Mortgage Jargon Buster
Welcome to the ultimate mortgage jargon buster, your go-to guide for demystifying the many terms you’ll encounter during the mortgage process.
Whether you’re reviewing your first mortgage application, preparing for mortgage repayments, or comparing variable rate mortgage products, this guide will help you understand what mortgage lenders require and what each term means for your finances.
A
Advance
This is a mortgage loan, the funds your mortgage lender provides toward purchasing the property.
The advance covers both the property and the land and forms the basis of your mortgage repayments, which include both the interest payment and capital repayment if you choose a repayment mortgage.
Agreement in Principle
An Agreement in Principle (AIP), also called a Mortgage in Principle (MIP) or Decision in Principle (DIP), is a preliminary agreement showing you’ve passed basic affordability checks.
It gives you an idea of how much you might borrow based on your income, credit, and deposit, helping you approach estate agents with confidence and secure your desired purchase price.
Arrangement Fee
This one-off fee, sometimes called a product fee or set-up fee, applies to some mortgage products. It can be paid upfront or added to the total balance outstanding on your loan.
This fee affects the annual percentage rate of charge (APRC) and ultimately the cost of your mortgage deal over time, making it essential to compare your options carefully.
APRC (Annual Percentage Rate of Charge)
The APRC represents the total cost of the loan expressed as an annual percentage, helping you compare deals between lenders.
It includes the mortgage interest rate, fees, and charges, and assumes you stay with the same lender for the full mortgage term, even after the initial mortgage deal ends.
Arrears
If you fall behind on your monthly mortgage repayment, you’re considered in arrears.
Falling into mortgage arrears may result in additional fees and can impact your credit standing, so it’s important to contact your lender if you experience payment difficulties.
B
Base Rate
The Bank of England’s base rate is the key interest rate that influences tracker mortgages and many lenders’ standard variable rate (SVR).
When the BOE base rate changes, your variable rate mortgage payments may change too, affecting how much you pay each month.
Broker
A mortgage broker helps you navigate the legal process, explains mortgage jargon, and compares offers across multiple mortgage lenders.
Using a broker ensures you choose the right mortgage product based on your personal financial situation, including the loan to value (LTV) and the repayment structure.
Buildings Insurance
A required insurance policy covering the cost of rebuilding your home if damaged by events like fires, storms, or floods.
Mortgage lenders require buildings insurance in place by exchange of contracts, and sometimes it’s bundled with contents insurance for additional savings.
C
Capital and Interest Mortgage
Also called a repayment mortgage, this means your monthly payment covers both the interest due and part of the capital you owe.
This structure gradually reduces your total balance outstanding over time, unlike an interest-only mortgage, where only the interest is paid.
Cashback
A bonus offered by some lenders, usually paid upon completion, that can help cover legal costs or moving expenses.
Cashback may slightly affect the annual percentage rate on your mortgage, so it’s important to weigh the true value.
CHAPS Fee
A small administration fee payable when the lender transfers the mortgage funds to your solicitor or conveyancer.
This fee is usually due right before completion and is separate from the product fee or arrangement fee.
Charge
The legal claim your lender places on your property to secure the mortgage loan.
This ensures the lender’s rights over the property in case of default or arrears.
Completion
The exciting moment when the property purchase finalizes, the mortgage funds transfer, and the buyer takes ownership.
This day marks the official start of your mortgage repayments.
D
Debt Consolidation
Combining multiple debts, such as loans or credit cards, into a single mortgage loan, potentially simplifying repayments and reducing overall interest payments.
A debt consolidation mortgage must be approached carefully, as it increases the secured debt against your home.
Decision in Principle
Also known as a Mortgage in Principle or Agreement in Principle, this certificate gives you an idea of how much you can borrow, helping you search for properties within budget and speeding up your mortgage application process.
Deposit
The upfront sum, usually from savings or sometimes gifted by a family member, that contributes toward the property purchase price.
The required mortgage deposit varies by lender but often affects the available mortgage interest rate and loan-to-value band.
Disbursements
Various upfront costs paid during the conveyancing process, including local authority searches, drainage reports, and land registry checks.
These costs are part of the legal process of buying a home.
E
Early Repayment Charge (ERC)
A fee you pay if you repay your mortgage loan early, particularly during a fixed rate period or special offer window.
The ERC can significantly impact your finances, so check your mortgage offer and European Standardised Information Sheet (ESIS) carefully.
