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Mortgage Terms - what do they all mean

Adverse Credit History
Somebody, who has experienced financial problems, resulting in missed payments, especially in relation to mortgages, loans, rent, credit cards etc. An adverse history will result in adverse or negative information being passed from credit bureau to Lender and could result in financial applications receiving unfavourable consideration with traditional lending sources.

AIP - Application in Principle (or DIP - decision in principle)
An early stage in the process where your mortgage adviser gains the Lenders decision in principle to accept a mortgage application subject to the lenders normal checks. Applications can still fail after AIP due to the property receiving a lower valuation from the surveyor or other adverse information being received by the Lender.

In most cases this will refer to the process of submitting client details to a Lender for consideration.

Annual percentage rate (APR)
The APR is an attempt to provide a true cost of borrowing as a standard measure. This will take into account not only the interest rate but also other ancillary costs such as valuation fees, legal and administration fees and higher lending charges. This is a recommended way for clients to compare the overall cost of a mortgage between various lenders. All lenders should include similar costs in calculating the APR and the final percentage is supposed to indicate the overall costs of borrowing on a particular scheme expressed on an annual basis. Thus clients can have a clearer view of the true cost of a loan instead of the flat interest rate initially quoted. However the borrower should bear in mind that the APR is not the only factor to take into account when choosing a lender.

Arrangement Fee
One of the lender charges, which they say is to cover the cost of administrative work involved in setting up your mortgage.

Can include a number of areas where contractually due payments have not been paid, eg Mortgage, loans and rent. Sometimes lenders express this as the number of missed monthly payments. Therefore 3 months arrears on a mortgage would indicate that at a given point the mortgage was the equivalent of 3 mortgage payments short.

An order made under the Insolvency Act (1986) against an individual , which indicates that he or she is unable to pay their debts. If you are made bankrupt there are serious implications on your ability to raise funds or be a company director.

Base Rate
Usually the rate of interest set by the Bank of England, reviewed on a monthly basis. However it is important to clarify this with your Adviser as Lenders also sometimes talk about their Base Rate, which is entirely arbitrary.

Buy to Let
The act of purchasing a property for the purpose of renting it out. Lenders mostly want to satisfy themselves that renting is well thought out and protected with legal rental agreements and that the anticipated rent is economic and realistic.

County Court Judgement (CCJ)
A Judgement for debt made in the county court. Unsettled judgements will be displayed on credit searches made about you for the next six years. Paid up CCJ's cn be recognised by stating "Satisfied". It is recommended that if you think that you have some detrimental credit history that you initially apply to one of the Credit Registers to gin a copy of your file. There is a modest cost for this and we can supply contact addresses.

The point at which ownership actually transfers from the seller to the buyer when you are purchasing.

This is the legal side of buying and transferring property ownership, handled either by a solicitor or licensed conveyancer.

Credit Searches
All Lenders will want to check out your records on the various credit registers as part of the process of deciding whether to lend.

Usually the stage prior to a CCJ, where financial agreements for regular payments have not been kept. It is important that you make your Adviser aware of the possibility of a default history to save applications being made to Lenders who will not consider clients who have this type of previous history.

Discount Mortgage
One type of initial special offer, where payments are variable, but they are set at less than that lender's usual rate for a specified period of time. Once the special offer period finishes you would normally be moved to the Lenders SVR (standard varible rate).

Early Repayment Charge (ERC)
This is a potential penalty levied by the Lender if you pay off all or part of your mortgage before the end of the special offer period or the specified "over hanging" penalty period. For example a three year fixed rate mortgage where the early repayment charge will apply for the first five years.

A generic term for a variety of long term insurance and investment policies. These may be linked to a mortgage, and they are intended to produce a lump sum to pay off the capital at the end of term of an interest-only mortgage. In most cases the returns on endowments are not guaranteed and therefore this method of mortgage repayment may not be suitable for those who are cautious.

This is the estimate of your financial ownership of your home. The usual calculation is to take away the value of your outstanding mortgage and any other loans secured against it from the anticipated sale value of the property.

This refers to the ownership of both the building and the land on which the building stands. It is owned by the purchaser until they decide to sell or the purchaser dies.

Higher Lending Charge
Where the applicant is borrowing a high percentage of the property cost to reduce the risk the lender will take out insurance cover. The cover is there to ensure that if the borrower defaults and the lender is forced to sell the property the lender will receive the full value of any outstanding loan. These have previously been called mortgage indemnities or MIG's but they certainly are not insurances for the benefit of mortgage holders and their implication should be fully understood before entering any agreement with an HLC. Please ask your Adviser for a fuller explanation.

Individual Voluntary Arrangement (IVA)
A fairly recent alternative to a Bankruptcy, an IVA is not quite so onerous as bankruptcy, and its flexibility will vary according to the individual. It is a way of working with your creditors to provide a mutually beneficial solution without having to undergo the trauma of a Bankruptcy. Although not as onerous as a Bankruptcy it will severely limit the range of Lenders available to you.

The land on which the property stands is not owned outright by the buyer. Instead it is leased from the person who owns the freehold to the land for a ground rent. The lease will be for a set number of years, frequently 99 years, at the end of the term the land and the building will revert to the freeholder. It is important to find out how many years of the lease will be remaining when the mortgage is paid off as Lenders require a minimum safety period to attract possible future purchasers.

London Inter Bank Offered Rate. The rate at which banks borrow and lend money to each other, which is another type of base point for tracker or linking mortgages.

Loan to Value (LTV)
A figure representing the size of loan to a property's worth as a percentage. Hence mortgages where no deposit exists have 100% LTV.

A mortgage is a legal loan secured against the value of your home, where secured represents the Lenders requirement for a way to reclaim financial restitution if mortgage payments are not met.

Old fashioned word for the Lender.

Old fashioned word for the borrower.

Where insurance is required s part of the loan agreement it is the cost of that insurance, usually expressed s monthly or annually.

The process of moving your mortgage but not your home. Replacement loan taken out by the same borrower secured on the existing property and usually, but not in all cases, with a different lender.

Repossession is where the Lender takes over ownership of the property, usually for non-payment of the mortgage and is accompanied by legal eviction of the occupants.

When you fail to keep up with repayments on a mortgage or remortgage, a lender can take possession of your home and sell it to recover the debt owed.

Right to Buy (RTB)
The ability of a council tenant to purchase their home from the council. Where this occurs the tenant will normally receive a discount on the purchase price linked to the length of their tenancy.

Self Certification
These are specially assessed mortgages where the applicant is not able to accurately prove their true level of earnings. This is not suitable for everybody and is not used by all Lenders. Examples could be business people who do not have two or three years accounts, contract workers, people with several sources of income. Lenders will have their own ways of assessing declared incomes are realistic and truthful.

Self Employed
One who gains income from working for themselves.

Stamp Duty
A government tax on the execution of certain documents, such as the conveyancing of land i.e.property purchases. Stamp duty levels are reviewed in the Budget and currently start at 120,000 for residential property. The tax is payable at mortgage completion and it is important to include this in your budget if applicable.

This is not a Valuation although it usually includes an estimate of market value. It is an in depth assessment of the condition of the property and is usually carried out by a qualified Surveyor.

The sole purpose of the valuation is to determine whether to lend, and if so, how much to lend. It is an assessment of the value of the property to confirm it is suitable security for the lender. It is not a thorough assessment of property condition or faults and the purchaser should not rely on it as a guide to value for money. The valuation report will contain a disclaimer to this effect.

Variable Rate
The rate of interest charged is not fixed but varies as general interest rates, usually expressed by the Bank of England base rate, varies.

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