Jargon buster

Throughout the time you are arranging your mortgage, you will come across a wide range of technical terms. We have produced this guide to give you an explanation of these terms. These are not legal definitions but descriptions in everyday words.

APR
Abbreviation for Annual Percentage Rate.

Arrangement Fee
This fee is charged for arranging a mortgage and it covers administration expenses.

Assignment
A legal transfer of rights or benefits e.g. in your mortgage, a lease or life assurance policy.

Assured shorthold tenancy
Tenancy under the Housing Act which provides the right for an individual to live in a property which is his/her principal home for a fixed period of time at a rent agreed with the landlord.

ASU
Abbreviation for Accident, Sickness and Unemployment insurance, also known as a Mortgage Payment Protection policy. This is an insurance to protect your mortgage payments in the event of loss of earnings due to long term illness, accident or involuntary unemployment.

Bank of England Base Rate/Repo Rate
This is the lending rate set by the Bank of England which acts as a benchmark for other interest rates.

Buildings & Contents Insurance: Buildings Insurance
This covers the actual building i.e. your home, against damage by fire, storm, subsidence and so on. The amount of cover should be sufficient to completely rebuild the property. This rebuilding cost is given on the mortgage valuation report.

Contents Insurance
This covers your personal belongings against loss or damage. It may also cover certain other liabilities.

Capital and Interest Mortgage
Please see Repayment Mortgage.

Capped Rate
Capped rate mortgages offer you an interest rate guaranteed not to rise above a certain level but if interest rates fall then your payment rate will too. A capped rate mortgage combines the savings of a variable rate when interest rates are falling and the equivalent of having a fixed rate mortgage when interest rates are rising.

Cashback mortgage
A mortgage which offers you a cash lump sum on completion. The amount payable will be detailed in your Mortgage Offer and will be sent to you or your solicitor.

Certificate of Title
The document prepared by the solicitor for the lender confirming all formalities are satisfactory prior to completion. Used by solicitors in England and Wales.

Completion
The formal conclusion of the transaction when the mortgage monies are handed over and legal formalities are dealt with.

Contract
A legal agreement between purchaser and seller which binds both to complete the sale and purchase of the property. It is prepared in duplicate with a copy signed by each party. When these contracts are exchanged by your solicitor, the obligation to buy and sell becomes legally binding.

Conveyance
The Deed/document that transfers the land where the title is unregistered.

Direct Debit
This is an instruction to your bank/building society to allow the lender to take monthly mortgage payments directly from your account.

Disbursements
Amounts that your solicitor has to pay out on your behalf, in connection with the transaction e.g. search fees.

Discounted rate
This rate offers you a reduction to the standard variable rate/LIBOR rate (which may include a margin) for a determined period of time. However, the rate will still fluctuate when rates are reset.

Early Repayment Charge
A sum which has to be paid if the mortgage is repaid or varied in whole or in part within a certain time scale. The actual amount due would be dependent on when you redeemed and would be stated in your Offer Letter.

Endowment
An investment vehicle combined with life assurance, over a specific term. Typically used in conjunction with an interest only mortgage.

Equity
The difference between the value of property and the amount of mortgage outstanding.

Feuhold
The Scottish term for the right of absolute ownership in land.

Fixed Rate
With fixed rate mortgages your interest rate is guaranteed not to change for a set period of time, so you will know exactly what your mortgage payments are going to be each month.

Freehold
The right of absolute ownership in land.

Further advance
Additional monies advanced on your mortgage and secured on your property.

Funds Transfer Fee
See Telegraphic Transfer Fee.

Ground Rent
An annual sum paid by the leaseholder to their landlord, as a rental amount for the ground on which the property stands, which the landlord actually owns.

Guarantee
An undertaking given by a person called the guarantor promising to pay the debts of another if that other person fails to do so.

Higher Lending Charge
A charge made on some mortgages where the value of the mortgage is greater than, typically, 75% of the value of the property.

Interest Only Mortgage
Only interest is paid on the mortgage each month and all the capital remains outstanding. You make a separate payment into an investment product such as an endowment, pension or ISA (a repayment vehicle). Alternatively, you may have funds elsewhere which will repay the mortgage, e.g. inheritance monies. The lender does not normally require a specific repayment plan although separate life assurance is recommended. Whatever method you choose, you should make sure that at the end of the mortgage term you are able to pay back from your own resources the amount you have borrowed.

Interest Rate
This is the rate at which the interest charged on a mortgage is calculated.

Individual Savings Account (ISA)
A tax efficient investment, subject to certain limits, which can be used to repay capital at the end of an interest only mortgage.

Land Registry Fee
A fee paid to H.M. Land Registry to register changes to the title e.g. new ownership.

