Need help navigating all the mortgage lingo? Our handy jargon buster explains some of the most common mortgage terms and abbreviations.
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Affordability is the term used by lenders to assess whether a borrower can afford to repay the amount they’re hoping to borrow. It looks at income and expenditure to determine whether borrowers can afford the repayments without being over-stretched or falling into arrears.
An agreement in principle (AIP), or a decision in principle (DIP), is a simple way for borrowers to find out how much a bank or building society might lend based on the information they’re asked to provide. An AIP doesn’t ask for as much information as a mortgage application and because the agreement is ‘in principal,’ it isn’t a guarantee that an application will be accepted.
Annual Percentage Rate (APR) refers to the interest accumulated across a single year on a mortgage.
The Annual Percentage Rate of Charge (APRC) shows a borrower the total annual cost of a secured loan or mortgage, including interest and fees.
An arrangement fee is a type of administration charge for arranging a mortgage with a lender.
Arrears is the legal term for the part of a debt that’s overdue after missing one or more required payments.
The base rate is an interest rate that the Bank of England charges for commercial loans to banks and building societies.
Borrowers may be charged a basic valuation fee to cover the cost of valuing the property they’re hoping to buy or remortgage.
A booking fee is a type of administration charge a borrower may be expected to pay upfront while their loan application goes through.
Capital refers to the total amount borrowed, without any interest added.
Conveyancing is the legal process of buying or selling a property. A solicitor is usually involved, who will complete the legal paperwork in return for legal fees.
Credit history refers to the record of a person's repayment of debts. The lender may reach out to credit card companies and other organisations to build up this report, and the overall result can aid their decision to lend.
A mortgage deposit is a sum of money paid upfront when purchasing a property. The deposit is usually the difference between the amount borrowed and the price of the property. The higher the deposit, the smaller the mortgage will be.
A disbursement is a payment that must be made to a third party, usually a solicitor, for a service provided or a statutory required action.
Discount rate refers to a mortgage which offers a variable rate of interest, discounted from a bank or building society’s standard variable rate (SVR). Variable rate mortgages will typically offer lower interest rates, but the rate could change at any time.
An early repayment charge (ERC) is a charge that lenders may apply if a borrower overpays their mortgage by more than they allow or pays off the loan in full too early.
Mortgage equity is the difference between what is owed on a mortgage and the current value of a property.
An existing borrower transfer is the process by which a customer transfers to a new mortgage deal with the same bank or building society.
An exit or closure fee is a charge from a lender when a mortgage balance is paid off.
The Financial Conduct Authority (FCA) acts as the financial regulatory body in the UK. The FCA regulates over 58,000 financial services firms and financial markets, ensuring consumers get a fair deal for their financial needs.
The Financial Ombudsman Service (FOS) is a free service that settles complaints between consumers and businesses that provide financial services. The FOS has the power to resolve disputes fairly and impartially.
The Financial Services Compensation Scheme (FSCS) is the UK’s deposit protection scheme, protecting saver’s eligible deposits up to a total of £85,000 for sole accounts or £170,000 for joint accounts should a provider fail to meet its obligations.
Fixed rate refers to a mortgage that offers a fixed rate of interest throughout the product term. Usually lasting 2-5 years, a fixed rate mortgage will typically have higher rates of interest in comparison to a discount rate mortgage but can offer borrowers peace of mind that their repayments will not change throughout the fixed period.
A freehold property means you own both the property and the land it’s on.
A gifted deposit is when a borrower receives a lump sum from a friend or family member to use as a house deposit, with no obligation to pay it back. The person(s) gifting the deposit will usually need to sign a letter that confirms it’s a gift and acknowledges they’ll have no claim on the property. Download our gifted deposit letter template here.
A higher lending charge (HLC) is a fee charged by a bank or building society when a borrower's LTV ratio is higher than they are prepared to accept at standard rates
Interest only is a type of mortgage in which the borrower pays only the interest for a certain amount of time (no capital is repaid). A plan must be in place to show how the borrower will pay back the capital at the end of the mortgage term.
The interest rate is the rate a borrower is charged on the amount they’ve borrowed.
An intermediary, or broker, is a mortgage advisor who brings a borrower and a lender together to provide a mortgage.
A joint mortgage is when two or more borrowers take out a mortgage to purchase a property.
A leasehold property means you have the right to occupy the property for a certain amount of time (usually up to 999 years) without owning the land.
The loan to value (LTV) refers to the ratio of a loan to the value of an asset purchased. For example, 75% LTV means a bank or building society will lend up to 75% of the property price. The remaining 25% is paid upfront by the borrower (see deposit).
Maturity refers to the date a product term ends. When the maturity date is reached, borrowers will usually have the option to switch to a new mortgage deal with the same lender, move to a new lender, or pay the lender’s SVR.
A mortgage term is the length of time in which a borrower is expected to pay back a loan, plus interest in instalments. The mortgage term is agreed upon before the term starts and is legally binding. Mortgage terms will typically last for 25 years.
Negative equity is when your property is worth less than the remaining balance on your mortgage.
Overpayments are the process of paying back a larger instalment of a loan than the amount specified by the lender. Overpayments could reduce the mortgage term, but some lenders will have limits on how much can be overpaid each year.
Part-and-part mortgages are a middle ground between ‘repayment’ and ‘interest only’ mortgages. Borrowers only pay off some of the capital (with interest) in monthly instalments. This means there will still be a lump sum to pay at the end of the mortgage.
Porting is the process of transferring a mortgage deal to a different property, for example, when moving house.
The Prudential Regulation Authority (PRA) acts as the UK’s financial services regulatory body. The PRA is responsible for the prudential regulation and supervision of banks, building societies, credit unions, insurers and major investment firms.
Repayment is a type of mortgage that requires a borrower to pay back the amount borrowed, plus interest in instalments for a certain amount of time.
Stamp duty is a tax paid to the government when purchasing a property or piece of land in the UK valued over £250,000. First-time buyers may not be required to pay this tax, depending on the value of the property they are purchasing.
The standard variable rate (SVR) is an interest rate set by a lender, often influenced by changes to the Bank of England base rate. A borrower will usually be expected to pay the SVR on their mortgage after their current deal ends. This can be avoided by switching to a new deal.
An underpayment is a reduction in mortgage repayments, agreed upon with a lender. Underpayments may increase the mortgage term.
We know each borrower is different, so our mortgage teams consider each application on an individual basis. Fine the mortgage that's right for you.
We've answered some frequently asked questions about mortgages with the Marsden.
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