Mortgage Glossary A - C
A
Ability to Pay
A method of calculating how credit worthy a borrower is. It is worked out by estimating how much money they will have left to make payments on a mortgage after other deductions have been made from the borrower's gross income.
Acceleration Clause
A clause allowing the lender to collect the remainder of a loan if a borrower misses one or more payments (dependent on the terms of the mortgage).
Acceptance
A the technical term meaning a positive response to a mortgage offer. There may be other conditions or requirements attached to the acceptance which will make is a "conditional acceptance". This means it is conditional upon some extra clauses in the offer.
Accident Insurance
If a borrower suffers from certain injuries following an accident, such as loss vision or a limb, this insurance will cover them.
Unemployment, Sickness and Accident Insurance
An insurance to protect the borrower against the likelihood of being unable to meet mortgage payments. Be aware that unemployment cover will only cover certain reasons for losing a job. For example, the insurance will not cover taking voluntary redundancy or being dismissed due to professional misconduct. Sickness and accident cover does not include any injury due to the use of alcohol or drugs. It will not cover any act of self inflicted injury.
Additional Principal Payment
An extra payment agreed to be paid each month in order to reduce a debt.
Additional Security
Sometimes mortgage lenders require extra security. This happens when the load-to-value ratio exceeds the normal limits. The extra security can be in the form of a cash, shares of a single mortgage loan-to-value.
Administration Charge
A proportion of the fee charged for the valuation of a property may be retained for the lender to cover the costs of the valuation. Even if the valuation does not culminate in a mortgage the fee, in some cases, may not be refunded.
Advance
An amount of mortgage/loan which is released to the borrower in advance.
Affidavit Swear Fee
An affidavit is a written legal statement to a solicitor concerning mortgage arrears. When a mortgage lender is required to carry out an affidavit, this fee will be charged.
Agreement In Principle
An agreement that the potential borrower has been accepted for a mortgage in principle but it the offer will be conditional on confirmation of the borrower's stated employment status and valuation report on the property.
Annual Bonus
This is a bonus that is paid out annually if an endowment mortgage has been taken out. The bonus is variable, depending on the performance of the investment fund used to repay the mortgage.
Annualised Percentage Rate (known as A.P.R)
An annualised percentage rate will explain to the borrower the real cost of borrowing in order to provide them with a means of cost comparison on different loans. All loans are legally required to provide a genuine APR.
Annuity Mortgage
Annuity Mortgage is another name of a capital and interest repayment mortgage.
Application
The name of the process of applying for a mortgage.
Application Fee
These are the fees concerned with the mortgage application.
Applied or Nominal Interest Rate
The rate used to calculate interest due.
Arrangement Fee
The lender charges this fee for setting up the mortgage. It is normally payable on completion may in some cases may be added to the loan itself.
Arrears
A payment after the event or a late payment. Most salaries are paid in arrears, for example an employee works for a whole month before receiving any renumeration.
Arrears Fee
Charges levied for late payments.
Asking Price
The initial offer price that the property owner is hoping to sell their property for.
ASU
Accident, sickness or unemployment insurance to cover for loss of earnings.
Auction
The process whereby something is bought at a price that arises from a process of bidding. If a person bids for and win a home at an auction they will be legally bound to buy the house.
Audited Figures
Self employed people sometimes need to provide 3 years of business accounts that have been confirmed by an accountant to qualify for a mortgage.
B
Bankruptcy
A term to describe the legal declaration of an individual bankrupt. A mortgage applicant's ability to borrow may be limited because although a bankruptcy can be discharged within a year, it remains on the person's credit rating details for up to seven years.
Bank Rate
The basic interest rate. The figure is set by the Monetary Policy Committee of the Bank of England.
Basis Point
A basis point is 1/100th of 1%.
For example, the difference between a mortgage at 9.12% and a loan at 9.00% is 12 basis points.
Benefit Period
A period of time in which the interest rate of a mortgage is discounted.
Booking Fee
Charged by the lender to secure mortgage funds. It is payable at the time the loan application is submitted. It normally applies only to special offer loans, for example fixed or capped rates.
Breach Of Contract
Failure to comply with the conditions and terms of a contract.
Breach Of Covenant
Failure to comply with a legal agreement.
Bridging Loan
A short-term loan. It is used to cover the funding gap when purchasing a new property before selling an existing one.
Broker
A third party who acts between lendor and lendee. They can be independent or affliated with a finance company.
Broker Fee
A fee charged by a third party to cover the costs of acting as an intermediary for negotiating a financial deal.
Under the Consumer Credit Act, if the loan has not been completed within six months of the date of the introduction to a lender, the maximum fee the broker may retain is £300.
BSA
Building Societies Association.
The trade organisation for building societies.
Building Society
Mutual organisations owned by their members.
They are regulated by the Buildings Societies Act.
Buildings Insurance
Insurance that cover the structure of the building.
If the property is leasehold, the buildings insurance will usually be arranged by the freeholder. The cost will be passed on to the leaseholder within the service charges.
