Top 10 mortgage buzzwords explained
New to the home buying arena? Mortgage jargon, abbreviations and buzzwords can confuse even the most prepared first time buyer.
With so many options and considerations to bear in mind, applying for a mortgage can become extremely daunting. To help smooth the process, we’ve pulled together the top 10 mortgage buzzwords to see you through the application process.
1. Agreement in Principle (AIP): You will receive an AIP from your mortgage lender to confirm that you are able to borrow a certain amount, in order to prove that you can afford to buy the property that you have put an offer on.
2. Annual Percentage Rate (APR): The APR is a representative interest rate designed to help you compare mortgages. It takes into account both the introductory rate of interest that you pay, plus the rate you pay when you finish your initial fixed, tracker or discount period.
3. Arrears: Going into arrears means that you have missed payments on your mortgage. You should contact your mortgage provider immediately if you think you may miss a payment.
4. Capital: The total amount of money left to pay on your mortgage.
5. Early Repayment Charges (ERCs): If you would like to pay-off or switch your mortgage provider within a specified time period, known as the ‘tie-in’ period, then you will be charged a fee. Check your mortgage agreement for the exact costs outlined by your provider.
6. Equity: This is the amount of the property that you own outright, ie. the deposit and your mortgage payments so far.
7. Flexible Mortgage: This type of mortgage allows you to overpay, underpay of even take a ‘payment holiday’ on your mortgage. This could help you save money on interest, if you pay your mortgage off early, however they can be more expensive than conventional mortgages.
8. Interest-Only Mortgage: You only pay the interest on your mortgage each month, without paying any of the capital. You then pay off the capital at the end of your mortgage term.
9. Loan-to-Value (LTV): The percentage of your mortgage compared to your property’s value. So, if your deposit was 10%, then your LTV is 90% when you first take your mortgage.
10. Tracker Mortgage: The interest rate on your mortgage tracks the Bank of England base rate and adjusts your interest rate accordingly. Tracker rates do not match the rates they track, but rather are set at a ‘margin’ above it – so for example, if your margin is set as 1.00% and the base rate is 0.5%, then your interest rate would be 1.50%.