Mortgage terms can be confusing. Most people don’t use mortgage jargon on a day-to-day basis so, when confronted with contracts, terms and requests for documents, you can feel out of your depth.
We’ve put together an A-Z mortgage jargon buster to demystify the most common and confusing terminology. Armed with this information, you can approach lenders feeling calm, confident and ready to talk about mortgages.
Agreement in Principle (AIP)
Also referred to as a mortgage in principle/decision in principle (DIP), this document from a lender states how much money they may lend you as a mortgage. When you make an offer on a property, you can use it to confirm you are likely to be able to honour it. Having this document can help your offer on a property to be accepted.
Annual Percentage Rate of Charge (APRC)
This is an interest rate calculation showing the total cost of the mortgage over its entire lifetime. It includes all fees, interest rates, charges, broker costs and legal fees to give a final figure you can compare with other mortgage deals.
Arrears
If you miss repayments, in mortgage terms you are ‘in arrears’.
Base Rate
This is a rate of interest set by The Bank of England which it charges UK banks to borrow money. Tracker mortgages and lenders’ standard variable rates usually follow Base Rate plus a fixed percentage.
Broker
Also referred to as an intermediary or advisor, a broker can help you choose the most competitive and suitable mortgage product for your needs and circumstances.
Capital and Interest Repayment
This refers to payments that cover the interest owed plus some of the total balance. Interest only repayments by comparison will not reduce the balance outstanding but will stop it from increasing by paying off the interest.
CHAPS
Clearing House Automated Payment System. You can’t buy a house with a BACS transaction as the value is too great. CHAPS is a method of payment managed by The Bank of England usually used for property purchases. It’s designed for high-value and/or time-critical payments, is fast, reliable and there is no transaction limit.
CHAPS Fee
You must pay a fee associated with a CHAPS transaction which varies between banks/service providers. You should expect the fee to be £15-£30.
Conveyancer
A specialist in property law who can manage your property transaction.
Conveyancing
This is the mortgage jargon for the legal process of buying/selling property. It involves preparing and properly processing legal documents e.g. contracts, registration of the transfer with the Land Registry.
Cost of Credit
This figure takes into account everything you’ll pay back on your mortgage including interest and other charges. You can compare it with the amount you borrow to see the cost of that mortgage product.
Decision in Principle (DIP)
See ‘Agreement in Principle.’
Deeds
Deeds/Title Deeds record who owns a property. They are legal documents used as proof of ownership e.g. when selling.
Default
This is when you fail to make your mortgage repayments. Amongst other consequences, defaulting can result in the mortgage lender taking possession of your property. A default is also a term used for non payment of a credit agreement such as a credit card or loan.
Early Repayment Charge (ERC)
In the terms of your mortgage, you may have to pay an early repayment charge: a fee for paying off the loan early. For example, if you inherit a lump sum in the future and want to use it to pay off the remaining balance of your mortgage, you may be allowed but face a fee to do so.
Equity
This is a figure calculated by subtracting the mortgage left to pay from the current value of the property. It basically shows the value of your stake in your property. The more equity you have the lower your mortgage rate is likely to be.
Exit Fee
This is an administration charge due to the lender when you fully repay your mortgage.
Fixed Rate Mortgage
This contract means your mortgage interest rate will stay at a fixed, specified figure for a certain amount of time e.g. five years. After this period, your mortgage will likely switch to the lender’s standard variable rate or you can move mortgage products.
Freehold
You will see properties listed as ‘freehold’ or ‘leasehold’. Freehold means the property and the land it stands on are both the possession of the owner for an unlimited time. (Compare with Leasehold.)
Gazumping
This is the mortgage terminology for when a seller accepts an offer but then accepts a higher offer from someone else. It can also be used to describe a situation where a seller accepts an offer but then asks for more money. Gazumping is legal but extremely frustrating for the buyer.
Gifted Deposit
This is when part/all of a mortgage deposit is given by someone other than the buyer e.g. a relative.
Guarantor
To increase the chances of being approved for a mortgage, some people use a guarantor (usually a family member). This is a person who legally agrees to meet mortgage repayments if you don’t/can’t.
Higher Lending Charge (HLC)
If you need to borrow a high percentage of the property’s value i.e. you have a small deposit, this could be seen as a higher risk by the lender. They may charge a one-off HLC to protect themselves, potentially using the fee to buy insurance in case you default.
Interest
In mortgage terms, interest is a percentage of money paid on top of your mortgage repayments. Different products have different rates of interest and some will vary over the duration of your mortgage.
Joint Applicants/Joint Mortgages
With joint mortgages you are both equally responsible for the mortgage repayments. If you also have joint ownership and one of you dies, the whole property is automatically transferred to the survivor, despite what their Will may say. It is possible to consensually ‘buy someone out’ of a joint mortgage.
Land Registry
This is the official department who keeps a register of all the land and property in England and Wales and who owns it. When you buy a property, your solicitor must notify the Land Registry.