Buy To Let Mortgage
A type of mortgage taken out by an owner who intends to rent out privately to tenants.
C
Capital Raising
The act of remortgaging a property in order to raise capital. The property value is based on a higher figure than the original purchase price. The capital raised is the difference between the original loan and the new loan.
Home improvement projects may be taken into account, when an applicant is applying for a remortgage, if they are the type which are likely to significantly raise the value of the property.
Capped Rates
A mortgage interest rate that will not exceed a certain value during a specified period of time. The rate will fluctuate above and below the current level.
Cap and collar mortgages are those which have a range of interest rates (called a ceiling and floor), which they will not go above or below.
Cash Back Mortgages
On completion of the mortgage, a one off payment of cash is handed to the borrower.
The amount is calculated as a percentage of the overall loan amount, sometimes as high as 5% but usually within the range of 1 to 3%. With some mortgages, however, it can be a fixed figure.
Cash Buyer
A person who is able to purchase property without the need for a mortgage and their property purchase is not dependent on the sale of an items, property or goods.
CCJ
A County Court Judgement which is listed in the name of an individual who has defaulted on payments on financial agreements.
This can greatly affect a person's credit rating.
Centralised Lender
A term given to mortgage lenders operating from a head office location. It does not apply to high street banks or building societies.
Certificate Of Deposit
A document from a financial organisation confirming that the borrower has the funds available to pay the deposit.
Charge
A lender will rely on some security when giving credit. This is called a charge.
CML
The Council of Mortgage Lenders.
Code Of Practice
An agreed and declared document containing the procedures and principles that employees of an organisation are expected to comply with.
For example, company policy on dealing with customers.
Collection
If a lendee's payments are not up to date, these are the steps which will be taken by the lender in order to rectify the situation.
Commercial Mortgage
A mortgage for a commercial property.
There is usually a higher rate of interest as the lender will view the loan to be of a higher degree of risk.
Commission
When a third party acts as an intermediary between the lendee and the lender, there will be a percentage of the sale price to be given to the third party
A percentage of the overall sale price that is received by the selling party when acting on someone else's behalf.
Common Law Partner
A person who cohabits with their partner and is entitled to a number of financial benefits without being legally married.
Comparison Table
A table of various different loans showing the similarities and differences.
Remember that there are differences because various loans have different criteria depending on the lendee's needs.
Completion
The point when all the legal formalities for the property purchase or mortgage are finalised with the funds drawn down from the lender into the conveyancing solicitor's account.
Completion Date
The date when the house sale is completed and the keys are transferred to the new owner.
Compound Interest
Interest on the interest of the loan.
Compulsory Products
Some loans have conditions attached to them which means certain products have to be taken out in order to receive the loan, for example income payment protection.
Conclusion Of Missives
The Scottish term for exchange of contracts.
Conditional Insurance
A compulsory product that must be taken out in order to obtain the loan.
Contents Insurance
Insurance for the contents of the property, for example clothes, personal items, furniture.
Contract Work
Employment for a fixed-term contract.
Conveyancing
The process of the transfer of property ownership including processing the legal documentation for the transaction.
Conveyancing Fee
Charged by a solicitor or licensed conveyaner for conveyancing.
Co-Ownership
Shared ownership. This is a means of purchasing a property between an individual and a housing association whereby the individual purchases a percentage of the property and rents the remaining percentage from the housing association.
Council Tax
A charge made by a local authority to cover their service expenses, for example rubbish collection, road maintenance and policing costs.
It is based on the value of the property.
County Court Fee
When payments are in arrears, this is the fee charged when a lender provides information to solicitors concerning County Court Rules.
County Court judgement
A judgement issued by a County Court concerning debt.
If the debt is settled within 30 days of the date of the judgement it will not appear in the credit register.
Even if the debt has been settled, many lenders are unwilling to loan money to individuals who have been through this process.
Cover
This is a "risk" that an insurance policy protects against, for example fully comprehensive or third party, fire or theft.
Credit Averse
Someone is described as credit adverse if they have been declared bankrupt or have an oustanding County Court Judgement against them.
Credit Check
This is an enquiry made on the financial history of the financial applicant, usually through a credit agency.
Credit Checking Agency
These Agencies will establish the level of risk involved in lending money to an applicant.
Credit File
A file held by a Credit Reference Agency on a company or individual detailing credit worthiness.
Credit History
A borrowers financial history.
Credit Rating
A number used to rate the level of risk involved in lending money. It is used in conjunction with an applicants finanacial status and credit history.
Credit Reference Agency
Companies that hold credit information on file.
Credit Scoring
A way of scoring credit worthiness of an application by rating the answers given on an application form.
Any missing answers will result in the application achieving a negative score.
Credit Worthy
A term to describe someone who has achieved a low risk score by a lending institution.
Creditor
A company or individual to whom a debt is owned.
Critical Illness Insurance
An insurance which covers serious illnesses and medical conditions.