Annual Percentage Rate (APR)

ASU (Accident , Sickness & Unemployment)

Buy-to-Let Deal

Capital Repayment

Capped Rate

Cash Back Mortgage

Completion

Conclusion of Missives

Conveyancing

Current Account Mortgage

Discounted Rate Mortgages

Early Repayment Charge

Equity Release Mortgage

Exchange of Contracts

Fixed Rate Mortgage

Interest Only Mortgage

Leaseholder Mortgages

Loan To Value (LTV) Ratio

Higher Lending Charge

Offer of Advance

Offset Mortgage

Self Certification ("Self Cert")

Stamp Duty

Standard Variable Rate (SVR)

Tracker Rate

Variable Rate Mortgage

Annual Percentage Rate (APR)

The APR for loans is calculated to include all elements of repayment, including interest, capital repayment and charges and applicable fees.  This makes the APR ideal for comparing competing products from different lenders - it is better than narrower measures such as pure interest rates.

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ASU (Accident, Sickness & Unemployment)

This refers to an insurance policy which covers all or part of mortgage repayments if the holder becomes unable to pay for reasons of ill health, unemployment or accident.  The degree of protection, terms and exclusions of ASU policies may vary.  This is also known as Mortgage Payment Protection Insurance or MPPI: for more information read our MPPI pages.

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Buy-to-Let Deals

If you want to purchase a property for the purpose of renting it out to a third party, then generally it must be be bought with a buy-to-let mortgage.  You will find that a buy-to-let mortgage usually has higher interest rates than for a normal mortgage;  however, the advantage of this type of mortgage is that the lenders will take account of the rent you will earn as well as the income from your job.  The amount you can borrow from lenders usually ranges from £150,000 to £1 million per property.  As a rule they will only lend up to 85% of the property price.

Any mortgage that you have on your own home may cut the amount that you can borrow under the buy-to-let scheme.  Whilst some providers will only lend on one property, others may limit you to three, five or ten.  We have some lenders that do not count anything other than the rental income of the property.  This is usually required to be 130% of the monthly mortgage payment (i.e. mortgage payment x 1.3).

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Capital Repayment

This is any payment which reduces the amount of capital or principal outstanding in a loan.  The term usually refers to a lump-sum repayment which pays off all or part of a loan, either clearing it or reducing the interest payments.

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Capped Rate

Similar to a fixed rate with the exception that if the variable rate falls below the capped rate, the borrower will make payments based on the lower variable rate.  But if the rates increase the payments are 'capped' and will not rise over the capped rate.  In other words, during the capped period, the rates can go down but never above a fixed ceiling.  So it is usually better to have a capped rate rather than a fixed one.

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Cash Back Mortgage

Some lenders offer a mortgage which includes a cash payment, either a fixed sum or a percentage of the mortgage loan amount, as an incentive to potential customers.  These can be useful if cash is needed to cover, for example, legal fees when a mortgage is completed.

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Completion

When buying a house, Completion is the moment when the buyer can physically take possession of the property - that is, get the keys and move in. 

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Conclusion of Missives

For transactions taking place in Scotland, this is the point at which seller and purchaser are committed to the transaction.  (See Exchange of Contracts for the equivalent in English law.)

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Conveyancing

The entire process of transferring ownership of a property from one person to another.  Conveyancing covers the negotiation and agreement of the purchase contract, transfer of title deeds and the agreement of a legal charge over the property as loan security.

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Current Account Mortgage

This type of mortgage is flexible and is linked to a current account.  It has the benefits of the flexible mortgage and also uses the funds held in the current account to offset the interest.  For example, if a borrower has a mortgage balance of £80,000 and has £3,000 held in the current account, the customer is only charged mortgage interest on £77,000, which is the mortgage balance minus the current account credit balance.  Some entrants into this sector are linking savings accounts, credit cards and personal loans as well.  If you want to keep your finances in one place this is an attractive option.  Also, there are several advantages to having your salary paid into your C.A.M.  While your unspent salary sits in the account you will pay no interest on that part of your mortgage balance.  See also offset mortgages.

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Discounted Rate Mortgages

A discount on the Standard Variable Rate (SVR) is offered for a specific amount of time.  The discount is linked to the standard variable rate:  if rates rise the borrower's payments will still increase, and this can make budgeting difficult as the rate is not set.  If the rates decrease, however, the borrower will benefit from lower than Standard Variable Rate payments.

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Early Repayment Charge

Some mortgage agreements include a charge if the loan is paid off before a specified term has elapsed.  This sometimes used to be called a Redemption Penalty.

