We know that getting a mortgage can be confusing. There are lots of things to consider and a lot of terminologies that you may not have heard before. Here we have tried to clear up the confusion by explaining in simple terms what these different terms mean.
A mortgage broker is an adviser who can arrange a mortgage between borrowers and lenders. Clever Mortgages are a mortgage broker who can help source the right mortgage for you.
The financial institution who lends the mortgage funds to a borrower in order to buy their home. We have a comprehensive range of lenders to help get you a mortgage whatever your situation.
LTV (Loan to Value)
A ratio made up of the size of your mortgage in relation to how much your property’s worth. People who are borrowing 60% or less are likely to get the best deals.
APR (Annual Percentage Rate)
The overall cost of your mortgage per year, including interest and associated fees. This amount will vary from lender to lender.
AIP (Agreement in Principle)
This is a document that you will receive from a mortgage lender to confirm that you can borrow a certain amount from them. This does not mean your mortgage has been officially approved but you can use this to show sellers that you can afford the property.
A mortgage valuation report can give you a rough indication of how much a property is worth. They take place before your mortgage is approved to give the lender enough information on whether the property is safe to lend on. This is not the same as a homeowner or structural survey.
A survey is a more in-depth version of a valuation, carried out by a qualified surveyor before purchasing a property. They will inspect the property to make you aware of any structural problems, major repairs or potential issues. These can help you to avoid any expensive surprises after you’ve bought the property.
The total amount of the property you own outright without considering the remaining mortgage. This includes the deposit amount, the amount of the mortgage you have paid off and any value gained on the property during ownership.
A property is in negative equity when the mortgage is worth more than the house is worth. This is usually caused by falling property prices.
Stamp duty land tax (SDLT) is a lump-sum tax that must be paid by anyone purchasing a property in the UK above £125,000. For more information on stamp duty, please see the Gov.uk website.
This is the interest rate set by the Bank of England for lending to other banks. This rate is used as a benchmark for interest rates in general.
SVR (Standard Variable Rate)
This is the go to rate that lenders will put you on once you’re at the end of an introductory fixed, tracker or discounted deal. Each lender will have their own SVR rate and this usually fluctuates in line with the Bank of England’s base rate but may be higher.
This is a legal term for overdue or missed payments on your mortgage. This can lead to your home being repossessed if you don’t agree to a term with your lender to pay off the arrears as soon as possible.
The legal work that takes place when you buy or sell a property. Your conveyancer will take care of transferring the cash to buy your house as well as dealing with the Land Registry.
ERC (Early Repayment Charge)
If you pay off your mortgage early or make overpayments that are more than your set limit, then you might incur an ERC as set out in your contract terms.
This is an administration charge that you pay to your lender in order to set up your mortgage. You can usually choose to pay this amount in full or add it onto your mortgage.
Also known as an application or reservation fee; a booking fee is required to reserve a mortgage deal. This amount is non-refundable and you’ll be expected to pay upfront when you’ve submitted your application.
A fixed rate is where your mortgage stays at the same rate for a period of time. This means that you can be exactly sure what you will pay from each month to the next.
Variable rate mortgage
This is where your charges are in line with the mortgage lenders SVR. This means that some months you could be paying more whilst other months you could be paying much less.
A tracker mortgage is a type of variable rate mortgage but most commonly tracks the movement of the Bank of England’s base rate. The amount you will be charged each month will be in line with this amount.
If you choose a mortgage with a capped rate then the interest rate will never exceed the cap set, regardless of any changes to the Bank of England base rate.
These mortgage types link to your savings account as well as your current account. This allows you to make overpayments each month, allowing you to pay your mortgage off more quickly. These types of mortgages are most suitable for high-earners who are able to save each month.
Interest-only mortgages allow you to only pay off the interest on the amount you borrow. At the end of your mortgage term, you use your savings or investments to pay off the rest of the amount.
Subprime mortgages are for people who have a poor credit history. Higher interest rates are usually associated with these types of mortgages as conventional mortgages are seen as high risk as the customer is more likely to default on the loan.