Lease
A contract with rights and obligations between Landlord and Tenant where the Landlord grants the Tenant a Leasehold interest in land in return for rent.

Leasehold
A right to exclusive possession of land for a fixed term of years, where the Freehold is owned by a third party.

Local Authority Search
A search, made by the solicitor, at the local authority for the area in which the property is situated. This search would reveal details such as the maintenance responsibility of roads and footpaths serving the property, road proposals in the immediate vicinity, whether the property is connected to the mains drain, any planning matters affecting the property or which could adversely affect the property in the future.

Local Search Indemnity Insurance
An insurance policy obtained on a remortgage or purchase for the lender in lieu of a local authority search paid for by the owner or purchaser.

Loss of rent insurance
An insurance to cover when tenants are not paying the rent required for Buy-to-let mortgages only.

Mortgage
A loan which is secured on your property.

Mortgage Conditions
These are printed conditions contained in a booklet which, together with the Mortgage Offer, the Special Conditions and the Standard Offer form the complete terms of your mortgage following completion. (This applies to Regency Mortgage Corporation mortgages only).

Mortgage Offer
The document which states that a lender is prepared to offer a mortgage for the purchase or remortgage of a residential property. This document will give details of the exact amount of money to be lent to you and on what terms.

Mortgage Payment Protection Insurance
See ASU.

Mortgage Term
The length of time the mortgage runs for e.g. 25 years.

Mortgage Valuation
This is done on behalf of the lender and is purely to find out the suitability of the property for lending purposes and what the property is worth. A mortgage valuation report prepared on behalf of the lender may not be relied on by you for any purposes.

We would strongly recommend for your own peace of mind having either a Home Buyers Report or a Full Structural Survey completed, as these will give much more in-depth information on the condition of your chosen property. You should contact a qualified surveyor (either Royal Institution of Chartered Surveyors or Incorporated Society of Valuers and Auctioneers) for full details and charges.

Purchase Price
The amount agreed to be paid to buy a property. This can be higher or lower than the actual valuation. Lenders will lend an amount based on the lower of the purchase price or valuation.

Redemption/Part Redemption
When the mortgage, or part of it, is paid off.

Redemption Administration Fee
Charge made for discharging the mortgage at the end of the mortgage term.

Remittance Fee
Please see Telegraphic Transfer Fee.

Remortgage
The replacement of the original mortgage with new finance. You can remortgage to obtain lower monthly payments or, if you have sufficient equity in your property, to raise money for a number of purposes.

Repayment Mortgage
(Also known as a Capital and Interest Mortgage). With this type of mortgage you repay part of the capital each month plus interest on the outstanding balance. Your payments will gradually reduce the outstanding amount over an agreed number of years and at the end of this term the mortgage will be repaid in full. Separate life assurance for the amount of the mortgage is recommended.

Repayment periods
Your mortgage is for a specific term, decided at the outset, typically from 5 to 30 years. Sometimes the term is restricted by a maximum age limit by which time the mortgage must be repaid.

Report on Title
This is the document prepared by the solicitor for the lender confirming all formalities are satisfactory prior to completion. Used by solicitors in Scotland and Northern Ireland.

Right to Buy
The Housing Act 1980 provides for tenants renting from their local authority or certain Housing Associations who may wish to buy their home. Full details of eligibility are available from the relevant local authority.

Second Mortgage charge
An additional mortgage secured on your property that you take out with another lender.

Solicitor
The lawyer who represents the parties in a transaction and takes care of all the legalities.

Special Conditions
These are conditions specific to your mortgage and are contained in your mortgage offer.

Standard Offer Conditions
These are printed conditions which form part of the terms on which a mortgage offer is advanced.

Standard variable rate (SVR)
A type of variable interest rate, that is set and charged by the mortgage lender, usually dependent on market conditions and/or the Bank of England’s base rate.

Subject to Contract
This term is used when the sale of a property has been agreed, but before contracts have been exchanged. Either the seller or purchaser can withdraw from the agreement at this stage.

Telegraphic Transfer Fee
(Also known as Remittance or Funds Transfer Fee). This is charged for sending sums of money electronically.

Tenure
The type of ownership of a property e.g. Freehold or Leasehold.

Term Assurance
A form of life assurance for a certain period of time which pays a lump sum on death.

Title
The right of ownership of land.

Title Deeds
The documents which prove Title. These may be in the form of Conveyances or may be an extract of the records held at H.M. Land Registry.

Transfer
The Deed/document that transfers the land where the title is registered.

Transfer of Equity
Where two or more people have an interest in a property and one or more persons transfer their share to the other or others.

Undertaking
A promise to complete a task.

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