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Lifetime Mortgages

If you already have a property but want to release some of the money tied up in it, without moving or having higher mortgage repayments, a lifetime mortgage may be right for you.  These mortgages are usually only available to people over retirement age, and as a rule the mortgage company ask for no repayment whatsoever.  But the mortgage company will own all or part of your property when you pass away.  This kind of mortage was sometimes referred to as "equity release".

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Exchange of Contracts

When the seller's and purchaser's contracts have been exchanged and signed, they are committed to the transaction.  (This applies in England, Wales and Northern Ireland: in Scottish law the same point in the process is the Conclusion of Missives.)

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Fixed Rate Mortgage

This means you repay the lender a fixed interest rate for a agreed period of time regardless of the actual interest rates at that time.  Usually lenders offer rates fixed for a period of two to five, but you can find shorter and longer periods.  When the fixed rate (or 'benefit') period ends, the repayments will as a rule convert to the lender's Standard Variable Rate (SVR).

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Interest Only Mortgage

In an interest-only mortgage you repay only the interest in the loan, and none of the principal.  At the end of the term, all of the principal (the original loan amount) remains to be paid.  Most people taking an interest-only mortgage make alternative arrangements to save for the repayment of principal: this is often done using investments such as an endowment.  If you elect to take an interest-only mortgage, it is your responsibility to arrange a suitable repayment vehicle.

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Leaseholder Mortgages

When you 'buy' a leasehold flat, you do not own the property.  All you actually own is the right to live there for a specific amount of time - whatever time is stated as remaining on the lease.  Most leases are over a 99-year term, while some run for 999 years.  Many building societies and banks are content to lend on a property that has at least 75 years that have not expired on the lease.

Over two million people own property on a leasehold basis.  If you are one of them and you have the opportunity to purchase the lease, it is almost certainly worth doing so.  A lease is a depreciating asset and as the years left to run diminish, it will become more difficult to sell.  If you have a flat in a block, you and the other leaseholders can buy the freehold together provided you meet certain criteria.

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Loan To Value (LTV) Ratio

The LTV is determined by the amount of borrowing as a proportion of the property value.  (LTV = Loan / Property Value).  Hence a borrowing of £70,000 against a £100,000 property gives an LTV of 70%, or 0.7.

LTV is an important factor in lenders' decisions about how much to lend and on what terms, and is used in determining such matters as Mortgage Risk Fees or Higher Lending Charges.

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Higher Lending Charge

If you want to borrow more than 90% of the property's value, you will probably have to pay a Higher Lending Charge.  This is basically an insurance which ensures that if you default on payments, the lender is protected: it offers no benefit to you beyond making it possible for you to actually get the mortgage in the first place ...  (more)

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Offer of Advance

When a mortgage application has been considered and assessed, the next step is a formal Offer of Advance which sets out how much the lender is prepared to advance and what the terms are.  The Offer of Advance is sent to the borrower and the borrower's solicitors.

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Offset Mortgage

An offset mortgage allows you to offset your mortgage borrowing against any current account and savings balances you may have.  In this way, interest payments can be reduced, saving potentially thousands of pounds over the mortgage term.  More information is on our flexible mortgages page.

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Self Certification

A Self Certification or "self cert" loan is one where the borrower does not have to prove his or her income.  By contrast with the "traditional" mortgage process, where a borrower has to provide documentary evidence and references to prove a sufficient level of income, the "self cert" loan allows the borrower to waive this requirement.  "Self cert" can be extremely useful in situations where it would be impossible to demonstrate income, for example for the self-employed.  It is prudent to seek expert advice if considering a "self cert" loan.  You can find out more on our Self-Certification Mortgages page.

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Stamp Duty

Stamp Duty is a tax which has to be paid when moving home, if the value of the new house exceeds a certain threshold.  The rates are on our Stamp Duty page.

More detail is available on the Inland Revenue website here (a new window will be opened).

FM2 Ltd is not responsible for the content of external sites.

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Standard Variable Rate (SVR)

This is the standard variable interest rate charged by a lender.  In practice it usually varies with the published Bank of England rates, but it is not tied to the BoE rate.  (So it is not the same as a Tracker Rate.)

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Tracker Rate

This is a tracking rate based upon the Bank of England base rate plus or minus a margin. You can for instance get a BoE tracker with a 2 year discount of 0.2%, then 3 years at + 1%.  The advantage of these trackers is that they move on the day the rate changes: this is beneficial when rates are falling!

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Variable Rate Mortgages

With the Standard Variable Rate (SVR) mortgage, repayments increase or decrease as the lender adjusts its interest rates in line with the market conditions.

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