jargon buster

Our jargon buster aims to explain some of the words and phrases you may come across when taking out a mortgage.

APR (annual percentage rate)
By law, all lenders quote the APR as well as their standard variable rate for mortgages. The APR  expresses the total cost of borrowing. It takes account of any interest charged and other costs such as the valuation fee. As a simple example, if during the first year after taking out a £10,000 mortgage you had to pay interest of £1,000 and a valuation fee of £100, the total you had to pay would be £1,100. So the APR would be 11% as the total cost of borrowing (the total charges) would be 11% of the amount borrowed.
This simple example briefly explains the principles behind an APR. It is not meant to be a technical explanation of how an APR is worked out, and a real mortgage involves more expense than interest payments and a valuation fee.

Completion
Whether you are buying a property or remortgaging, completion is when we actually pay over the money we have agreed to lend to you, and you become responsible for making monthly repayments.

Conveyancing
The legal process of transferring ownership of a property from one person to another.

Credit scoring
A method of assessing how likely a person is to keep up their monthly mortgage repayments. It is based on the track record of the particular borrower or borrowers in similar circumstances. We do not use this method of assessment.

Endowment policy
A combined life assurance and investment policy which you can take out at the start of a mortgage to help you repay the loan at the end of the mortgage term.

Equity
If your home is worth more than the mortgage you owe on it, the difference is known as the ‘equity’. For example, if you have a mortgage of £50,000 and your home is worth £60,000 you have equity of £10,000. (Also see negative equity.)

Higher lending charge
A charge we make so we can buy extra security for loans of more than 80% of the property’s value or the price being paid for it (whichever is lower).  This extra security is in the form of a mortgage indemnity. A mortgage indemnity provides cover which would protect our interests if you fell behind with your mortgage payments and we had to take possession of your property and sell it.  If we sold your property for less than the amount you still owed us on your mortgage, we could claim on the mortgage indemnity to recover some or all of our loss.

Initial disclosure document
A document which explains the services we can offer and how we will conduct our relationship with you.

In arrears
Your mortgage account is in arrears if you have failed to keep up the monthly mortgage repayments.

Key facts illustration
An illustration which shows the key features and costs of the particular mortgage you are interested in.

Loan-to-value
The amount of your loan compared to the valuation of the property you want to buy. The loan-to-value is shown as a percentage. For example
• Price being paid for the property: £105,000
• Valuation of the property: £100,000
• Mortgage: £70,000
• Loan-to-value = (£70,000 / £100,000) x 100 = 70%
If you are borrowing more than 80 % of the value of the property, your mortgage would be 'high loan to value'.

Mortgage offer
If we accept your mortgage application, we will send you a mortgage offer, which includes details of the mortgage we will provide, any amounts and charges added to the mortgage, the mortgage term and the conditions of the offer. We can withdraw our offer at any time up to completion. The mortgage offer is an important document which you must read carefully.

Mortgage term
The period over which you will pay off the mortgage and any amounts added to it. This period will be shown in the mortgage offer, and is usually no more than 25 years.

Negative equity
If your home is worth less than the mortgage you owe on it, the difference you have is known as ‘negative equity’. For example, if you have a mortgage of £60,000 and your home is worth £50,000, you have ‘negative equity’ of £10,000. This is only likely to be a problem if you want to sell your home.

Portable
If you move home, the mortgage can be transferred from your old property to your new property, without penalty.

Redemption
Paying off the full mortgage and all amounts added to it.

Remortgage
Paying off one mortgage and taking out another, secured on the same property, with a new lender.

Repayment vehicle
This term is used to refer to an endowment policy, ISA or other investment intended to provide a lump sum to pay off an interest-only mortgage at the end of the mortgage term. As one of the main obligations in an interest-only mortgage is that you will pay back all the money at the end of the term, it is important that you arrange, and maintain, an adequate repayment vehicle.

Retention
An amount of the mortgage held back until all necessary work identified in our valuation has been carried out. When the work has been completed to our valuer’s satisfaction, we will release the retention.

Standard variable rate
This is our standard rate of interest which we will charge on most mortgages at some time during the mortgage term. It is variable, which means it can change.

Valuation
An assessment of the property's value to confirm whether it is suitable to lend a mortgage on.

Your home may be repossessed if you do not keep up repayments on your mortgage.