Mortgage
Glossary
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Additional Security Fee
An Additional Security Fee (Mortgage Indemnity Guarantee policy)
is paid to take out an insurance policy designed to indemnify the
mortgagee (lender) against loss in the event of default on the mortgage
repayment. It is normally taken out by the lender at the start of
the mortgage and the mortgagor (borrower) is made to pay the premium!
The premium is normally calculated as a percentage (5.8% is typical)
of that part of the loan above a certain percentage of the property
value, normally 70 - 75%. It is charged as a lump sum to the borrower
and can usually be added to the mortgage advance. It should be understood
that such policies are for the protection of the lender and NOT
the borrower.
Adverse Credit
This is the term used if the borrower has suffered a poor credit
history. This could include previous mortgage or loan arrears, CCJ's
or bankruptcy. Other terms used to describe an adverse credit mortgage
include:
- Non status mortgage
- Credit impaired mortgage
- Bad credit mortgage
- Poor credit mortgage
- No credit check mortgage
- No credit mortgage
- Low credit score mortgage
Agricultural Restriction
A Freehold covenant restricting the occupancy of a property to those
engaged in agriculture.
Apportionment
Dividing the liability for property tax, water charges etc between
the seller and buyer of a property.
APR
An interest rate reflecting the cost of a mortgage as a yearly rate.
This rate is likely to be higher than the stated note rate or advertised
rate on the mortgage, because it takes into account point and other
credit cost. The APR allows home buyers to compare different types
of mortgages based on the annual cost for each loan.
Arrangement Fee
This is a fee you pay to your Lender in return for providing you
with a mortgage. Usually paid on completion or with application
, these fees usually apply when you take out a fixed rate, discount
or cashback mortgage.
Assignment
Document transferring rights of ownership from one person to another,
such as an endowment policy to the building society in connection
with a mortgage. Can also be the document transferring the lease
on a property.
ASU
Accident, Sickness and Unemployment insurance (See also MPPI). This
insurance is designed to cover the borrowers mortgage payments in
case of accident, sickness or involuntary unemployment.
Auction
Public sale of a property to the highest bidder. The purchaser must
immediately sign a binding contract and should ensure that all valuations,
searches etc are carried out prior to the sale.
Authority to Inspect The Register
Document from registered proprietor of land allowing another party,
such as the purchasers' solicitor, to be given information from
the register of a property.
Bankers Draft
A method of payment of funds which has all the appearances of a
cheque, but in effect is a cash payment.
Base Rate Tracker
The newest type of mortgage. The interest rate is variable but set
at a premium (above) the Bank of England Base Rate for a period
or even the term of the mortgage. The biggest advantage of this
type of mortgage is that, usually there is little or no redemption
penalty. This also means that interest can be saved on the mortgage
without penalty, by overpayments, and these savings can be quite
significant.
Booking Fee
Arrangement fees, are charged in connection with some mortgages,
often they are charged in connection with a fixed or capped rate
loans. The fee is normally non-refundable if charged upfront, some
times it is added to the mortgage debt on completion.
Bridging Loan
Short term loan to facilitate the purchase of one property prior
to the sale of another releasing funds that are required for the
purchase. Professional advice should always be taken prior to considering
any bridging finance as it can be a solution which is worse than
the problem.
Brokers Fee
A fee charged by an intermediary or advisor for locating the most
appropriate mortgage for the borrower.
BSA
Building Societies Association. Represents interests of member societies.
Address 3 Savile Row, London W1X 1AF.
Building Societies Commission
Regulatory organisation for Building Societies. Reporting to Treasury
Ministers.
Building Society
Mutual organisation specialising in lending money to individuals
to purchase or remortgage residential properties. Most of this money
comes from individual saving members who are paid interest. A proportion
of building society funds is also raised on the commercial money
markets. Since the early eighties there has been a progressive relaxation
of the rules governing the allowable sources of building society
funds for lending to allow societies to compete more effectively
with banks and there is now no restrictions as between the allowable
proportions of 'retail' and 'wholesale funding'.
Buy-to-Let
This is a mortgage designed for people who wish to purchase a property
to rent out to others. The ability to repay this type of mortgage
is often based on the projected rental income from the property
as opposed to the personal income of the borrowers.
Capital and Interest
Your monthly payments are partly to pay the interest on the amount
you borrowed and partly to pay the outstanding mortgage and ongoing
costs involved in a mortgage.