European Standardised Information Sheet (ESIS)
Also called a Key Facts Illustration, this document details the key terms, mortgage interest rate, and fees of your recommended product.
It’s crucial to review before submitting a full mortgage application.
Equity
The difference between your property’s value and the mortgage balance owed.
Negative equity occurs if your home’s value falls below the outstanding mortgage, which can limit remortgage or sale options.
Exchange of Contracts
The point where contracts are exchanged between buyer and seller, making the transaction legally binding.
A deposit, often 10% of the purchase price, is transferred at this stage.
F
Fixed Rate Mortgage
A mortgage where the interest rate stays the same for a set period, providing predictable monthly payments regardless of Bank of England base rate changes.
After the fixed period, you typically move to the lender’s standard variable rate (SVR).
Freehold
A type of property ownership where you own both the property and the land indefinitely, giving you full property ownership rights unless sold or transferred.
Full Structural Survey
A detailed property inspection covering structural integrity, plumbing, electrics, and more, often used for older or unique homes. Get a quote here.
G
Gifted Deposit
Funds given by a family member or sometimes a friend to help with the mortgage deposit.
Most lenders require confirmation that this money is a gift, not a repayable loan.
Guarantor
A third party, usually a parent or family member, who agrees to cover the mortgage payments if the borrower cannot.
This can help first-time buyers secure borrowing even on a lower income.
H
Help to Buy
Government schemes designed to support homebuyers, including the Help to Buy Equity Loan, which can reduce the loan to value (LTV) ratio and improve your mortgage affordability.
Home Buyers Report
A mid-level property inspection, offering an overview of the property’s condition and flagging any potential issues before purchase.
I
Income Protection
An insurance policy replacing lost income due to sickness or accident, helping ensure you can cover your mortgage repayments even if you can’t work.
Initial Benefit Period
The special deal period at the start of a mortgage, such as a two- or five-year fixed rate.
Once the initial mortgage deal ends, you typically revert to the lender’s standard variable rate.
J
Joint Tenants
A type of shared property ownership where all parties have equal rights to the whole property, and ownership passes automatically if one owner dies.
Joint Borrower Sole Proprietor (JBSP) Mortgage
A mortgage setup allowing multiple people to contribute to the loan without sharing property ownership.
Often used by parents helping children buy a home.
K
Key Facts Illustration (KFI)
Also called an ESIS or Mortgage Illustration, this document outlines key details like the interest rate payable, fees, and repayment terms before submitting your mortgage application.
L
Loan to Value (LTV)
The percentage of the property’s value covered by the mortgage loan.
A lower LTV often qualifies for better interest rates and reduces the lender’s risk.
M
Mortgage Term
The length of time you agree to repay the mortgage loan, typically 25–30 years. Your monthly mortgage repayment includes both the capital and interest payment if you choose a repayment mortgage.
N
Negative Equity
When the value of your home falls below the amount you owe on the mortgage, potentially complicating sale or remortgage options.
O
Overpayment
Paying more than your normal monthly mortgage payment, either regularly or as a lump sum, which reduces the overall loan balance and total interest paid.
P
Porting
Taking your existing mortgage deal to a new property when moving home. Porting helps you keep a good interest rate and avoid an early repayment charge.
R
Remortgage
Switching your mortgage, either with your existing mortgage lender or another provider, to secure a better rate or change loan terms.
S
Stamp Duty Land Tax (SDLT)
A tax payable on property purchases, calculated as a percentage of the purchase price. In Scotland, this is called Land and Buildings Transaction Tax.
T
Tracker Rate Mortgage
A variable rate mortgage where the rate follows the Bank of England base rate plus a set margin, causing your monthly repayment to change if the base rate shifts.
V
Valuation
An assessment done by your mortgage lender to confirm the value of the property and ensure it’s suitable security for the loan.
Ready to Make Informed Mortgage Decisions?
At The Mortgage Pod, we know that understanding mortgage jargon is just one part of getting the right mortgage deal. Whether you’re preparing your mortgage application, comparing fixed rate mortgage and variable rate mortgage products, or planning your monthly repayments, our expert mortgage brokers are here to help you every step of the way.
Don’t let confusing terms, early repayment charges, or complex mortgage funds slow you down. Let us simplify the mortgage process, explain your options, and help you move toward your new home or next property purchase with confidence.
Get Started Today: Contact The Mortgage Pod to book your free, no-obligation chat with an expert mortgage adviser.
