Mortgage Glossary

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All in one mortgage
An all in one mortgage links your savings and / or your current account to your mortgage. There are two types of all in one mortgage available: The Offset mortgage and the current account mortgage.

APR - Annual percentage rate
This is the full average cost of the mortgage per year including all additional expenses and taking into account discounts and the remaining length of the mortgage term. The APR takes into account the time left on the loan and so reflects more accurately the 'real' cost.

Arrangement fee
This is charged to the borrower from the lender for arranging their mortgage, usually on completion of the deal. Some lenders offer this free of charge to attract new customers.

Bad credit mortgage
(Non-standard mortgage - Click for explanation)

Bank
A bank is a financial institution that holds large values of liquid assets provided by deposits. These deposits are invested in the stock market in order to accumulate interest and so increase the value of the banks’ assets. Banks receive, safeguard, lend and invest the publics’ money, businesses money and foreign investors’ money. Banks use their large accumulation of money to provide the government, businesses and the public with loans, which are repaid to the bank with interest.

Base rate tracker
(Type of interest rate - See interest rates explained for detailed definition)

Bridging loan
A short-term loan provided by a lender usually to pay for the purchase of a new property while the currently owned property is not yet sold. This loan “bridges the gap” between the sale of the two homes in the housing chain and enables the purchase arrangement to conclude conveniently. Bridging loans are also used in conjunction with self-build mortgages in order to fund a phase of construction while the self-builder waits for the stage payment from their mortgage lender. For the convenience of this loan the interest charge is generally high.

Broker (Mortgage broker)
A mortgage broker is an intermediary that offers mortgage products from a number of different lenders. Mortgage brokers bridge the gap between potential borrowers and particular lender’s products. Broker services include mortgage advice and mortgage arrangement. Some brokers can offer both these services, and some offer just one or the other.

Mortgages are very complicated, and there are a huge variety of products available. There are many lenders and they each offer different mortgage products. A broker cuts out the hassle of finding a mortgage whilst lowering your risk of getting a bad deal.

For their service brokers either charge a one off brokers fee, which may be a percentage of the mortgage. Some brokers charge a commission to the lender for generating them custom.

View the mortgage brokers listed in the mortgage broker directory.

Building Society
A building society is a mutual organisation owned by its members not by shareholders. Members are the people who save with and borrow from the building society. Building societies do not pay dividends to shareholders so they can pass this saving on to members. However building societies are regulated by the Building Societies Commission who restrict their lending criteria, meaning building societies often have more limited product ranges than banks.

Buy to let mortgage
(Type of mortgage - click for explanation)

Capital gains tax (CGT)
This is paid on a profit attained upon sale of an asset. A capital gain is earned when an asset (usually shares) is sold for a higher price than it is bought for. CGT is likely to have to be paid when an endowment is sold in order to pay the mortgage capital at the end of the mortgage term.

Cash-back mortgage
(Type of mortgage - see types of mortgage for detailed definition)

Capped interest rate
(Type of interest rate - See interest rates explained for detailed definition)

Commercial mortgage
(Mortgage used for commercial property investment - click for full explanation)

Current account mortgage
(Type of mortgage - see types of mortgage for detailed definition)

Current market value
The maximum price a buyer would spend on a property and the minimum price the seller would accept for their property at this present moment. This is not the value a house could potentially be sold at, it is the estimated price a property would be sold for at the present moment.

Debt consolidation
The transferral of several outstanding debts into one loan. Click to read more.

Deferred rate mortgage
(Type of interest rate - click for full explanation)

Deposit
The amount of money the borrower contributes towards the property up front. For example: A £20,000 deposit on a £100,000 property would be a (20,000 / 100,000) x 100 = 20% deposit.

Discounted interest rate
(Type of interest rate - See interest rates explained for detailed definition)

Drop-lock mortgage
A drop-lock mortgage allows the borrower to start their mortgage with a discounted interest rate and transfer to a fixed rate without incurring a charge. This means that you can enjoy a variable discounted rate when the base rate is low, but if you suspect a rise in the base rate you can agree a fixed rate with your lender in order to avoid a rise in your mortgage repayments. This makes it easier to budget.

Early redemption penalty
This is a charge for ending a mortgage before the agreed term has ended. This can be charged if a borrower pays the mortgage off earlier than agreed in the contract, of if the borrower remortgages with another lender. Some contracts might include time periods where the charges for ending the contract are larger than normal. This is known as a higher early redemption penalty.

Endowment mortgage
(Type of investment vehicle - see investment vehicles for detailed definition)

Equity
See Equity Release mortgage for detailed definition.

Fixed interest rate
(Type of interest rate - See interest rates explained for detailed definition)

Flexible mortgage
(Type of mortgage - see types of mortgage for detailed definition)

Gazumping
Gazumping occurs when someone selling a property accepts an offer and later accepts a higher offer from someone else before they have exchanged contracts. The original offer is said to have been gazumped.

