Glossary

Adverse Credit Mortgages

Mortgage products that are available for borrowers who may have experienced difficulties with credit arrangements in the past. See also CCJ, Defaults and Arrears.

Agreement in Principle

A lender can grant an agreement in principle by assessing basic information about you and your mortgage requirements such as the amount you would like to borrow and your income. The lender may also perform a credit search and apply credit scoring techniques to help them arrive at a decision. These are not binding agreements.

Annual Percentage Rate (APR)

All lenders quote an Annual Percentage Rate (APR) in addition to their standard interest rates. APR is a measure of the cost of credit, which takes into account other costs such as arrangement fees and the average compound interest rate over the entire term of the mortgage.

Arrangement Fee

Lenders usually charge a fee to cover costs involved with the administration of processing a mortgage application.

Arrears

Mortgage payments that have not been made on time and as such become overdue.

Base Rate

The Monetary Policy Committee sets the Bank of England base rate each month, this is often the rate that is linked to and directly affects Tracker rates.

Bank Of England

The central Bank of the United Kingdom.

Buy to Let

A Buy to Let mortgage enables you to buy a property with the sole purpose of renting it out to tenants.

Capped Rate Mortgage

Mortgage payments are variable but are guaranteed not to rise over a set level (the cap) during a specified period.

Repayment Mortgage

You pay interest and part of the outstanding capital back to your lender each month to enable the mortgage to be completely repaid at the end of the mortgage term.

Cash Back Mortgage

Some mortgages may offer a lump sum paid after completion with the interest rate typically charged at or above the lender’s standard variable rate (SVR). These products usually have early repayment charges for a period of time.

County Court Judgements (CCJs)

A decision made in court, usually for the non-payment of a debt, which is registered on an individual’s credit history.

Credit Crunch

A sudden reduction in the availability, or increase in the cost of, loans, mortgages and remortgages. This can be caused by a restriction of funding or increased perception in the risk of lending by financial institutions.

Credit Score

A measure of credit risk that mortgage and remortgage lenders use to evaluate the creditworthiness of an individual based on information known about the applicant. A credit score is usually an automated process.

Defaults

A failure to make a loan or credit payment in a specified time.

Discount Rate Mortgage

A discounted rate gives you a reduction of, for example, 1% off the lender’s standard variable rate for a specified period. So, although the rate may rise and fall, you will be paying less than the standard variable rate for this period.

Early Repayment Charges

A charge made by a lender if you repay all or part of your mortgage before an agreed date, for example, during a fixed rate period.

Equity

The difference between the value of the property and any loans secured against it.

Flexible Mortgage

In recent years there has been an increase in the flexible features that UK mortgages provide. Typically a flexible mortgage product will offer the facility to make overpayments to the mortgage (in order to reduce the debt quicker and save interest). Some lenders also offer payment holiday facilities when overpayments have been made which can be useful for borrowers who’s income may fluctuate, for example due to the payment of irregular bonuses.

Fixed Rate Mortgage

The mortgage interest rate is fixed for a specified number of years from completion or until a specified future date, so you know what your payments will be over that period. Following this period, the rate will usually revert to the lender's standard variable rate.

Higher Lending Charge

A fee charged by some lenders when they lend above a certain percentage of the value of the property. This fee is used by the lender to obtain an insurance policy to protect them against having to sell a repossessed property at a loss.

Interest Only Mortgage

With an interest only mortgage, you make no capital repayments until the end of the term. Instead payments may be made into an investment designed to repay the loan at the end of the mortgage term. With this type of mortgage there is a risk that the value of the investment may not be enough to repay the debt. The most common forms of investment used are endowments, ISAs or certain types of pensions. During the mortgage term, you pay only interest to the lender on the outstanding balance.

LIBOR

London Inter Bank Offered Rate (LIBOR) is the interest rate at which banks lend to each other, usually reviewed on a quarterly basis.

Loan to Value (LTV)

The size of a mortgage as a percentage of the property value.

Mis-spellings of 'remortgage'

There are a number of mis-spellings searched in Google every month. The standard spelling and definition of remortgage are:

Remortgage

verb [I or T]
To arrange a second mortgage (i.e. an agreement with a bank or similar organisation in which you borrow money to buy property), or to increase the first mortgage, especially in order to obtain more money
(http://dictionary.cambridge.org).

Therefore, it is surprising that the following searches (in August 2008) were entered into Google:

• Remortgage searched 2900 times
• Re morgages searched 140 times
• Re mortgage searched 390 times
• Re mortgaging searched 8100 times
• Remorgages searched 720 times
• Remortgaging searched 260 times
• Best remortgage searched 260 times

Offset Mortgage

The credit amount balances in a linked savings account are offset against the mortgage amount effectively reducing the amount of interest chargeable.

Remortgage

Repaying one mortgage by taking out another one from a different lender.

Self Certification Mortgage

The lender relies on the applicant to certify their income as opposed to providing documented proof of income. This can be useful for applicants with variable income which may not fit lender’s standard lending criteria. Your adviser will seek evidence from you that the potential mortgage is affordable. Interest rates for these type of products tend to be charged at a higher rate than standard mortgage products.

Standard Variable Rate

With this type of mortgage your payments will go up or down when the lender's mortgage rate changes. Most standard variable rates tend to move in line with the Bank of England base rate but there is sometimes a delay and there is no guarantee that the lender will pass on the full effect of the increase or decrease. When the interest rate goes up, the amount that you have to pay rises, and it falls when interest rates reduce.

Tracker Rate Mortgage

This is a variable rate where the interest rate is a set amount above or below the Bank of England or some other base rate and so always "tracks" changes in that rate.