Trying to understand the jargon when it comes to mortgages can be a challenge in itself. The team here at Ken Regan Financial Services Ltd prides ourselves in our dedication to customer service, always speaking to you in a language that you understand to make getting a mortgage, or simply receiving some mortgage advice, easier. Here’s a glossary of some commonly used mortgage terms to help you out when it comes to all things mortgages.
The fee charged by some mortgage lenders to process a mortgage.
Annual Equivalent Rate (AER)
This is the yearly rate of interest.
Annual Percentage Rate (APR)
A lender is always required to quote the Annual Percentage Rate (APR) when advertising a loan or the borrowing rate, and its purpose is to help you compare the true cost of borrowing. The APR calculates the total amount of interest that will be paid over the entire period of the loan.
Annuity (or Repayment)
A mortgage can also be referred to as a capital and interest mortgage (the most common type of mortgage), where the monthly repayment consists of an amount to repay the capital (original loan amount) plus an amount towards the interest that is charged to the mortgage account.
This is the amount of money as shown on your bank statement in your bank account at any given time.
Bank Fees & Charges
Account fees may be incurred for the processing of transactions on your account, and also for the maintenance of your account. Service charges relate to costs for additional services associated with your account such as bank drafts, duplicate statements etc.
If you break the terms of a fixed interest rate loan agreement, this may incur a cost to the bank which you may have to pay.
A financial adviser offering advice on the range of mortgage, deposit and investment products available from various lenders.
Buy-to-Let / Investment Mortgage
A mortgage loan for a property that will be let by the borrower to tenants as a source of income and investment. This mortgage loan may have different conditions than those applicable to owner-occupier loans.
This is the money saved, invested or borrowed by someone before interest or loss.
The security for a loan is sometimes described as collateral. In the case of a mortgage loan, the property being purchased is considered the primary collateral for the loan and the borrower will be liable for any shortfall if the property is sold for an amount less than the outstanding loan, including any accrued interest, charges and legal, selling and other related costs if this is the case.
Cost of Credit
This is the difference between the amount you borrow and the total you will repay by the end of the loan period.
Money paid by the bank to you in return for the deposit of funds, expressed as an annual percentage of the amount of the funds.
The rating that lenders put on borrowers and banks based on their credit worthiness.
This is where the bank obtains credit references from a credit reference agency or agencies to enquire about your credit history. This may influence your ability to obtain credit.
This is the amount you pay to borrow money and is added to the loan or overdraft. The rate is the amount charged.
This is the sum of money paid to the seller on exchange of the contract for the purchase of property. This is subject to forfeit if the purchaser does not complete the transaction. A deposit can also be the sum of money invested in one of the bank’s savings products.
This is a type of savings account on which interest is paid. There are no cards or cheque books available with this type of account.
Any decrease in the value of a property.
This is a service for making payments from the payer’s account which are initiated by the payee on the basis of the payer’s consent.
An initial discount off the original interest rate, typically for a period of one or two years.
ECB (European Central Bank)
The European Central Bank is the central bank for Europe’s single currency, the euro.
The difference between what a home is valued at and the outstanding mortgage debt.
First Legal Charge
A mortgage lender takes a First Legal Charge on the property being purchased which means that if a borrower defaults on mortgage repayments and the property is sold to repay debts etc, the mortgage lender will be the first party to receive any proceeds of the sale.
A guarantor is a person other than the borrower who guarantees loan repayments.
Some of the risks your home may be subject to include damage by fire or flooding, burglary or someone injuring themselves on your property. Taking out insurance can cover you for some of these risks.
IBAN (International Bank Account Number)
This is a unique number for your account which, along with your Bank Identifier Code (BIC), is required for international transactions, particularly – but not exclusively – in Europe.
Letter of Offer
Once a mortgage application is approved, a formal Letter of Offer is sent to the borrower setting out the conditions of the loan. The borrower’s solicitor will also receive a copy with a request to proceed with the legal formalities.
Lodgement (A Credit)
An amount of money paid into your bank account.
