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Mortgage Glossary

Adverse Financial Consequences           

Early surrender of an investment may adversely affect the amount of capital you have accumulated to repay the mortgage loan.

Changes in personal circumstances (long term illness, relationship breakdown or unemployment) can also have adverse financial consequences.

Arrangement Fee

Fee charged by the lender for setting up the loan. Normally payable on completion but can sometimes be added to the loan.

Booking Fee

Fee charged by the lender to secure mortgage funds, payable at the time the application is submitted. Normally applies only to special offer loans such as fixed or capped rates.

Buildings Insurance

Insurance to cover the structure of the building.

It is a condition of all mortgages that the building is insured.

Where the property is leasehold the insurance will normally be arranged by the freeholder and the cost charged as part of the service charges that are applied to the leaseholder.

Capped

This is a form of variable rate where the rate is capped at a specified level over a specified term i.e. it is guaranteed not to exceed the capped rate during the period.

The rate may fall during the period, and at the end of the term will revert to the lenders standard variable rate applying at that time.

Contents Insurance

The insurance of property within a residence i.e. furniture, clothing, personal possessions etc. as distinct from buildings insurance.

Credit Referencing

In order to offer you the mortgage loan, the lender will normally pass your name and address details to a credit reference agency.

Deeds Release Fee

Fee charged by the lender for releasing its charge over the deeds of the mortgaged property and returning them to the client.

Discount

This is a discount to the lenders standard variable base rate, lasting for a guaranteed period of time. It will vary in that period with any change in the lenders standard variable rate, and will revert to the lenders standard variable rate at the end of the period.

Early Repayment Charge

Fee charged if you repay all or part of the mortgage early. This is normal if you have a fixed, discounted, capped or cash back mortgage.

Endowment

Endowment - a form of savings based life assurance policy frequently used to repay home loans.

Fixed

Here the interest rate is guaranteed to stay fixed for a specified period, after which it can be expected to return to the lenders standard variable rate, which applies at that time. You may have the option to transfer to a new fixed rate.

Future Potential Repayment

At the end of a fixed, capped or discounted rate period the interest rate payable on the mortgage will normally revert to the lenders standard variable rate that applies at that time.

Even if there is no change in the current variable rate, you may find that your monthly Payments are higher.

Higher Lending Charge

This fee is normally paid when you borrow more than 75% of the value of the property. Some or this entire fee may be used by the lender to obtain indemnity insurance to act as additional security for its sole benefit. If this is the case the lender will provide you with a written explanation.

Such insurance will not protect you if your property is subsequently taken into possession and sold for less than the loan amount.

You will remain liable to pay all sums owing, including arrears, interest and your lenders legal fees.

If a claim is paid to your lender under such insurance, the insurers generally have the right to recover this amount from you.

Interest Only Mortgages

Only interest payments are made throughout the term of the loan and the original loan amount remains payable to the lender at the end of the term.

An investment (savings) plan, which pays out a lump sum in later years, is used to repay the loan amount remaining at the end of the term.

Investment Backed Interest Only

Only interest payments are made throughout the term of the loan, with the original loan amount remaining at the end of the term.

Lender Conditional Insurance

It is a condition of all mortgages that the buildings are insured. In some cases it may be a requirement of the mortgage that the lender arranges the insurance cover. This could be Buildings, Contents, Payment Protection or a combination.

Lender's Legal Fee

Fee charged by the solicitors acting for the lender in creating their legal charge over the property.

LIBOR

London Inter Bank Offered Rate is the rate at which banks notionally buy and sell money to each other. It varies from day to day and is closely linked to the Base Rate.

Mortgage Discharge

Fee charged by the lender for releasing its charge over a property following the repayment of the mortgage.

Mortgage Indemnity Insurance

Insurance premium, which guarantees repayment of parts of the loan.  This will vary depending on the loan to value required. It offers no protection for the borrower and is solely for the benefit of the lender.

Mortgage Payment Protection

Insurance cover to protect the borrower against inability to meet mortgage payments.

Part Repayment Part Investment

This is a combination of the two payment methods, where part of the loan is fully repaid over the mortgage term, with the other part as interest only. The capital sum remaining at the end of the term is to be repaid from the proceeds of an investment plan.

Pension

Pension mortgage - an interest only mortgage where the capital will be repaid from the tax-free cash sum that can be received from the pension fund at maturity.

If you fail to make suitable arrangements to repay the mortgage loan amount at the end of the full term the lender may have no option but to take proceedings to repossess your property. It is your responsibility to ensure that an adequate repayment method is in place. Your lender will remind you annually of the need to make sure that an adequate repayment method is in place.

Portability

The mortgage may not be portable, which means you may incur early repayment charges especially in the early years if you sell your property and have to redeem the mortgage.

Repayment of Capital & Interest

As well as interest payments being made, the mortgage loan amount is gradually reduced throughout the term, so at the end nothing remains owing to the lender.

Standard Variable

This is the traditional type of mortgage interest rate, which fluctuates from time to time depending on the government's economic and monetary policy.

Term Assurance

The insured person or persons are covered against death within a fixed period of time subject to the payment of premiums as they fall due.

Valuation

Fee paid by the prospective borrower for the lender's inspection of the property. Normally paid on application.