Capped Rate
An interest rate charged on a mortgage where there is a guarantee
from the mortgagee that the rate will not exceed a certain amount
usually for a set period of 1 - 5 years but which will reduce if
the standard variable rate falls below the capped rate.
Cashback
A payment you receive when you take out a mortgage. It may be a
fixed amount, or a percentage of the amount of the mortgage.
CCJ
County Court Judgment. A decision reached in the County Court which
can be for not paying debts. If you pay off the debt, the CCJ is
satisfied and a note is put on your records to say this.
Centralised Lender
"Term used to describe a mortgage lender who does not rely
on a branch network for distribution. Originally applied to specialist
lenders who entered the mortgage market in the mid-late eighties
(National Home Loans, The Mortgage Corporation, First Mortgage Securities,
Mortgage Express and many others). This followed some de-regulation,
which made the securitisation of mortgage loans a viable and potentially
profitable option for lenders. (See SECURITISATION). Several building
societies now have ""centralised lending"" operations
which operate quite separately from their branch networks and rely
exclusively on mortgages from intermediary sources."
Charge
Any right or interest, especially a mortgage, to which a freehold
or leasehold property may be held.
Charge Certificate
The certificate issued by HM Land Registry to the mortgagee of a
property with registered title. Contains three parts - charges register,
property register and proprietorship register. Contains details
of restrictions, mortgages and other interests. Where there is no
mortgage it is called the Land Certificate and issued to the registered
proprietor.
Chattels
Moveable items such as furniture or personal possessions.
Chief Rent
A rent payable by the owner of a freehold property similar to the
ground rent payable by a leaseholder. Normally only found in the
North of England. Can be bought out by freeholder.
CML
Council of Mortgage Lenders
Completion
When the sale and purchase of the property are finalised and you
become the owner of your new house.
Contract
Legally binding agreement for sale. In two identical parts, one
signed by seller and one by purchaser. When the two parts are exchanged
(exchange of contracts) both parties are committed to the transaction.
Conveyance
The deed by which freehold, unregistered title changes hands. If
the property is leasehold and unregistered it is called an assignment.
If the title is registered the deed is called a transfer.
Conveyancing
The legal process involved in buying and selling property.
Covenant
A promise contained in a deed.
Credit Scoring
This is a way in which a lenders assess whether you are a good risk
to offer a mortgage to.
Credit Search
A check the lender makes with a specialist company to find out whether
you have any CCJs or a bad credit record.
Debt Consolidation
This is a means to repay high interest debts (such as credit cards
and personal loans) by incorporating them into a new mortgage to
benefit from lower interest rates and lower monthly payments.
Deed
A legal document which is 'signed, sealed and delivered' not just
signed. This has special significance in law. Title to both freehold
and leasehold property can only be transferred by deed.
Deposit
The amount of money you put towards buying your property.
Disbursements
A solicitors expenses for example: land registry fees, searches,
faxes etc.
Discount Rate
An interest rate which is set at a set margin below standard variable
rate usually for a period of 1 - 5 years. Used as an incentive to
attract potential new borrowers.
Early Redemption Charges
This a fee charged by a lender if you pay off part or all of your
mortgage before the agreed date, or you move your mortgage to another
lender. These charges mainly apply to fixed rate, discounted rate
and cashback mortgages.
Easement
A right, such as a right of way, which the owner of one property
has over an adjoining property.
Endowment
A life assurance policy that is designed to produce a lump sum to
pay off an interest-only mortgage. There are different types of
endowments.
Equity
The amount of value in a property that isn't covered by a mortgage
- simply take the amount of the mortgage from the valuation to work
out the equity.
Equity release
You take a new, larger mortgage, or increase a mortgage you already
have and use some or all of the extra money you have raised for
home improvements, holidays and so on.
Exchange of Contracts
This is the point at which you and the person selling the property
sign and swap identical contracts that show the price and which
fixtures and fittings are being sold, as well as the date on which
everything is to be completed. When contracts are signed, everything
becomes legally binding and if you or the seller pull out before
completion you or they will have to pay compensation.
Fixed Rate
The interest charged on a mortgage is set for an agreed period.
Fixtures
Any item that is attached to a property and so legally is part of
the property.
Flexible Mortgage
This type of mortgage is relatively new. The interest rate is variable
but has the big advantage that it is calculated daily instead of
annually. This means that any capital repayment of the loan will
affect the interest charged on the outstanding balance immediately.
