Mortage Glossary of Terms
Jargon Buster
A
Advance
The total amount of the mortgage loan being borrowed.
APR (Annual Percentage Rate)
The overall cost of the mortgage expressed as an annual percentage of the loan. It includes interest and any compulsory fees.
Arrangement Fee
A fee that may be charged by the lender for setting up the mortgage. It is typically added to your mortgage on completion, though you may have the option to pay it upfront.
Asking Price
The price the seller is requesting for the property.
ASU (Accident, Sickness and Unemployment Cover)
A type of insurance that helps to cover mortgage payments if your income stops due to accident, sickness or redundancy.
B
Base Rate
The interest rate set by the Bank of England, which influences lender interest rates.
Buildings Insurance
Insurance that covers the cost of repairing or rebuilding your home due to fire, flood, subsidence or other structural damage. Required by all mortgage lenders as a condition of the loan.
Buy-to-Let Mortgage
A mortgage for a property that will be rented out to tenants. These loans typically have higher setup costs and interest rates, and lending decisions are often based on rental income rather than salary.
Buyers Protection Policy
Optional insurance that may cover you against the loss of certain fees (such as valuation or legal fees) if a property transaction falls through.
D
Deeds
Legal documents that prove property ownership.
Deposit
The initial amount paid by the buyer at exchange of contracts. Typically at least 5% of the purchase price, though this can vary depending on the lender and product.
Discounted Rate
An interest rate offered at a discount below the lender’s standard variable rate (SVR) for a set period. Monthly payments may rise or fall with changes in the SVR.
E
Early Repayment Charge (ERC)
A fee charged by the lender if you repay your mortgage or remortgage to another lender within a fixed, discounted or capped rate period.
Endowment Mortgage
A historic mortgage product where monthly payments cover only the interest, while a separate endowment policy is intended to repay the capital at the end of the term. These are rarely offered now and carry investment risk.
Employment Status
A factor lenders use to assess risk. Includes employed, self-employed, contractor or freelance status.
Equity
The difference between the value of your home and the mortgage owed. For example, if your home is worth £250,000 and your mortgage is £150,000, your equity is £100,000.
Exchange of Contracts
The point at which both the buyer and seller are legally bound to the property transaction.
F
Fixed Rate
A mortgage with a fixed interest rate for a set period, allowing for consistent monthly payments.
Fixtures and Fittings
Items not considered part of the structure but may be included in the sale, such as curtains, ovens, or light fixtures.
Flexible Mortgage
Allows for overpayments, underpayments or payment holidays. Interest is usually calculated daily.
Freehold
Complete ownership of a property and the land it stands on.
G
Gazumping
When a seller accepts a higher offer from another buyer after having already accepted yours, before exchange of contracts.
Gross
An amount before tax is deducted.
Ground Rent
A fee payable by leaseholders to the freeholder, typically annual and low in amount.
H
Higher Lending Charge
A fee sometimes charged by lenders when borrowing at a high loan-to-value (LTV), typically above 90%.
Homebuyer’s Report
A more detailed inspection than a basic valuation. Highlights obvious defects but is not a full structural survey.
I
Impaired Credit
A term used to describe borrowers with poor credit history. Specialist lenders may still offer mortgages, often at higher rates.
Income Multiples
A calculation lenders use to assess how much you can borrow based on your income. Additional affordability criteria now apply.
Income Protection
Insurance that provides a regular income if you cannot work due to illness or injury.
Interest-Only Mortgage
Monthly payments cover only the interest on the loan. The capital must be repaid separately, usually through a savings vehicle or investment.
Interest Calculation
How often interest is calculated (annually, monthly, or daily) affects how quickly overpayments reduce your balance.
ISA (Individual Savings Account)
A tax-efficient savings or investment account. Used by some as a repayment vehicle for interest-only mortgages.
L
Land Registry Fee
A fee paid to register legal ownership of the property with HM Land Registry.
