When you’re getting a mortgage, there are many unfamiliar terms you may come across. Understanding these mortgage terms is essential, as they will help you make informed decisions and ensure that you get the right mortgage for your needs. Here, we’ll explain some of the most common mortgage terms and definitions.
What is a mortgage?
The simple definition of a mortgage is a loan provided by a lender, such as a bank or building society, to finance the purchase of a property. As a borrower, you agree to repay the loan, plus interest, over a set period (usually around twenty five years), and the lender holds a legal charge over the property until the loan is fully repaid.
Types of mortgage and interest rates
There are several types of mortgages available to suit different needs and circumstances.
- Fixed-rate mortgages offer a set interest rate for a fixed period, giving you stability and predictability for your monthly payments.
- Variable-rate mortgages can come in the form of a tracker, where the interest rate is variable and follows the Bank of England’s base rate or a discount for a set period.
- Interest-only mortgages allow you to only pay the interest on the mortgage, with the capital amount paid at the end of the term.
- Offset mortgages allow you to offset your savings against your mortgage, reducing the amount of interest you pay.
- Help-to-buy mortgages are available for first-time buyers and offer assistance in purchasing a property with a smaller deposit.
It’s important to research and compare different mortgage products to find the best fit for your individual needs and circumstances.
Interest-related mortgage terminology
APR (Annual Percentage Rate) is the total cost of borrowing, including interest rates and fees, expressed as an annual percentage.
APRC (Annual Percentage Rate of Charge) is a more comprehensive measure of the total cost of borrowing, including all additional fees or charges, providing a more accurate representation of the total cost of borrowing over the entire term of the mortgage. In most cases, it assumes that you revert to the lender’s Standard Variable Rate after any fixed rate you’ve arranged has finished and then stay on it. This is why the APRC on a mortgage illustration always seems much higher than the rate you’ve been quoted.
Common terms used in mortgage lending
Deposit refers to the amount of money you pay upfront. The size of the deposit can vary, but typically, lenders require a minimum of 5-10% of the property’s value. A larger deposit can often lead to better mortgage terms, including lower interest rates and monthly payments.
Credit score is a numerical representation of your ability to repay debt, which lenders use to assess the level of risk associated with lending you money. A good credit score can increase your chances of being approved for a mortgage and may also result in better mortgage terms.
Seller concessions, also known as seller contributions, are a seller’s agreement to cover some of the buyer’s costs or prepaid expenses associated with the purchase of a property. This type of concession is almost always associated with new build developers. These concessions can be negotiated as part of the sale, and can help to reduce the upfront costs associated with buying a home.
Completion date is the date when the sale of a property is legally complete and ownership is transferred to the buyer. The completion date is usually agreed upon by the buyer and seller early in the process, but it can be affected by factors such as the length of the mortgage application process and the time it takes to carry out necessary surveys.
Conveyancing is the legal process of transferring property ownership from one person to another. It involves a solicitor or ‘conveyancer’ handling the legal paperwork and ensuring that the transfer is done properly. It can take anywhere from several weeks all the way up to a number of months to complete, so it’s important to start the process as early as possible.
Other mortgage terminology
Gazumping is a term used to describe a situation where a seller accepts a higher offer from another buyer after accepting an initial offer from a prospective buyer. This can occur at any point in the home-buying process, including after a buyer has received a mortgage offer, and it can be a frustrating and stressful experience.
Gazundering refers to a situation where a buyer lowers their offer for a property just before the exchange of contracts – when sellers may have already made plans to move or may have turned down other offers based on the initial offer. Although gazundering is legal, it can damage the relationship between the buyer and seller, and may make it more difficult for the buyer to negotiate in the future.
Putting your mortgage terminology to use
Getting a mortgage can be a complicated process, and it’s important to understand the various terms you may encounter along the way. From APR to conveyancing, there are many terms involved in securing a mortgage and buying a property. By familiarising yourself with these mortgage terms, you’ll be better equipped to make decisions about which mortgage is right for you.
Whether you’re a first-time buyer or an experienced homeowner, seeking the advice of a mortgage advisor can also help ensure you’re getting the best deal and avoiding any potential pitfalls. With a little knowledge and some expert guidance, you can make your way through the mortgage process with confidence and get the keys to your dream home.
If you’re ready to start your mortgage journey, our team of expert advisors can help guide you through the process, from finding the best mortgage deal for your needs to securing your home. Don’t let confusing mortgage terminology hold you back from achieving your homeownership goals. Contact us today to take the first step towards owning your own home with confidence.
