Mortgage Glossary
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Adjustable Rate Mortgage (ARM)
This is the same as a variable rate mortgage. With this type of mortgage the interest rate is adjusted on a periodic basis according to an index.
Advance
This is the entire amount of the loan that you get.
Annual Percentage Rage (APR)
This is the Annual Percentage Rate of Charge (i.e. the yearly cost of the mortgage). It enables you to compare the cost of borrowing from different financial institutions.
Application Fee
This is charged by the lender to the borrower when applying for a loan. It does not however guarantee that the loan will be approved.
Appraisal
This is the assessment of the value of the property based on information of recent sales on similar properties.
Appreciation
This is the increase in the value of a property due to changes in the market.
Auction
This is a sale of a property whereby if you win the bid you are legally bound to buy the home. Therefore it is imperative to have mortgage approval before participating in an auction.
Bill of Sale
This is a written document which transfers a title to personal property.
Bridging Loan
This is a temporary loan which allows you to buy a new house before selling your old one. The sum of the loan must be repaid as soon as the old house is sold.
Broker
This is an independent person who gives advice on a range of mortgage deals on offer from various financial institutions. They charge a fee or receive commission for providing their services.
Building Insurance
Insurance which covers any structural damage to your home.
Capped Rate
A capped rate loan has a fixed ceiling on the interest rate for a period of time, above which your rate will not go. However, if the base ratefalls, your rate can still fall with it.
Closing
The final arrangements for transferring ownership of property.
Contract
This is written legal agreement between a buyer and a seller which is prepared by a solicitor.
Collateral
This is the security for a loan. In the case of a mortgage, the property is considered collateral and can be revoked in the event of non-payment.
Credit Rating
This is the rating that lenders put on borrowers based on credit worthiness. This is usually based on the borrower's credit history.
Conveyancing
This is the legal work involved in buying or selling a home.
Contents Insurance
This is insurance on your possessions in case of damage or loss.
Depreciation
This is the decline in the value of a property.
Deeds
This is a document that transfers ownership of property from the seller to the buyer.
Deposit
This is paid on exchange of contract and is usually 10% of the purchase value of the house.
Disbursements
These are expenses paid by a solicitor on behalf of a buyer (eg: telephone/postage/couriers)
Discount Rate
This type of loan helps reduce your expenses in the early years of the mortgage by setting your interest rate at a few points below the lender’s standard variable rate. Your interest payments may still fluctuate, but the differential between your rate and the lender’s standard variable rate remains constant.
Equity
This is the amount of the property that you actually own i.e. the current value of the property less any outstanding mortgage repayments.
Endowment Mortgage
Your monthly repayments only cover the interest on the amount you have borrowed. You must also take out an endowment policy with a Life Assurance Company to which you make separate payments. In theory, at the end of the term of the loan the proceeds of the life assurance policy should be sufficient to clear the principal amount borrowed.
Estate
This is the total of all property owned by an individual.
Estate Agent
This person represents the seller in an effort to get the best price for the property.
Fees
These are the costs associated with a loan.
First Time Buyers Grant
A government grant which was available to first time buyers of new homes. This was scrapped by the Government from 15th November 2002.
Fixed Rate Mortgage
This is where the interest rate does not change on the mortgage for the life of the loan or for a fixed period.
Freehold
This is the ownership of property or land.
Guarantor
This is the person who agrees to repay a mortgage if you can't. With some lending institutions you can borrow more if you have a guarantor.
Gazzumping
When the seller accepts a higher offer from one buyer having already accepted an offer from another buyer.
Grace Period
This is the time allowed for making late payments on a loan without penalty.
Ground Rent
This is a yearly rent on a long lease.
Home Bond
This is available on most new homes. It protects you in case the builder goes bankrupt and also against structural faults for 10 years.
House Insurance
This is insurance on your home against fire, theft or damage. The property and contents can be insured under one policy.
Interest Rate
This is the percentage you pay for borrowing a specific amount of money for a specific time.
Lease
This is a legal document which outlines the payment and conditions by which a tenant can possess a property for a period of time.
Leverage
This is where you use someone else's money in order to purchase property.
Life Assurance
You are required to have life assurance in order to qualify for a mortgage. This is also called Mortgage Protection.
Lock-in Clause
This is a clause in the mortgage agreement which stipulates that the borrower cannot repay a loan prior to a specified date.
Loan Officer
This person acts as an intermediary between borrowers and financial lending institutions.
Loan to Value(LTV)
This is the percentage of the value of the house that you borrow.
Modification
This refers to any change to the original terms and conditions of the mortgage agreement.
Mortgage Protection
This is essentially an assurance policy that pays an amount of money on death to protect the family of the borrower and cover any outstanding mortgage repayments.
Mortgage Term
This is the length of the mortgage.
Negative Equity
This is when the actual market value of the property decreases to a value of less than the remaining balance of the mortgage repayments.
Pension Mortgage
This type of mortgage is usually offered to individuals who are self-employed. You make monthly repayments of interest on the loan to the lender. Additionally, you make contributions to a personal pension, which will provide a tax-free lump sum and taxed regular income upon retirement. Most, if not all, of the lump sum is used to clear your mortgage loan at that date.
Premium
This is the amount payable for an insurance policy and is usually monthly.
Pre-approval
This is where a borrower has completed a loan application, providing the required financial information for credit worthiness assessment and has been pre-approved by a lending institution.
Principal
This is the original amount of the loan or mortgage.
Purchase Agreement
This is a contract between the seller and the buyer setting out the conditions under which a property will be sold.
Redemption
This is where a mortgage is paid off either at the end of the term of the mortgage or when moving home.
Redemption Penalty
This is a charge when you pay off your mortgage before the end of the mortgage term and you are on a fixed interest rate.
Repayment Mortgage
This is the most straightforward form of mortgage repayment with capital and interest paid off monthly from day one. It works just like an ordinary personal loan except over a longer term.
Right-of-First-Refusal
This states that a property is to be offered to a specific person before it can be offered for sale to another party. For example, on the death of a parent the children may be offered the opportunity to purchase the parental home.
Searches
This is a form of investigation by your solicitor to ensure that the person selling a property has a full and legal right to do so and that there are no other parties with legal entitlement over the title.
Serious Illness Cover
This is similar to Mortgage Protection, whereby your mortgage will be paid off if you suffer a serious illness.
Split Interest
An agreed proportion of your mortgage is at a fixed rate and the remainder at a variable rate. If interest rates decrease, repayments on the variable part of your mortgage fall also, and if interest rates increase, only the variable payment is affected.
Snag List
This is done by a surveyor on a new home to ensure that any problems with the property have been resolved before the sale is complete.
Stamp Duty
This is government tax paid when buying a home.
Stamp Duty Calculator
Structural Survey
This is usually carried out on second hand homes by a surveyor to examine the property's structure and assess any structural problems.
Tenure
This is the type of ownership of property. For example, freehold or leasehold.
Title
This is a legal document indicating a persons ownership of a property.
Title Deeds
This is a document indicating the owner of the property.
Tracker Mortgage - What's a tracker mortgage?
A tracker mortgage is similar to a standard variable rate mortgage. However, there is one key difference. A tracker mortgage 'tracks' the European Central Bank (ECB) rates. The benefit is that it commits the lender to keeping their 'margin' under a certain level. The margin is the the markup the mortgage lender charges on top of the wholesale rate.
Undertaking
This refers to the conditions of a mortgage.
Valuation Survey
This is a survey commissioned by the lender to make sure that the house has not been over-valued. This is not the same as a structural survey.
Variable Rate Mortgage
With this type of mortgage, the interest rate is adjusted periodically based on an index.