many houses
w ere originally sold on 999 year leases which means that 999 years after the initial date of the Leasehold, ownership of the
property reverts to the Freeholder. Building in multiple occupation such as apartments, are always sold on a leasehold and
usually have a much shorter leasehold period - 100 and 125 years is quite common. Often, w ith a block of apartments, the
apartment ow ners individually ow n the leaseholds w hilst a management company, in which they hold shares, owns the
freehold. These days, how ever, leaseholders w ho live in the property have the legal right to buy their freehold under terms
laid dow n by UK law .

Life Insurance - This can also be called Term Insurance or, w hen specifically linked to proprty purchase, as Mortgage
Protection Insurance. It is designed to pay a tax free lump sum in the event of your death to enable your mortgage to be
repaid in full. There are a number of variants such as Level Term Life Insurance and Decreasing Term Life Insurance. At the
outset you take out insurance for the full sum you have borrow ed from your mortgage lender and for the same number of
years as you have agreed on your mortgage. These insurance policies do not have any investment or surrender value. The
premiums are based on a number of factors - the main ones being the amount of cover you need, your age, health and how
many years you want to be insured for.

Lock-In Period - This is the minimum period you have agreed to stay w ith the lender. Depending on the deal, it could be as
low as six months up to the w hole of the term. Should you w ish to repay the mortgage or remortgage during the lock-in
period, you w ill invariably have to pay redemption penalties. Always make sure you know how long you are locked in for with
your mortgage.

LTV - Literally means Loan to Value. This is a measurement of the mortgage amount against the value of the property or the
price that you are actually paying. A £157,500 mortgage on a property for w hich you paid £175,000 would be a LTV of 90%.
Lenders tend to charge a Mortgage Indemnity Premium on mortgages with a loan to value of anything about 75%. Some
don't so ask about this.

MIG - This has now changed its name to HLC. See above.

Mortgage - A mortgage is a long-term loan taken out in order to buy a property with repayment secured on that property. So
if you don't keep to the repayment terms, the lender can repossess the property, sell it and retain the money they are ow ed.
Any balance is then paid to you. If the property is sold for less than you ow e your lender, you still remain liable to repay the
shortfall.

Mortgage Advisor - On October 31st 2004 the selling of mortgages in the UK came under the remit of the City watchdog, The
Financial Services Authority (FSA). As from that date any person providing mortgage advice had to be registered w ith the FSA
and abide by its rules of conduct, methods of operating and training programmes etc. The objective has been to improve life
for the consumer by offering better protection, clear information and access to redress for poor advice.

Negative Equity - Negative equity is w hen the value of your home is less than the amount that you ow e on your mortgage
plus any other loans secured against it. It can happen very easily if you take out a 100% mortgage or if property prices fall.
(Also see Higher Lending Charge)

Portable - This is a measure of how easy it is to move a mortgage from one property to another should a property move be
required. This is vital if you are moving during your lock-in-period and w ish to avoid redemption penalties.

Repayment Mortgage - This is the same as a Capital and Interest mortgage - see above.

Searches - During the conveyancing process, the buyer has to be sure that the seller has title to the property and identify
any matters may affect the prospective ow ners ow nership of the property. For example, w hether the property is affected by
any proposed road building, w hether there are preservation orders affecting the property, is it a listed building and has it
been built in accordance with planning conditions and building regulations. Searches will also show w hether there are mines
under or close by the property. This information is obtained by the person undertaking the conveyancing from HM Land

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Registry and the relevant Local Authority. These investigations are collectively know n as "Searches".

Self-Certification - Should you have difficulty in providing documentation that "proves" your income to a prospective
mortgage lender, you may need a self-certification mortgage. In essence you personally certify w hat your full income is. If you
receive high bonuses, or w ork seasonally or on commission, or are self-employed this may be your best option. You declare
your income plus some evidence that your declaration is reasonable. Ideally lenders want to see as much guaranteed income
as possible. To compensate the lender for the increased risk they are taking on a self-certified mortgage, they w ill charge you
a higher rate interest, typically 1% over their standard variable rate.

Stamp Duty Land Tax (commonly know n simply as Stamp Duty) - You pay Stamp Duty Land Tax on property like houses,
flats, other buildings and land. If the purchase price is £120,000 or less, you don't pay any Stamp Duty Land Tax. If the price
is more than £120,000, you pay betw een one and four per cent of the w hole purchase price, on a sliding scale.

Upto £120,000 - No duty payable

£120,001 to £250,000 - 1% duty payable*

£250,001 to £500,000 - 3% duty payable
£500,001 and over - 4% duty payable

*If you're buying a property an area designated by the government as 'disadvantaged', you don't pay any Stamp Duty Land
Tax if the purchase price is £150,000 or less.

Did you know? Stamp Duty w as originally introduced by William of Orange when he w as King of England.

Structural Survey - The most thorough report you can get on the condition of the property you are considering to buy. The
surveyor will look in detail at the inside and outside of the property and w ill tell you if the property is structurally sound. All
major and minor defects in the building w ill also be listed and should tell you what maintenance work may be needed either
now or in the future. You should make sure the scope of the survey is agreed in writing before you commission it. Should the
survey identify problems, use them to negotiate a reduction in the price before you exchange contracts.

Variable Rate - This is when the interest rate you pay on your mortgage can go up or dow n depending on changes to the
lender's standard variable rate. If you have a variable rate mortgage your monthly mortgage payments will change w henever
the lender changes the interest rate.

Valuation - This is w here a valuer appointed by your proposed lender, visits the property in order to estimate its current
value. This value is then used by the lender as a basis for its security and to calculate its Loan to Value Ratio. The borrow er
never sees the valuation. With some mortgage deals the lender absorbs the cost of the valuation but in many cases the
borrower has to pay upfront.

(ArticlesBase SC #7356)

Michael Challiner - About the Author:

Michael Challiner has 15 years experience in financial services marketing at senior level. Michael now
w orks as the editor of Kings Remortgage Brokers

Futher reading Mortgages Home Page

Futher reading Mortgage Topics

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Article Tags: mortgage, interest, Rates, Survey, glossary

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