Leasehold
Property is sold as freehold or leasehold and leasehold is when you own the property for a specific number of years. You do not own the land it is built on and essentially buy the right to live there for a certain time. It can be tricky to get a mortgage for properties with fewer years left on the lease e.g. <70, but you can try and negotiate a lease increase with the freeholder. (Compare with Freehold.)
Loan to Value LTV
This is the percentage of money you want to borrow to buy a property compared with the value of the property. It’s calculated by dividing the mortgage amount you need by the property value then multiplying by 100 e.g. If you need £200,000 more to buy a £250,000 house, your LTV is 200,000 / 250,000 x 100 = 80% LTV. Most lenders like a LTV of 80% or less as it’s deemed lower risk. Like equity the lower the LTV the lower your mortgage rate is likely to be.
Maturity Date
This is the contractual date by which the mortgage must be fully repaid or the date a new mortgagee product must be taken out to repay any outstanding mortgage balance.
Monthly Repayment
Money you pay back to the lender every month to pay off your mortgage loan.
Mortgage Illustration
This is an important document you should be given before you apply for a specific mortgage. It will tell you essential information e.g. fees. If you have any questions about the mortgage illustration, make sure you ask before applying.
Mortgage in Principle
See ‘Agreement in Principle.’
Mortgage Offer
Once your lender has reviewed all your documents, they may make a guaranteed mortgage offer. If you accept, you will then get a formal offer which will include all terms and conditions. A copy of your offer will also be sent to your conveyancer/solicitor
Mortgage Term
The length of time it will take you to repay your mortgage with the terms agreed. This is usually a significant amount of time e.g. 25 years.
Negative Equity
This is a situation when the value of a property drops lower than the amount of the mortgage. You will essentially owe more than the house is worth.
Overpayment
In terms of mortgage jargon, overpayment is when you pay more than your agreed monthly repayments. People choose to do this to save interest and shorten the length of their mortgage (but may face fees for doing so).
Portability
This is when you can transfer your mortgage to a new property when you move.
Payment Holiday
It is sometimes possible to agree a payment holiday with your lender, when you will make no monthly payments for a certain time (however, interest is still accrued).
Product Fee
A one-off fee paid to your lender for the mortgage. This fee can usually be added to the mortgage but you need to be aware this will add interest to this fee over the term of the mortgage, so if you can afford to do so, it may be better to pay this upfront.
Rebuild Costs
The amount it would cost to rebuild a property if it were totally destroyed. An accurate rebuild cost (not a market valuation) is needed for insurance purposes and is calculated by the surveyor.
Remortgage
It is possible to transfer your mortgage to another lender/a different product and is usual practice at the end of the fixed rate period to avoid the lender’s standard variable rate. There are likely to be fees involved for remortgaging before the end of any fixed period. You may get a better deal and be better off in the long run if you remortgage, but always get advice as fees may be payable.
Stamp Duty Land Tax (SDLT)
Usually referred to as simply Stamp Duty. A tax you pay when buying a property, calculated as a percentage of the property on a scale. From 1st April 2025, if you’re buying a house and it’s your only residential property, *no Stamp Duty is paid on the first £125,000; 2% tax is paid on the portion from £125,001 to £250,000; 5% tax is paid on the portion from £250,001 to £925,000; 10% tax is paid on the portion from £925,001 to £1.5 million; and 12% tax is paid on anything above this. Different rates apply for first time buyers and second or additional property purchases.
Standard Variable Rate (SVR)
This is the interest rate your lender will charge once your initial deal ends e.g. at the end of a fixed rate term. It generally follows Base Rate plus a percentage and it can be worth changing mortgage products/remortgaging at this point. (See Base Rate and Remortgage)
Service Fee
This is a fee payable to your new mortgage lender when they request details from your existing mortgage lender (they will have gained your written consent to do this).
Survey
A report you can obtain to assess the condition of the property you are purchasing. There are different types of surveys available with differing associated costs including; a Level 1 Home Survey or ‘Condition Report’ (the most basic), a Level 2 Homebuyers Survey (a mid-level report) and a Level 3 Building Survey (the most comprehensive survey report).
Tracker Rate Mortgage
This type of mortgage product will require you to pay interest that follows Base Rate plus a specified percentage. It means that the amount you pay each month will fluctuate in line with Base Rate changes. (See Base Rate.)
Valuation
In mortgage terms, a valuation is an accurate assessment of a property’s worth (which may not match market value). The lender needs to check that the property is worth the amount you want to borrow to ensure they’ll recoup their costs if you default and they take possession of the property.
Variable Rate
Variable rate mortgages are subject to interest rates that go up and down and are set by the lender. (Also see Standard Variable Rate.)
Get in touch
It’s important to understand some key jargon as you approach lenders so that you don’t miss opportunities or misunderstand contracts. Knowing the relevant mortgage terminology above will help you feel calm, confident and prepared at this important time of your life.
Hopefully, you are now more familiar with some of the relevant language, but if you’ve got any questions about our mortgage jargon buster, please get in touch.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
*Tax rates are correct at time of publishing and subject to change.