By making regular overpayments, the interest saved on the mortgage
over the term can be quite significant. Also, most lenders will
allow funds to be drawn from the account up to the original mortgage
balance or even allow payment holidays.
Freehold
This is where you own the property and the land that it is on.
Gazumping
This is when the person selling the property accepts an offer and
then accepts a new, higher offer from another buyer before exchange
of contracts.
Gross monthly repayment
This is the amount you must repay to the lender before tax relief
(see MIRAS) had been applied to the interest Charges. MIRAS was
abolished in April 2000 and so there is now no tax relief applied
to mortgages.
Ground rent
A fee that a leaseholder has to pay the freeholder every year.
Guarantor
This is the person liable for the repayment of a mortgage if a borrower
fails to maintain their mortgage payments. This is usually a parent
or close family relative.
Home Buyers Report
This is a property survey which lies between a mortgage valuation
and a full survey. It is a multi-page report which gives the buyer
some piece of mind about the property they are purchasing.
Income Multiples/multipliers
The size of the mortgage that the lender will offer is usually worked
out by multiplying your income by a set figure. Most lenders will
take 3 times the gross salary of the first applicant plus 1 times
the income of the second applicant or 2.5 times the joint salaries.
Some lenders will allow you to borrow more than this.
Income protection insurance
This covers accident,sickness and unemployment. It provides a monthly
payment if you cannot work for an extended period due to an accident,sickness
or unemployment.
Income reference
This is confirmation from your employer that you earn the amount
you stated when you made your mortgage application. If you are self
employed, the lender may require confirmation from your accountant.
Interest Only Mortgage
With this type of mortgage, the borrower is only required to pay
inerest on the amount borrowed during the mortgage term. It is the
borrowers responsibility to ensure that enough funds will exist
(either through an investment policy or other means) to repay the
mortgage at the end of the term.
Intermediary
A mortgage broker or advisor who locates the most appropriate mortgage
for borrowers and arranges the mortgage on their behalf.
Land Registry Fee
This is the fee paid to the Land Registry to register ownership
of an area of land.
Leasehold
If you buy a leasehold property, you own the property for a set
number of years but not the land on which the property is built,
as opposed to freehold where you own both the property and the land
indefinitely.
Licensed conveyancer
An alternative to using a solicitor. This people specialise in the
legal side of buying and selling property.
Local Authority Search
A check carried out by the buyer's solicitor to check that there
are no proposed developments in the area of the property such as
roads, railways or other buildings. The check also includes details
of the planning permission for the property and whether the council
has served any enforcement notices on the property. A fee is charged
for this service.
LTV
Loan to Value. This refers to the size of the mortgage as a percentage
of the value of the property i.e. A £45,000 mortgage on a
house valued at £50,000 would mean that the LTV would be 90%.
MIG
Mortgage Indemnity Guarantee. This is insurance that covers the
lender in case your property is repossessed and the lender cannot
get back their money. Although this insurance protects the lender,
you have to foot the bill. Some lenders will add the MIG on completion
of the mortgage, whilst others will deduct the relevant amount at
completion. This usually applies to high percentage mortgages of
over 75% loan to value.
MIRAS
Mortgage interest relief at source. This was tax relief on your
mortgage but was abolished by the government with effect from April
2000.
Mortgage
A loan to buy a property where you put up the property as security
against you paying back the loan.
Mortgagee
The Company or Organisation that lends you the money.
Mortgagor
The person taking out the mortgage.
MPPI
Mortgage Payment Protection Insurance (See also ASU). This insurance
is designed to cover the borrowers mortgage payments in case of
accident, sickness or involuntary unemployment.
MRP
Mortgage Repayment Protection. This is insurance you take through
the lender when you take out the loan.
Negative Equity
This is where the money you owe on the mortgage is greater than
the value of your property.
Non-Status
This is where a lender may not require income details from you or
may accept some previous poor credit history i.e. CCJs or previous
mortgage arrears.
Overpayment
When monthly payments to a mortgage are increased so that the mortgage
is repaid before the end of the mortgage term. Flexible mortgages
allow overpayments to be made without penalty allowing significant
interest savings over the mortgage term.
Payment Holiday
A period during which the borrower makes no mortgage payments. Normally
only available to borrowers with a flexible mortgage who have previously
overpaid their monthly repayments.