Loan to Value (LTV)
Loan to Value is shown as a percentage and represents the relationship between the size of the mortgage loan and the value of the property. For example, a mortgage of EUR 90,000 on a property valued at EUR 100,000 would be shown as 80% Loan to Value.
A long-term loan, usually twenty to thirty-five years, secured by a mortgage against the borrower’s property (refer to First Legal Charge).
The length of time permitted by the bank to make the full repayment of the mortgage loan.
The lender providing the mortgage loan.
The person who takes out the mortgage loan i.e. the borrower.
This is where investors’ money is used to purchase units/shares in an investment fund and the monies are invested in a variety of investments such as properties, stocks and shares.
When the value of the property has fallen below the outstanding mortgage debt.
National Sorting Code (NSC)
This is a unique number to identify your bank and branch for domestic payments.
Payment Protection Insurance
This is designed to cover your repayments on a loan / mortgage / credit card if you suffer from an accident, illness, death or redundancy.
This is the sum of money borrowed from the lender – generally what is owed, but not including the interest. It is also known as capital.
This occurs when a mortgage loan is paid in full – including interest to date and all charges. This usually occurs when moving to another property, or when the end of the mortgage term is reached, e.g. if the mortgage is at a fixed interest rate and is paid off in total before the end of the mortgage term (refer to Breakage Costs).
Referral Item Charges
These charges apply when cheques, withdrawals, direct debits and standing orders are presented for payment on your account and, when paid, place the account in an unauthorised overdraft position.
Repayment Breaks allow the borrower to spread monthly repayments over a shorter number of months, for example, ten months instead of twelve, or postpone repayments for a time, for example, three months.
A process whereby the mortgage loan due to one mortgage lender is repaid by a new mortgage loan issued by a new mortgage lender, usually also requiring a new mortgage over the property.
The amount of money, in the form of interest that a customer receives when they save money.
Residential Investment Property (RIP)
A property that is not occupied by the owner, usually purchased specifically to generate profit through rental income and/or capital gains.
The possibility that the investment will not yield any/as much return as expected or hoped for.
Also referred to as collateral, security is an asset(s) belonging to you which you have assigned to the bank. The bank has the right to sell or apply the asset(s) towards payment of the debt in the event that you default on the borrowing. The normal practice is that the borrower will have to repay any shortfall if the sale of the asset does not repay the loan in full (including costs and fees).
Single Euro Payments Area (SEPA)
SEPA will create a single, transparent payment market for domestic and international euro transactions. Individuals can make an electronic payment to any recipient located in the SEPA zone from their bank account using the BIC and IBAN reference details to identify the recipient’s account.
Split Rate Mortgage (SRM)
An SRM is a mortgage in which a proportion of the mortgage loan is set at a fixed interest rate – the remainder is set at a variable interest rate. In the event of an interest rate change, only repayments on the variable portion of the mortgage loan will be affected.
Standard Variable Rate
A standard variable rate is a variable rate set by the lender and may change at any time at the lenders discretion.
This is an instruction from you to the bank to pay a specified amount from your account at regular intervals to the account of a specified payee.
A bank statement is a record showing lodgements (credits) and withdrawals (debits) on your bank account. They can be paper-based or electronic, depending on your preference.
Tax Relief at Source (TRS)
Tax relief is available for home mortgage interest in certain circumstances. The tax relief is granted at source and is administered by the lender. The lender either reduces the mortgage repayment by the amount of the tax relief, or a credit is lodged into the account from which the repayments are made. This applies in respect of a main residence only.
Term of Loan
The agreed period of time for the customer to make full repayment of the loan.
Legal documents that provide evidence of a person’s ownership of a property.
An additional amount of money lent to an existing borrower, increasing the amount owed of the existing loan.
Top-Up Mortgage Loan
This is an additional mortgage loan given by the lender to an existing borrower on the same mortgage security. The mortgage loan ‘tops up’ an existing mortgage to a higher level.
Tracker Rate Mortgage
This is a mortgage that is set at a fixed percentage or ‘margin’ above the European Central Bank (ECB) rate.
A survey that can be requested by lenders so as to provide an independent professional valuation of the property.
This is an interest rate that may rise and/or fall over the period of the borrowing.