Inflation
This describes a sustained increase in average price levels over time. Inflation is caused by sustained excess demand for products and services without a counteracting increase in supply. The excess in demand causes the market price of goods to increase. The most common form of inflation is cost-push inflation. This is basically caused by employees who demand a pay rise when they have not become more productive. The result is that businesses must put their prices up in order to maintain their profit margins.

Interest only mortgage
(Type of mortgage - Click for explanation)

ISA mortgage (Individual savings account mortgage)
(Type of investment related mortgage - see investment vehicles for detailed explanation)

Lender (Mortgage lender)
Mortgage lenders are financial institutions that lend money to people so they can buy a property that they cannot yet afford, but should be able to by the end of a mortgage term. Lenders have access to massive quantities of money generated in several ways. They invest this money in stocks and shares in order to accumulate more money through dividends and maturity of stock value. They also make money in other ways, such as charging interest on their loans.

Common lenders are the high-street banks and building societies, but there are also specialist lenders who cater for non-standard cases such as bad credit history.

View the mortgage lenders listed in the lenders directory.

Lien
A term usually only used in the US to describe a legal claim against property that must be repaid in full when the property is sold. If the debt is not repaid as agreed in the contract the lien holder (lender) is legally entitled to take possession of the property and sell it in order to cover the outstanding debt.

Let to buy mortgage
Also known as let and buy mortgage. (Mortgage used to finance new property purchase using rental income made from letting previous home - click for full explanation)

Lifetime mortgage
See equity release mortgage.

Loan to Value (LTV)
The amount of loan to be obtained in ratio to the current appraised value of the property. For example: If the mortgage was £80,000 and the property value was £100,000, the LTV would be (80,000 / 100,000) x 100 = 80%.

Loan Capital / Mortgage capital
This is the amount of money currently still owed on the mortgage.

Low start mortgage
(Type of mortgage - click for explanation)

MIRAS (Mortgage Interest Relief at Source)
An old government scheme that provided tax relief for mortgage holders. MIRAS was abolished in April 2000.

Mortgage
See article: What is a mortgage?

Mortgage term
This is the length of time a mortgage is to be repaid over according to the lenders contract. Most mortgage terms are around 25 years. Some mortgage terms are flexible allowing the borrower to pay the mortgage off early.

Mortgage equity withdrawal (equity release)
See Equity Release mortgage for detailed definition.

Mortgage indemnity premium
Otherwise known as mortgage indemnity guarantee. Insurance sometimes required by mortgage lenders to cover against property repossession. Usually associated with high loan to value mortgages.

Overhanging redemption penalty
An overhanging redemption penalty is a redemption penalty that still applies after an agreed term has ended. For example: a borrower is paying a fixed interest rate for 4 years and there is an overhanging redemption penalty associated with it. If the borrower leaves the mortgage after those 4 years have ended, within a time period associated with the overhanging redemption penalty, they will still be charged.

Offset mortgage
(Type of mortgage - see types of mortgage for detailed definition)

Personal pension plan
(Type of investment vehicle - see investment vehicles for detailed definition)

Portable mortgage
A portable mortgage can be transferred to another property without the borrower incurring an early redemption penalty. This type of mortgage is usually associated with discounted, fixed, capped and tracker interest rates offered as incentives for limited terms.

For example, if a discounted interest rate was fixed for the first 4 years of the mortgage term, but the borrower moved home after 2 years they would usually incur an early redemption penalty for ending the mortgage early. If the mortgage had a portable feature the borrower could move house and continue the discounted rate period for the remaining 2 years in the new property.

Remortgage
(Process of transferring mortgages - click for full explanation)

Repayment mortgage
(Type of mortgage - click for explanation)

Right to buy mortgage
(Type of mortgage - click for explanation)

Save as you earn
Investing a portion of your monthly earnings into your companies’ shares at a discount price (probably around 20% discount). The interest received is tax-free and the investment could mature to a value that could repay your mortgage at the end of the term.

Second mortgage
(Additional mortgage used to raise finance fom the positive equity in a property - click for full explanation)

Self build mortgage
(Type of mortgage - click for explanation)

Standard variable rate (SVR)
(Type of interest rate - See interest rates explained for detailed definition)

Stocks and shares
Stocks and shares are forms of loans used by the government and public limited companies (PLC's) to raise finances. They are released for sale on the stock exchange. The main buyers of stocks and shares are financial institutions such as insurance companies, but private investors may also buy stocks and shares. If you own shares you own a part of a company, and you will receive dividends if that company chooses to pay them. There are various forms of shares, some more risky than others. Generally the more risky, the more money you can potentially earn from shares.