PEP
Personal Equity Plan. This is a tax free way to own shares or unit
trusts. You can also use PEPs as a way to repay an interest only
mortgage with some lenders.
Personal Pension
This is a structured savings and investment plan to provide for
your financial needs after you retire. You can use some or all of
the proceed from a personal pension to pay of an interest only mortgage.
Portability
A term used to describe a mortgage that can be transferred between
properties when you move house.
Redemption
The process of paying off your mortgage either when moving house,
remortgaging or at the end of the mortgage term.
Redemption Penalties
Penalties levied by the lender when a borrower pays off the mortgage
before the end of the agreed redemption period. These are often
charged on fixed, capped or discounted rate mortgages.
Remittance Fee
A charge made by the lender for sending mortgage funds to your solicitor
just before the purchase is completed.
Remortgage
The process of paying off one mortgage with the proceeds from a
new mortgage using the same property as security.
Repayment
Your monthly payments are partly to repay the amount you borrowed
and partly to pay the interest on the outstanding mortgage. This
is also known as a capital and interest mortgage.
Repossession
The legal process by which a borrower in default under a mortgage
is deprived of his or her interest in the mortgaged property. This
usually involves a forced sale of the property at public auction
with the proceeds of the sale being applied to the mortgage debt.
Right to Buy
A tenant in a council owned property may purchase the property at
a discount depending on length of their tenancy.
Sealing Fee
This is a charge made by lenders when you repay a mortgage.
Searches
These are checks carried out during the conveyancing process. These
checks are made with local authorities and other official organisations
to check planning proposals and other matters that may affect the
value of the property and it's saleability in the future before
making a loan.
Self Certified
Normally when a borrower applies for a mortgage he or she will be
asked to provide pay slips or company accounts to prove their income.
If it is difficult or extremely inconvenient for you to provide
this documentation, you can choose to self-certify your income.
This involves signing a declaration which states your income sources
and amounts. Lenders will charge you higher rates than average and
offer you a more limited range of mortgages if you choose to self-certify
your income, so it's not a good idea to self-certify just to avoid
some paperwork.
Shared Equity
A scheme operated by a developer where the developer retains a percentage
equity of around 10% in the property. Thus the developer holds a
second charge over the property. The 10% owing may be interest free
or may incur interest and be added to the total amount owing on
the property.
Shared Ownership
A scheme operated by a housing association where a person owns part
of the property and pays a mortgage on this, while the housing association
owns the rest of the property and the person pays rent on this.
Stamp Duty
This is a tax payable on the purchase of a property by the purchaser.
For properties with a purchase price of up to £60,000, no
stamp duty is charged. For properties between £60,000 and
£250,000, 1% stamp duty is payable on the purchase price.
For properties between £250,000 and £500,000 it is 3%
and for properties over £500,000 it is 4%.
Structural survey
This is the most wide ranging check of the outside and inside of
a property. This is carried out by professional surveyor and it
should pick up all but the most hidden faults.
SVR
Standard Variable Rate. This is the interest rate that the lender
charges. The rate goes up and down and your repayments are adjusted
accordingly.
Term
The period of years over which you take the mortgage and when you
have to repay it.
Term Assurance
This is an insurance policy designed to repay the mortgage on the
death of the insured person. Level Term Assurance covers a principal
sum throughout the policy term and pays out the full amount on death.
Reducing Term Assurance is designed to repay the balance outstanding
on a repayment type mortgage upon death. Term Assurance may also
pay out early on the diagnosis of a terminal illness.
Tie-in period
As a condition of a special mortgage deal, you may have to agree
to stay with the lender for a period of months or years after the
deal has ended. If you move your mortgage elsewhere during this
period, you may have to pay an early redemption charge.
Title Deeds
Documents that show proof of who owns the freehold and leasehold
property.
Transfer deed
This is a document that, once you sign it, transfers the ownership
of a property to you.
Unencumbered
This is where the property is owned outright and no mortgages or
loans are secured against it.
Valuation
A simple check of the property in order to find out how much it
is worth and whether it is suitable to lend a mortgage on.
Valuation Fee
A fee paid by a borrower to cover the cost of the lender checking
that the property is suitable security for the mortgage loan.
Variable Rate
The interest rate the lender charges. it goes up and down and your
repayments change accordingly.
Vendor
The person selling the property.
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