Mortgage Jargon Buster
The following glossary should help you understand some of the more unfamiliar terms you may come across on our mortgage pages.
A
- Advance
- The actual amount of money we lend you by way of a mortgage.
- APR (Annual Percentage Rate)
- A standard calculation used to show the total cost of a mortgage or other loan. Includes costs such as interest payments, valuation fees, legal fees and administration fees which are not included in the basic interest rate. The APR is the way you can compare the cost of different loans on a 'like-for-like basis'. As mortgage and loan rates vary, so will the APR.
- Arrears
- Mortgage payments which have not yet been paid as requested and have become overdue.
- ASU
- Accident, sickness and unemployment (also referred to as mortgage payment protection insurance - MPPI). This is an insurance policy designed to provide a regular income to pay the mortgage for 12 months, should the borrower become unemployed or be unable to work due to an accident or sickness.
B
- Base Rate
- This is the interest rate set by the Bank of England.
- Base Rate Tracker
- The interest rate is linked to, but may not be equivalent to, the Bank of England base rate. When there is a change to the Bank of England base rate your mortgage payment rate will reflect this (within 14 days).
- Building Society
- A mutual organisation owned by its members
- Building Insurance
- What you must have to protect your property against hazards such as fire, flood and subsidence.
- Buildings Survey
- A valuation which gives you a comprehensive account on the condition of the property. You will receive a technical report describing any defects in the property.
C
- Capital
- In relation to a mortgage, this is the amount of money you borrow.
- Capital Repayment
- A lump sum payment to your mortgage account of £500 or over made in addition to your normal monthly mortgage subscription.
- Cashback Mortgage
- A mortgage product which offers you a cash lump sum (usually paid 14 days after the completion of the mortgage). This may be a lump sum or a percentage of your mortgage advance.
- Collateral/Security
- The property the lender can sell to repay the loan if the borrower does not maintain mortgage payments and falls heavily into arrears.
- Completion
- After you exchange contracts on a property, you will agree a date for completion with all the parties involved. This is the date at which property ownership is legally passed to the buyer, and when the seller must move out and the buyer may move in.
- Completion Fee
- This is a non-refundable fee which covers the processing of your mortgage application and setting up of your account.
- Contents Insurance
- This type of insurance is purchased to cover possessions in your household, in case they are stolen or damaged.
- Contracts
- The legal documents under which the buyer and seller of the property agree terms.
- Conveyancer
- A legal practitioner who deals with the buying and selling of land.
- Conveyancing
- The legal work involved in the buying or selling of land or property. This may be carried out by a solicitor or licensed conveyancer.
- Credit Scoring
- A system used by lenders to assess the credit worthiness of potential borrowers.
D
- Daily Interest
- This means the interest on your mortgage is calculated on the outstanding balance each day so every payment you make immediately reduces the balance on which your interest is calculated.
- Deposit
- This is the amount of money that you pay on exchange of contract as part of your initial contribution to the purchase of your home.
- Disbursements
- The fees your solicitor or licensed conveyancer will incur during conveyancing e.g. search fees and land registry fees. These are added to your overall legal bill.
- Discharge Fee / Mortgage Exit Administration Fee
- A fee charged at redemption of your mortgage.
- Discount Rate
- This kind of mortgage has a variable interest rate, with a discount for a set period at the start of the mortgage. Your rate, and monthly repayment, will vary - up or down - whenever the variable base rate changes, but will always be below the variable base rate for the duration of the discount period.
- Drawdown Facility
- A facility that is a pre agreed loan amount that you can drawdown at any time for any purpose, subject to your credit rating not being impaired, i.e. your mortgage is up to date, you have not had any County Court Judgements registered against you for debt, or have made an arrangement with your creditors or have been declared insolvent or bankrupt. Please note the drawdown facility must be agreed on application.
E
- Early Repayment Charges
- On some mortgages, a charge will be made if part or the entire mortgage is paid off before a pre-agreed date, or to another product or lender. Your mortgage terms and conditions should state if this charge applies.
- Endowment Policy
- A form of savings plan that is designed to pay off your mortgage at the end of the term, or pay off an outstanding mortgage in the event of death. This type of policy could be a repayment vehicle for an interest only mortgage.
- Equity
- The difference between the value of your property and the total amount of borrowings secured against it.
- Essential Repairs
- Work required to be carried out on the property before the mortgage loan can be issued.
- Excess
- A fixed amount of money, which the policyholder agrees to contribute toward the cost of a claim under an insurance policy.
- Exchange of Contracts
- The date at which you agree to exchange contracts to commit to buying a property. Once contracts have been exchanged, you are legally obligated to buy the property. After exchange, a date for the completion of the property purchase can be set.
