Mortgage jargon made simple

Arrangement fee

This is a fee you pay to the lender to secure a particular mortgage deal.

Annual Percentage Rate of Charge (APRC)

The APRC is an annual percentage which shows the total cost of the mortgage, including the product interest rate and other charges, like arrangement and valuation fees. As all lenders have to provide an APRC, this is a useful way to compare mortgage products from different lenders.

Bank of England Base Rate

The interest rate set by the Bank of England which is used by lenders to set their mortgage rates.

Completion

On completion day, your new mortgage starts. If you are buying a new property, this is when you’ll get the keys to your new home and the ownership of the property transfers from the seller to you.

Credit rating or score

This is an electronic points rating which is determined by how you have historically conducted any credit, for example, loans, credit cards and mortgages. If you’ve kept up repayments on any credit you’ve had, you’ll usually have a higher credit rating. If you’ve failed to meet any payments, or, say, have a default or a CCJ, your credit rating is likely to be lower.

Early repayment charge (ERC)

This is what you may have to pay if you fully or partially repay your mortgage early. The amount of the Early Repayment Charge is shown in your Mortgage Illustration.

The amount of any Early Repayment Charge will be displayed on your Mortgage Illustration, which you’ll receive if you apply for a mortgage.

Equity

The difference between the value of the property and the amount of any loan secured against it.

Fixed rate

With a fixed rate mortgage, your interest rate is fixed for an agreed period. Your monthly payments will stay the same and you’ll know exactly how much you’re going to pay each month for a set amount of time regardless of any changes to interest rates.

Interest-only

With interest-only, you pay interest over the life of the mortgage and pay off the amount you have borrowed as a lump sum from a suitable repayment strategy, such as an investment plan, at the end of the mortgage.

Loan to Value (LTV)

This is the mortgage amount as a percentage of the lower of the property value or purchase price.

Mortgage Illustration

This document shows all the key information you need when choosing a mortgage, including the monthly mortgage payment, APRC, product information and details of any fees. Legally, different lenders must issue Mortgage Illustrations in the same format so you can use them to compare different mortgages easily.

Offset mortgage

An offset mortgage allows you to ‘offset’ your savings against your outstanding mortgage balance to help you save money. Here, you can use your savings to save interest, rather than earn it, and you could end up repaying your mortgage sooner. The interest is calculated using your mortgage balance less the savings held in your offset savings and current accounts.

Porting your mortgage

This is the process of transferring your existing mortgage product to a new property. When you port your mortgage, you may require additional borrowing and for this you may require an additional mortgage product.

Repayment

With a repayment mortgage, each monthly payment you make consists of two parts, interest on the loan and repayment of part of the capital of the loan. With this type of mortgage you gradually pay off the amount you have borrowed, as well as the interest, over the term of the mortgage.

Remortgage

This is where you transfer your existing mortgage to a different lender. You may also be able to increase the amount of your mortgage to raise money for other purposes, for example, home improvements.

Standard Variable Mortgage Rate

The standard variable mortgage rate is set by your current provider, which you could pay if you do not switch to a new deal when your existing product deal ends.

Term

The length of time over which your mortgage is to be repaid.