A Guide to Mortgage Jargon

What You Need to Know

A mortgage is a type of loan, secured against your property. It is vital you remember that if you fail to keep up repayments you could lose your home.
If you choose an ‘interest only mortgage’ you’ll only pay off the interest on your loan, each month. You’ll need to find some other way to pay back the original loan amount.
One popular way of doing this has been to take out an endownment policy. However, in recent years it has become apparent that as many as two thirds of policies fail to pay out enough to clear the associated mortgage. Find out more about endowment mis-selling here
If you have an endowment policy, be sure to check your reprojection letters to see if your on course to pay off your mortgage.
As endowment policies are increasingly being seen as poor investments ISAs and other forms of savings and investment accounts are becoming more popular tools for saving towards paying off a mortgage.
If you’d rather avoid the complications of saving towards clearing your mortgage, you can use choose a ‘repayment mortgage’. This allows you to pay off the capital and the interest in monthly instalments.
Since 2004 the Financial Service Authority (FSA) has been responsible for regulating, not only the sale of mortgages, the marketing and advice institutions can give about mortgages. If you feel you’ve been mis-sold any mortgage related service they can advise you on how to go about getting compensated.

When it comes to sorting out a mortgage there are a lot of specialist terms that get thrown around, some of which can be confusing or even misleading. However, help is at hand. Using our handy Jargon Buster you’ll always know exactly where you stand. For ease of use the definitions are listed alphabetically.

Annual statement

This a statement your mortgage lender will send you each year. It shows what stage you are at in your repayments, what’ve you already paid and what you still owe going forward.

APR (Annual Percentage Rate)

This the total cost of a loan. It includes charges for interest and product fees, as well as repayments and is shown as a percentage. The calculation assumes that you'll maintain the mortgage for the full term and can be used to compare the prices of different mortgages.

Bank of England Base Rate

The Bank of England set a rate each month known as the 'Base Rate'. Banks and Building Societies then use this rate to set the interest rates they pay on deposits and charge for lending money. If you are on a tracker mortgage the interest on your repayments will move up or down depending on this base rate.

Early Repayment Charge

This is an extra charge you may incur if you pay back your mortgage earlier than set out in the terms of your agreement. This also applies if you switch lenders and is generally used by lenders to dissuade you from moving your loan elsewhere.

Endowment Policy

This is a form of long term investment. Normally, you pay in each month and, once the policy matures, it pays out a lump sum. The investments are usually attached to the stock market, so the end pay out is not always guaranteed. Many people use such policies to repay their mortgage.

Fixed Rate Mortgage

This is where the interest on your mortgage remains the same for a set period, after which it normally reverts to a variable rate or tracker rate.

Flexible Mortgage

This is an arrangement whereby you can change the amount of your mortgage that you repay each month. It will allow you to, for example, overpay at certain times, then take a break from making payments further down the line.

Guarantor

A guarantor is someone who makes themselves liable to repay your mortgage if you fail to do so for any reason, usually a close friend or relative with good credit.

Home Reversion

This is a way to release equity from your home by selling all, or part of it, to a scheme provider, who, in return, will pay you a regular income or a one off lump sum that you can live off. You don’t need to leave your home as part of such a scheme.

Interest

This is the charge lenders make to you for using their services. Interest has to be paid on top of the amount you originally borrowed.

Interest-Only Mortgage

This is a mortgage in which you only pay off the interest on the loan each month. This means that you are not actually reducing the amount owed (the capital) on your loan. As a result you have to find some other way to repay this amount at the end of the term.

ISA

This is a form of savings account that you can invest in. The interest your investment earns is tax free, however, there are limits on how much you can pay in each year.

Key Facts Illustration (KFI)

This a document which will clearly display the key facts about a mortgage, making it easier for you to easily compare mortgages from different lenders.

Lifetime Mortgage

This is a form of loan, which is secured against the value of your home. It is repaid by your home being sold when you either die or move into full-time care.

Loan to Value (LTV)

This is a way of expressing the value of your mortgage, compared to the value of your home, as a percentage. For example, if your home is worth £200,000 and your mortgage is worth £180,000, the LTV is 90%.

Mortgage

A loan secured against your property. Failure to keep up scheduled payments on a mortgage can lead to your home being repossessed.

Mortgage Lender

This is the company who provide your mortgage.

Mortgage Payment Protection Insurance (MPPI)

This is an insurance plan designed to cover your monthly mortgage payments for a limited period, usually a year, in the event that, through illness, accident or redundancy, you are unable to work.

Negative Equity

This is when the amount outstanding (still owed) on a mortgage is actually higher than the property’s current market value.

Premium

This is the amount you pay regularly, monthly or annually, to an insurer to pay for a policy such as an MPPI.

Pension-Linked Mortgage

This is a form of interest-only mortgage where, once you retire, you use the cash from your pension to pay off your outstanding debt.

Remortgage

This is the process of moving your mortgage form one lender to another. It often involves taking a new mortgage with a different lender to pay off an older mortgage.

Repayment Mortgage

A mortgage where your monthly payments contribute to paying off, not only the interest, but also the loan amount (the capital.)

Reprojection Letters

These are letters you should receive regularly if you have an endowment policy. They will let you know if your policy is on track to provide you with enough money to pay off your mortgage once it matures.

Shortfall

This refers to any money left unpaid at the end of you mortgage’s term.

Term

This is the length of your mortgage. 25 years is a common term.

Tracker Mortgages

This where, for a set period, the interest you pay on your mortgage will vary according to the base rate of interest set by The Bank of England.