F
- Feudal
- A form of legal title applicable only in Scotland
- Financial Services Authority (FSA)
- Established by the government under the Financial Services & Markets Act 2000, this is the independent watchdog that regulates financial services.
- First Charge
- Most mortgage lenders will require a first charge. This means that the lender has first call on any funds available from the sales of the property to clear the outstanding mortgage debt.
- First Time Buyer
- An individual who has not previously owned a property
- Fixed Rate
- A type of mortgage where the rate is fixed for a set period of time, thus fixing your monthly repayments for the same period too.
- Flexible Mortgage
- A type of mortgage that allows a degree of flexibility when it comes to repayments. Typically a borrower is allowed to make overpayments, underpayments and take payment holidays.
- Freehold
- Ownership of both the property and the land.
- Further Advance (Home Owners Loan)
- Further borrowing secured against your property, in addition to your initial mortgage advance.
G
- Gazumping
- A term used to describe the action of a seller accepting an offer and agreeing to the sale of their property, only to accept a higher offer before exchange of contracts has taken place.
- Ground Rent
- An annual charge payable by leaseholders to the freeholder.
- Guarantor
- An individual who guarantees to repay your mortgage if you miss any payments due and/or if your mortgage becomes unaffordable. A guarantor can also be an individual that gives you a lump sum of money if you cannot afford to borrow enough to buy your first property initially. Parents, for instance, may act as a guarantor for their children when they buy their first home.
H
- Higher Lending Charge (HLC)
- This is a fee sometimes payable by the borrower to insure the lender against potential loss if a home has to be repossessed or sold.
- Homebuyers report
- A survey on a property, carried out by professional surveyors on your behalf. You will receive a report on the condition of the property, stating any repairs or defects that need attention. A more comprehensive survey is called a full structural survey, which you might decide to carry out on older properties.
- Household Insurance
- A term used to describe both buildings and contents insurance.
I
- Income Multiplier
- This is the way a lender will normally work out how much you can borrow. In most cases it involves multiplying your gross annual salary by the income multiplier offered by the lender.
- Initial Disclosure Document
- This document confirms the type of mortgage service we as a lender will provide. This can be advised, where we offer help and advice, and non-advised, where you decide which product to apply for.
- Initial Interest
- Any payment due for the period from the day the mortgage began up to the first payment date.
- Insurance
- An agreement under which individuals, businesses and other organisations, in exchange for payment of a sum of money (a premium), are guaranteed indemnity for losses resulting from certain events or conditions specified in a contract (policy).
- Interest Only Mortgage
- You only pay interest to your lender throughout the mortgage term and your mortgage balance doesn't reduce. At the same time, you put money into a separate investment which should grow and pay off the mortgage as scheduled. You will still owe capital at the end of the mortgage term. It is imperative that you have a plan in place in order to be able to repay your loan.
K
- Key Facts Illustration
- A Key Facts Illustration (KFI) outlines the key features of the mortgage in a standard format which allows easy comparison with other mortgages.
L
- Land Registry Certificate
- Provides details of the property including a plan and, if the property is leasehold, a copy of the lease.
- Land Registry Fee
- A fee charged to register your details in the Land Registry records once you have bought a property or changed lenders.
- Leasehold
- Ownership of a property for a number of years on lease, after which ownership reverts back to the freeholder.
- Lender
- The bank/building society where you have your mortgage
- Lessee
- The person to whom a lease is granted - the tenant.
- Lessor
- The person who grants a lease - the landlord.
- Licensed Conveyancer
- An alternative to using a solicitor, they specialise in property ownership transfer.
- Life Assurance
- A type of insurance by which someone's life is insured. These policies can run alongside a mortgage, so that the mortgage is repaid in the event of the insured's death before the end of the term.
- Loan to Value
- The amount of mortgage expressed as a percentage of the value of the property or purchase price, whichever is lower. For example, a mortgage of £80,000 on a purchase price of £100,000 would be 80% LTV. You can usually borrow up to 85% LTV although this may vary on certain products.
- Local Authority Search
- Part of the conveyancing process when you buy a property. It gives details of any matters which, from the local council's point of view, affect the property. It reveals any proposed changes to the local area, such as road improvements, and details any planning permission given for the property.
M
- Member
- Anybody who has a qualifying account such as savings or a mortgage with the Newcastle. Our customers are 'members' because we are a mutual society.
- Mortgage
- A loan used to purchase a house. The loan is secured on the house and is normally paid off over a fixed term.
