Mortgage glossary

A

Advance

Mortgage Loan.

Advice

A recommendation about the most suitable mortgage for you made by an adviser who is regulated by the Financial Conduct Authority (FCA).

Annual Percentage Rate (APR)

The overall cost of a mortgage, including the interest and fees.

Approved in Principle / Agreement in Principle

A certificate some lenders will give you showing the amount they will probably be prepared to lend you. This is not a guarantee but can be helpful when registering with estate agents.

APR

Annual Percentage Rate, the total cost of a loan, including all costs, interest charges and arrangement fees, shown as a percentage rate and easily comparable with mortgage interest rates.

B

Balance Outstanding

The amount of loan owed at a particular time

Base Rate

The interest rate set by the Bank of England is known as the Base Rate. This can change at any time. [View Base Rate Changes]

Beneficiary

The individual(s) designated to receive the benefits from a policy.

Bridging Loan

A temporary loan advanced to help buy a new property before the existing one has been sold.

Buildings Insurance

Insurance against the cost of repair or rebuilding a property from scratch following structural damage, for example by flood, fire or storm.

C

Cashback

Some lenders offer "cashback" on completion of your house purchase. This could be a fixed lump sum, or an agreed percentage of the mortgage loan. Remember to check whether there will be conditions attached.

Critical Illness Cover

Pays out a lump sum if you are diagnosed with a specified critical illness.

Typical illnesses include:

Alzheimer’s Disease (before age 60)
Benign Brain Tumour
Blindness
Cancer
Coma
HIV - caught in the UK from a blood transfusion, physical assault or at work
Heart Attack
Kidney Failure
Loss of sight
Major Organ Transplant
Motor Neurone Disease
Multiple Sclerosis
Parkinson’s Disease
Stroke
Third Degree Burns
Total Permanent Disability

D

Death in service

Life insurance an employer provides that may be linked to a pension scheme. As cover ceases should you change jobs this is not normally suitable for mortgage protection.

Decreasing term assurance

This provides a lump sum in the event of death during the policy term. The amount of cover (sum assured) decreases over the term of the plan. This type of cover is usually used as the basis of a Mortgage Life Insurance plan to protect the declining balance of loan.

Deferred period

A period of time that has to pass before benefit from a policy is claimed. Typically Income Protection policies will have a choice of deferred periods to suit any benefit you may be eligible for from your employer.

Discounted Variable Rate Mortgage

A set percentage discount below your lender's Standard Variable Rate for a predetermined length of time. Your monthly payments can still go up and down with this type of rate.

E

Early Repayment Charge

A charge made by the lender if the borrower terminates a mortgage in advance of the terms of the particular mortgage. Normally occurs when the borrower has benefited from reduced payments or cash back in the early period of a mortgage.

Early Repayment Charge

It's important to remember that if you repay your mortgage early it can mean you end up paying an additional payment depending on the type of mortgage you have.

F

FIMBRA

Financial Intermediaries Managers & Brokers Regulatory Authority.

Financial Conduct Authority

The body that regulates the financial services industry in the UK.

Fixed Rate Mortgage

A fixed interest rate is applied to your mortgage for a predetermined time, during which your monthly repayments will stay the same.

Flexibility

Flexible features may apply to many types of mortgages. Features could include the facility to overpay or take payment breaks amongst others. Your Financial Consultant will be able to advise you about the different options available.

G

Guaranteed premium

Premiums will stay the same throughout the term of a policy.

H

Higher Lending Charge

Required by some lenders if your loan is for more than a required percentage of the value of the house. Although the borrower pays the premium, the policy protects the lender not the borrower.

Higher Lending Charge

Insurance to protect the lender from financial loss in case you fall significantly behind with your mortgage payments and your property is repossessed. This might be required if your borrowing exceeds 75% of the property's value.

I

IFA

Independent Financial Advisor

IMRO

Investments Managers Regulatory Organisation. Regulates investment managers.

Income protection

Provides tax-free income in the event of you not being able to work due to ill health. Payments are usually paid monthly until you either return to work, the policy term expires, you retire or death occurs.

Interest Only Mortgage

You pay the interest on your mortgage to the lender each month until the end of the mortgage term. The capital borrowed does not reduce and it is your responsibility as a borrower to ensure that you have a method or means of repaying the capital at the end of the term.

J

Joint Mortgage

A mortgage where there is more than one individual named responsible for the mortgage.

L

LAUTRO

Life Assurance Unit Trust Regulatory Organisation.

Lender's Arrangement Fee

This fee may be charged by the lender to cover their administration costs in setting up your mortgage.

Lender's Standard Variable Rate

The interest rate set by the lender and varies from lender to lender. If your mortgage is on this rate your payments will vary in line with lender rate charges.

Level term assurance

A policy that pays a fixed lump sum upon death during the policy term.

M

Mortgage life insurance

A decreasing term life insurance plan that’s designed to help protect a repayment mortgage by paying a lump sum in the event of death during the policy term. These are usually flexible plans with options available to pay insurance premiums and mortgage payments in the event of you becoming incapacitated by illness or injury.

Mortgage Term

This is the period of time over which your mortgage is proposed to run. Remember the longer your mortgage runs, the more interest you are charged overall so care needs to be taken to ensure that the term chosen is suitable.

N

Negative Equity

When the value of a property is less than the outstanding sum owed on a mortgage.

P

Premium

Premium Payments to the insurance company to purchase cover.

Premium protection

Covers the cost of policy premiums during periods of unemployment due to illness or injury. Also known as waiver of premium.

R

Repayment Mortgage

Monthly interest combined with capital repayment against the original sum borrowed.

Repayment Mortgage

Your monthly repayment includes part interest and part capital repayment. So long as you meet all of the payments required by the lender your mortgage will gradually reduce until it is repaid in full at the end of the mortgage term.

Repossession

When loans are in default the mortgage lender can repossess the property and sell it so they can repay the debt.

Retention

Holding back part of a mortgage loan until repairs to the property are satisfactorily completed.

Reviewable premium

Premiums are very likely to change over the term of the policy, an insurer may choose to review premiums at set intervals such as every five years.

S

Standard Variable Rate

The interest rate set by the lender and varies from lender to lender. Your monthly payments will vary in line with lender rate changes.

Subject to Conclusion of Missives

Words used to indicate that an agreement is not yet legally binding.

Sum assured

The amount of money you are insured for from outset of a policy.

T

Terminal illness benefit

The sum assured from a life assurance plan becomes payable if you are diagnosed with a terminal illness where life expectancy is considered to be less than 12 months.

Tracker Rate Mortgage

This type of rate is usually defined as a percentage amount above, below or equal to the Bank of England's Base Rate. As the Bank of England can change rates at any time your monthly payment can vary as your rate follows or "tracks" this base rate.

Trust

By placing the benefits of a policy “in trust” you can ensure that the correct person receives the proceeds. Assets owned in a trust do not form part of an estate of a deceased person.

U

Underwriter

A person who assesses and classifies the degree of risk that a proposed insurance represents.

V

Valuation Fee

Normally charged by the lender to carry out a basic inspection of the property. The resulting valuation report is solely for the lender's benefit and is used to assess mortgage suitability.

Variable Interest Rate

Rate of interest payment that fluctuates over time inline with general interest rates.

W

Waiver of premium

Covers the cost of policy premiums during periods of unemployment due to illness or injury. Also known as Premium Protection

Y

Yield

The amount of money a landlord receives from in rent as a proportion of the amount of money invested in the property.