Getting your first (or even your third) mortgage can be confusing if you don’t understand the technical language banks and financial professionals use.
In order to get the best deal, after all, you have to know what to ask for, and what to avoid! Here is a brief guide to some of the more important pieces of UK mortgage jargon:
This stands for Annual Percentage Rate. It is the overall cost of the mortgage, including all fees and interest you will pay, over the full predicted length of the agreement. A lower APR will almost always cost you less than a higher one for the same loan amount.
Agreement Fee, Booking Fee, etc.
These fees represent the cost for setting up the mortgage itself. They may be either payable immediately or rolled into the total amount you owe.
Base Rate/Standard Variable Rate
The base rate is set by the Bank of England, to guide the interest rate of loans in general. A standard variable rate mortgage will have an actual APR that goes up or down as the base rate does, usually with a substantial percentage added on to the base Rate.
Buy-to-let properties are bought specifically to be let or rented out to tenants. The market for buy-to-let properties is different from that for ‘residential mortgages’, and will often have different interest rates and other terms.
An early repayment charge (ERC) is added to what you owe if you pay off your mortgage earlier than agreed (thereby paying less total interest).
A capped rate mortgage has a variable rate (as above) but it will never be higher than the capped rate quoted in the terms, no matter how high the base rete becomes.
The opposite of a capped rate, if your mortgage has a collar, its interest rate will never fall below that amount.
Going Into Arrears
To go into arrears means to miss one or more scheduled mortgage payments. It can have serious financial consequences.
Help to Buy
The UK government operates several different help to buy schemes, designed to kae it easier for people to buy homes.
Joint mortgages allow two or more people to buy a property together, and be boud to repay the mortgage. The mortgagees could be friends, partners, parents and children, or nearly anything else.
This is the amount you agree to pay your lender each month.
Mortgage brokers are essentially salesmen, who receive a commission for signing people up for mortgages. Whilst they may be able to setter you towards excellent deals, be aware that they may also steer you towards those that pay the highest commission to them.
Offset mortgages use your savings, or occasionally your current account, to ‘offset’ your mortgage debt, and you only pay interest on the lower ‘offset’ amount.
The stamp duty is a land tax which must be paid when you buy a first home for more than £25,000, or a second or buy-to-let home for more than £40,000.
Of course, there are hundreds more terms that could affect your mortgage, more than we can go in to here. Make sure you understand the terms of any contract you sign, even if that means a delay whilst you research the terms used. Good online resources for doing your own research include Investopedia, the Financial Times Lexicon and the Plain English Campaign’s A to Z of Financial Terms.