- Mortgagee
- The lender
- Mortgagor
- The borrower
- Mortgage Advance
- The actual amount of money we lend as a mortgage
- Mortgage Deed
- The legal document by which the lender secures the loan against the borrower's property.
- Mortgage Term
- The length of time over which you agree to repay your mortgage
- Mutual Organisation
- A term for an organisation that is owned by its members, such as building societies, friendly societies and some life insurers. Mutual societies do not have shareholders like public limited companies, so any profits in a society are used for the benefit of its members only.
- Mortgage Protection
- If you have a repayment mortgage you should consider some form of mortgage protection insurance to ensure that you are covered in the event of critical illness or death. Similarly, if you have taken an interest only mortgage and do not have existing life cover, you should also consider level term mortgage protection.
N
- Negative Equity
- This is when the amount you owe on a mortgage is greater than the value of your property.
- NHBC Guarantee
- A 10-year guarantee provided by the National House Building Council, that the builder will put right serious defects on a newly-built property.
O
- Overpayments
- When you pay more than your normal monthly payment, to allow you to pay off your mortgage earlier.
P
- Payment Holiday
- On some products you can arrange to stop making mortgage payments altogether for a limited period agreed with the lender, up to your agreed borrowing limit.
- Payment Protection Insurance
- Insurance which pays your monthly mortgage payments, usually for a specified period, if you lose your income through sickness, injury or unemployment.
- Pension Plan
- An investment plan which can provide a lump sum and an income after retirement. A pension plan can be used as a way of providing a lump sum to repay the capital of an interest only mortgage.
- Portable Mortgage
- If a mortgage is 'portable', it can be transferred from one property to another.
- Premium
- Amount you pay on a regular basis, usually for an insurance policy.
- Purchaser
- The term used by estate agents, solicitors and lenders for the buyer of a property.
R
- Redeem/Redemption
- To pay off the outstanding balance of a mortgage
- Remortgage
- Transferring your mortgage from one lender to another without moving house is known as 'remortgaging'.
- Repayment Mortgage
- Your monthly payments gradually pay off your mortgage as well as the interest so at the end of the mortgage term your mortgage is fully repaid.
- Repayment Vehicle
- A savings plan such as an endowment policy, an ISA, or a pension which is designed to repay the balance of a mortgage at the end of its term.
- Reservation Fee
- Occasionally, an arrangement fee is charged to reserve a particular mortgage product. This fee is non-refundable.
S
- Sealing Fee
- A fee charged by the lender for sealing your deeds.
- Searches
- Checks carried out during the conveyancing process to determine any planning proposals or other matters which might affect the future salability of the property. Another search is carried out after the exchange of contracts to check that the borrower is not bankrupt.
- Special Report
- A report required by the lender into particular defects discovered at the property to be purchased, such as dry or wet rot, damp, etc, before they will agree the mortgage
- Standard Variable Rate
- The variable base rate is the basic rate of interest charged on a mortgage. This may change in reaction to market conditions resulting in your monthly repayments going up or down.
- Structural Survey
- A comprehensive survey carried out by a professional surveyor on your behalf, to thoroughly examine the condition of a property.
- Subject to Contract
- The phrase used before exchange of contracts which allows either party to withdraw without incurring a penalty.
- Sum Assured
- The amount paid out on the death of a policy holder.
- Surveyor/Valuer
- The person qualified by the Royal Institution of Chartered Surveyors or the Incorporated Society of Valuers and Auctioneers to carry out valuations and surveys of properties.
T
- Term of Mortgage
- The number of years over which it is agreed that the mortgage will be paid back.
- Tie in Period
- The period of time you would need to remain on certain mortgage terms to avoid an early repayment charge.
- Title Deeds/Title Documents
- Documents to show proof of ownership.
- Tracker Rate
- Tracker rates vary in line with changes to the Bank of England base rate. During the tracker rate period, any changes to the Bank of England base rate are passed on to you in full.
- Transfer Deed
- The document that transfers the ownership.
U
- Underpayments
- On some mortgages you can arrange to pay less than your normal monthly subscriptions for a limited period, up to your agreed borrowing limit.
V
- Valuation
- This is the basic assessment that is carried out on a property. It enables the Newcastle to decide whether to lend on the property by assessing its condition and likely value. This basic valuation is for the lenders benefit only. We would recommend that you have a more detailed survey such as a homebuyer's report or a full structural survey.
- Variable Rate
- The variable rate is the basic rate of interest charged on a mortgage. This may change in reaction to market conditions resulting in your monthly repayments going up or down.
- Vendor
- The term used by estate agents, solicitors and lenders for the seller of a property.