Leasehold
You own the property for a set term, but not the land it stands on. Subject to ground rent and lease terms.
Letting Your Property
Letting a property without lender consent may breach mortgage terms unless you have a buy-to-let mortgage.
Lessor
The party granting the lease in a leasehold arrangement.
Life Assurance
An insurance policy that pays out on death. May be linked to mortgage repayment.
Local Authority Search
Searches carried out by your solicitor to identify planning or legal issues affecting the property.
Loan to Value (LTV)
The ratio of the mortgage loan to the value of the property, expressed as a percentage.
M
Monthly Repayment
The amount paid monthly to the lender, covering either interest only or both interest and capital.
Mortgage Agreement (AIP)
Agreement in Principle – a non-binding indication from a lender of how much they may lend you, subject to checks.
Mortgage
A loan secured on a property.
Mortgage Protection
Any policy designed to protect your ability to meet mortgage repayments (e.g. life cover, critical illness, or ASU insurance).
Mortgagee
The lender providing the mortgage loan.
Mortgagor
The borrower taking out the mortgage.
Mortgage Payment Protection Insurance (MPPI)
A policy that covers your monthly mortgage payments if you cannot work due to accident, sickness or unemployment.
P
Permanent Health Insurance (PHI)
Pays a regular income if you are unable to work due to illness or disability.
Portability
The ability to transfer your existing mortgage to a new property without penalty.
Premium
The amount paid, typically monthly or annually, to maintain an insurance policy.
Principal
The outstanding balance of the mortgage loan, excluding interest.
Procurement Fee
The fee paid by a lender to a broker for arranging a mortgage on behalf of a client.
R
Redundancy
Loss of employment. Government help is limited, so MPPI or income protection is recommended.
Remortgaging
Switching your mortgage from one lender to another, typically to secure a better rate or release equity.
Redemption
The repayment of the mortgage in full.
Repayment Mortgage
Monthly repayments cover both capital and interest. The mortgage is fully repaid by the end of the term if payments are maintained.
Repayment Vehicle
The method used to repay the capital on an interest-only mortgage (e.g. ISA, endowment, pension).
S
Search
Legal checks carried out by a solicitor to confirm legal title and identify any planning, legal or environmental issues.
Secured Loan
A loan where the lender has the right to repossess the property if the borrower defaults.
Split Loan
A mortgage partly on a repayment basis and partly on an interest-only basis.
Stamp Duty Land Tax (SDLT)
A government tax payable on property purchases over a certain threshold.
Status
Refers to your credit history and financial standing, used in underwriting decisions.
Structural Survey
A detailed survey of a property's condition and structure. Suitable for older or unusual properties.
Subject to Contract
An informal agreement to purchase a property that becomes binding only on exchange of contracts.
Surrender
The act of cashing in an endowment or investment policy before maturity, usually at a loss.
SVR (Standard Variable Rate)
The lender’s standard interest rate, which may change at any time and affects variable rate mortgage holders.
T
Term
The duration of the mortgage, typically up to 25 or 30 years.
Title
Legal ownership of the property.
Tracker Mortgage
A variable rate mortgage that tracks the Bank of England Base Rate plus a fixed margin for a set period.
Transfer
A legal document transferring ownership of a property.
U
Under Offer
The status of a property when an offer has been accepted but contracts have not yet been exchanged.
Underpayment
Paying less than your normal monthly mortgage amount. Some flexible mortgages allow this feature.
V
Valuation
A basic inspection by a surveyor to assess whether a property is worth the price being paid. There are three main types:
Basic Valuation – for lender use only
Homebuyer’s Report – more detailed, highlights obvious issues
Full Structural Survey – comprehensive, for older or unique properties
Variable Rate
An interest rate that can rise or fall, typically linked to the lender’s SVR.
Vendor
The seller of the property.
X
X is for X-ray. But you knew that.