Glossary of Common Terms Used During the Mortgage Process

APR - This stands for Annual Percentage Rate. It enables you to compare the full cost of the mortgage. Rather than just being an interest rate, it includes up front and in progress costs of taking out a mortgage. The expression for calculating APR is put by Government Regulations and therefore enables direct comparison of the cost of mortgages.
Capital and Interest Mortgage - This is when portion of your monthly payment lends to paying off the outstanding mortgage in improver to paying the interest on the mortgage. The payments are structured so that at the end of the term, your mortgage will have got been completely paid off. For this ground this type of mortgage is also called a Repayment Mortgage.
Capped Rate - This is a mortgage where the lender holds that the interest charged will never transcend a specific percentage. This deal endures for a set time period of years. After the set period, the rate usually returns to the lenders standard variable rate. During the capped period, the interest charges can travel up and down with the lenders interest rate - but cannot transcend the capped rate.
Cashback - An amount, either fixed or a percentage of a mortgage, which you can choose to have when you finish your mortgage. The lender may well claw dorsum this money through a higher interest rate.
CAT marks/standards - cat stand ups for Carnival Charges, Easy Access and nice Terms. They were created by the Government in an attempt to supply consumers with simple, clear financial merchandises with straightforward, easy to understand terms. A cat mortgage will have got got no arrangement fees, no salvation fees and will have interest calculated daily. It will also have got a minimum loan of just £5000, offer you repayment flexibleness and the mortgage should be portable should you travel home. Finally, you will not have got to purchase the lender's insurance merchandises and there will be no punishments should you happen yourself in arrears but can subsequently catch up.
Completion - This is end of the house purchasing process, when the finances are transferred and the keys are handed over. Happy moving!
Contract - A contract is a binding understanding between the buyer and seller. In the linguistic context of house buying, after the contract is signed by both the buyer and the marketer it is then 'exchanged' between the several canvassers for a set completion date. At that point, the contract is legally binding on both parties.
Conveyancing - This is the legal procedure in which property is bought and sold. You can make it yourself or engage a canvasser or specialised conveyancer to execute the undertakings for you. The purchasing of a freehold is much less complicated than the purchasing of a leasehold.
Discounted Rate - This is where the lender do a guaranteed reduction off the criterion variable rate for an agreed clip period of time. After the discounted time period ends, the mortgage usually travels to the lenders' criterion variable rate. Watch out for salvation punishments that overhang the initial price reduction period.
Early Redemption Charges - Redemption is when the borrower pays off the capital and the interest on the mortgage and thus have the property outright. Early salvation fees are the charges incurred for paying off the mortgage early, either to purchase the house outright, move or re-mortgage. Always inquire about early salvation charges before you hold a mortgage.
Endowment - Endowments are life self-assurance policies with an investing component designed to pay off the outstanding capital on an interest-only mortgage. There are a few types of endowments, such as as 'with profits', 'unitised with profits' and 'unit-linked'. In the 1980s, these were sold by salesman who seemly suggested that these policies were "guaranteed" to pay off the mortgage at the end of the term. However, the investing tax returns on these policies have got fallen to below what was previously considered to be the norm. Consequently, many policies are not deserving what was originally calculate and may not fully refund the money borrowed at the end of the mortgages' term.
Equity - In lodging terminology, equity is the difference between the value of the property and the money owed on the property. So if the property is valued at £200,000 and you owe £150,000 on the mortgage, you have got equity of £50,000. If you sold at that moment, you would have £50,000. Should the value of the home be less than the mortgage outstanding then you have got negative equity.
Freehold - Owning the freehold intends that you have the sum rights to the property and the land on which it is built.
HLC - This is the Higher Lending Charge (it was previously known as a Mortgage Indemnity Guarantee). It is levied by around three living quarters of all lenders on clients who cannot afford to set down a sedimentation of 10% of the terms of the property. In pattern it is a type of insurance aimed at protecting the lender should you default on your mortgage when the value of your home is less than the capital you borrowed. The insurance only supplies screen for the lender, not you, and typically costs £1,500.
Homebuyers Report - A property study aimed at providing more than information than a mortgage evaluation but less information than a full structural survey. It will assist the borrower to make up one's mind whether to purchase and assist the lender to make up one's mind how much to lend.
Interest Only Mortgage - This is a mortgage where your monthly repayments only pay the interest on the mortgage. Therefore, at the end of the mortgage you still have got to refund the full sum of money you borrowed. You are advised to have got a separate investing vehicle into which you do payments aimed at edifice up a monetary fund capable of paying off the mortgage capital at the end of the term. Typical investings include ISA's, a pension or an endowment policy.
IFAs - Stands for Independent Financial Advisor. These advisors are regulated by the Financial Services Authority. To be classified as "independent" they have got to be able to offer you the full range of merchandises from all financial merchandise providers. They are not entitled to depict themselves as "independent" if they can only offer merchandises from a restricted panel of financial companies. A Financial Advisor can be one adult male set or work for very large companies. Before they do any recommendation, an IFA must carry out a elaborate fact happen so they fully understand your financial circumstances. They can then do their recommendations to lawsuit your personal circumstances.
ISA - An ISA is an Individual Savings Account, which is a tax-free method of owning shares, edifice up a cash nest egg account or a life self-assurance policy. You can utilize an ISA to construct up a capital sum of money to refund an interest only mortgage.
Leasehold - If your property is leasehold, ownership of the property returns to the Freeholder at a set date. Many houses were originally sold on 999 twelvemonth rentals which intends that 999 old age after the initial day of the month of the Leasehold, ownership of the property returns to the Freeholder. Building in multiple business such as as apartments, are always sold on a leasehold and usually have got a much shorter leasehold time period - 100 and 125 old age is quite common. Often, with a block of apartments, the flat proprietors individually ain the leaseholds whilst a management company, in which they throw shares, have the freehold. These days, however, leaseholders who dwell in the property have got the legal right to purchase their freehold under terms laid down by United Kingdom law.
Life Insurance - This tin also be called Term Insurance or, when specifically linked to proprty purchase, as Mortgage Protection Insurance. It is designed to pay a tax free lump sum of money in the event of your death to enable your mortgage to be repaid in full. There are a number of discrepancies such as as Degree Term Life Insurance and Decreasing Term Life Insurance. At the beginning you take out insurance for the full sum of money you have got got borrowed from your mortgage lender and for the same number of old age as you have agreed on your mortgage. These insurance policies make not have got any investing or resignation value. The insurance premiums are based on a number of factors - the chief 1s being the amount of screen you need, your age, wellness and how many old age you desire to be insured for.
Lock-In Period - This is the minimum time period you have got agreed to remain with the lender. Depending on the deal, it could be as low as six calendar months up to the whole of the term. Should you wish to refund the mortgage or remortgage during the lock-in period, you will invariably have got to pay salvation penalties. Always do certain you cognize how long you are locked in for with your mortgage.
LTV - Literally intends Loan to Value. This is a measuring of the mortgage amount against the value of the property or the terms that you are actually paying. A £157,500 mortgage on a property for which you paid £175,000 would be a LTV of 90%. Lenders be given to charge a Mortgage Indemnity Premium on mortgages with a loan to value of anything about 75%. Some don't so inquire about this.
MIG - This have now changed its name to HLC. See above.
Mortgage - A mortgage is a long-term loan taken out in order to purchase a property with repayment secured on that property. So if you don't maintain to the repayment terms, the lender can reclaim the property, sell it and reserve the money they are owed. Any balance is then paid to you. If the property is sold for less than you owe your lender, you still stay apt to refund the shortfall.
Mortgage Advisor - On October 31st 2004 the merchandising of mortgages in the United Kingdom came under the remission of the City watchdog, The Financial Services Authority (FSA). As from that day of the month any individual providing mortgage advice had to be registered with the FSA and stay by its regulations of conduct, methods of operating and preparation programs etc. The aim have been to better life for the consumer by offering better protection, clear information and access to right for poor advice.
Negative Equity - Negative equity is when the value of your home is less than the amount that you owe on your mortgage plus any other loans secured against it. It can go on very easily if you take out a 100% mortgage or if property terms fall. (Also see Higher Lending Charge)
Portable - This is a measurement of how easy it is to travel a mortgage from one property to another should a property move be required. This is critical if you are moving during your lock-in-period and wishing to avoid salvation penalties.
Repayment Mortgage - This is the same as a Capital and Interest mortgage - see above.
Searches - During the conveyancing process, the buyer have to be certain that the marketer have statute title to the property and place any matters may impact the prospective proprietors ownership of the property. For example, whether the property is affected by any projected route building, whether there are saving orders affecting the property, is it a listed edifice and have it been built in conformity with planning statuses and edifice regulations. Searches will also demo whether there are ours under or stopping point by the property. This information is obtained by the individual project the conveyancing from hectometer Land Register and the relevant Local Authority. These probes are collectively known as "Searches".
Self-Certification - Should you have got trouble in providing certification that "proves" your income to a prospective mortgage lender, you may need a self-certification mortgage. In kernel you personally attest what your full income is. If you have high bonuses, or work seasonally or on commission, or are self-employed this may be your best option. You declare your income plus some grounds that your declaration is reasonable. Ideally lenders desire to see as much guaranteed income as possible. To counterbalance the lender for the increased hazard they are taking on a self-certified mortgage, they will charge you a higher rate interest, typically 1% over their criterion variable rate.
Stamp Duty Land Tax (commonly known simply as Stamp Duty) - You pay Postage Duty Land Tax on property like houses, flats, other edifices and land. If the purchase terms is £120,000 or less, you don't pay any Postage Duty Land Tax. If the terms is more than than £120,000, you pay between one and four per cent of the whole purchase price, on a sliding scale.
Upto £120,000 - No duty collectible

