Mortgage jargon explained
Mortgages are confusing. All of the terms and talk used can baffle first-time buyers and seasoned mortgage pros. Learn what all the mortgage jargon means, right here.
It’s not easy going through the mortgage process. With all the fees, affordability checks and more, it’s a stressful time. So, the last thing you need is mortgage brokers and advisers using terms which you have little or no understanding of.
Even with a well-rounded idea of the process, there is still jargon that leaves us baffled as to its meaning. All of this, however, all fits under one word: mortgage. This one word gives a lot of anxiety to many people, and can be the cause of sleepless nights and nightmares.
You feel like screaming ‘keep it simple!’ Well, that’s where we come in. We’re here to help you wade through all the jargon, and make your mortgage experience a little less stressful.
We’ve spoken to Zing Mortgages, an expert mortgage broker in Chelmsford, to dissect all the industry terminology that’s throw your way throughout the application process. In this guide, you’ll find out the A-Zs of mortgage jargon, with simplified explanations of what they all mean. Find out more, here.
Mortgage jargon
- Agreement in Principle
This agreement is a legal document, from the lender, with confirmation that you will be able to borrow a certain amount. Having this means you can show the person you’re buying your house from that you can afford it.
- APR
Annual Percentage Rate. This is the interest rate that goes on top of the amount you borrowed and is interest percentage you’ll pay back. Interest rates can vary dependent on the type of mortgage you get.
- Arrangement Fees
You may be charged an arrangement fee, for having your mortgage set up. Most lenders either ask you to pay this or offer to add it onto the mortgage loan itself (meaning you’ll pay interest on it).
- Base Rate
The Bank of England’s base rate is a rate set to ensure the economy grows steadily. Most lenders will charge above the base rate, in order to profit. Mortgages like tracker and SVR (standard variable rate mortgage) will follow the base rate.
- Brokers
Mortgage brokers, like Zing, can help you find a mortgage. They act as a middle man between lenders and borrowers, usually taking the hassle out of hunting for a mortgage. However, some charge fees but there are some that don’t – they get commission from lenders for supplying their mortgages to borrowers.
- Buy-to-Let Mortgages
This is a mortgage for wannabe landlords, as these mortgages are designed to secure property with the purpose of letting it out.
When you buy or sell your home, there’s a legal process to go through. For this, you’ll need a solicitor or a conveyancer to handle the legal things.
- Deposit
In order to secure yourself a mortgage, you’ll need to put down a deposit to borrow the remaining amount. Deposits usually range from 5% – 20% of the price of the property you want to buy. However, the more you can put down, the less you have to borrow – making it cheaper in the long run.
- Early Repayment Charges
You may incur these charges if you try to pay off your mortgage early, the clue’s in the name…
- Equity
The amount of the property you own minus the amount mortgage you have left to pay = home equity.
- Fixed-rate Mortgages
For a period, your mortgage interest fees are fixed, and will not increase or decrease over the mortgage term.
- Guarantor Mortgage
If you have a guarantor mortgage, it means that you don’t need as much income, deposit, and other affordability criteria. This is due to your guarantor agreeing to make mortgage repayments if you’re unable to.
- Help-to-Buy & Help-to-Buy ISA
A government scheme that helps you to buy property. A Help-to-Buy ISA (Individual Savings Account) is where the government pay in to help you save for a deposit. For every £200 you save, the government chip in £50 up to £3000 – which means you’ll be able to save for a deposit quicker.
- Mortgage Term
The length of your mortgage – e.g. 25 or 30 years.
This is when you take out a new mortgage to pay off your current one and release equity from your home.
- Standard Variable Rate
This is what most mortgage switch back to after the incentive period has ended (fixed and tracker).
- Tie-in Period
This is where you are ‘tied’ into your mortgage deal. If you want to remortgage or pay it off early, you’ll encounter fees.
- Tracker Mortgages
The Bank of England sets the base rate and lenders set an interest rate that moves with the base rate. This means that your mortgage interest can go up or down throughout the term (dependent on the base rate).
And that’s it! These are some simplified explanations of various mortgage terms. Whilst there are loads more, these are the most commonly used. Knowing these means that you’ll understand what your mortgage broker or lender is on about when discussing your mortgage.