£120,001 to £250,000 - 1% duty payable*

£250,001 to £500,000 - 3% duty payable

£500,001 and over - 4% duty payable

*If you're buying a property an country designated by the authorities as 'disadvantaged', you don't pay any Postage Duty Land Tax if the purchase terms is £150,000 or less.
Did you know? Postage Duty was originally introduced by William of Orange when he was King of England.
Structural Survey - The most thorough report you can get on the status of the property you are considering to buy. The surveyor will look in item at the interior and outside of the property and will state you if the property is structurally sound. All major and minor defects in the edifice will also be listed and should state you what care work may be needed either now or in the future. You should do certain the range of the study is agreed in authorship before you committee it. Should the study place problems, usage them to negociate a reduction in the terms before you exchange contracts.
Variable Rate - This is when the interest rate you pay on your mortgage can travel up or down depending on changes to the lender's criterion variable rate. If you have got a variable rate mortgage your monthly mortgage payments will change whenever the lender changes the interest rate.
Valuation - This is where a valuer appointed by your projected lender, visits the property in order to gauge its current value. This value is then used by the lender as a footing for its security and to cipher its Loan to Value Ratio. The borrower never sees the valuation. With some mortgage deals the lender absorbs the cost of the evaluation but in many cases the borrower have to pay upfront.