A rough guide to mortgage terminology

Arrangement fee/booking fee/application fee – These are the various names for the fee charged by the lender for taking a specific mortgage deal. These can often be added to the mortgage balance rather than being paid upfront, however some lenders require that either all or part of the fee be paid upfront.

Deeds release fee - This refers to a charge by the lender for release of the property deeds to the borrower or their solicitor on repayment of the mortgage.

Discount rate – This is a type of interest rate charged on your mortgage that will vary with the particular lenders SVR. This is similar to a tracker but it is not guaranteed to move in line with a particular rate, but rather at the lenders discretion.

ERC – Early repayment charge, this is a fee charged by the lender should you wish to repay your mortgage (or a lump sum of it) before the end of the tie in period

ERC overhang - An early repayment charge overhang) also known as a tail) refers to the ERC period exceeding the period for which you have a special deal with the lender. For example if you have a 2 year fixed mortgage, yet you are tied in for 3 years.

Equity – The property value minus the outstanding loan amount

Fixed rate – This means the interest being charged on your mortgage is fixed for a specified period of time. Eg 2 year fixed means the rate is fixed for 2 years.

Flexible rate– This is a specific type of mortgage that enables you to overpay and borrow back in a similar manner to an overdraft.

Free legals – This refers to having the legal work required for your mortgage being carried out by a solicitor chosen by the lender at no cost to yourself. These are typically only available to remortgage customers and are often an incentive for taking a particular deal.

Free valuation – This refers to the valuation for mortgage purposes being paid for by the lender and is often an incentive that comes with a particular deal.

BTL - Buy to Let – This refers to a mortgage specifically for a property that is to be let out by the customer.

Further advance – This refers to obtaining extra funds from your existing lender, often at a different rate to your existing mortgage.

HLC – Higher Lending Charge (Also called a MIG – mortgage indemnity guarantee) This is an extra fee charged by the lender if you wish to exceed a certain loan to value ratio for your moergage – for example if you wish to borrow more than 90% of the value of your property you may be charged a HLC. These can often be rather expensive

IDD – Initial Disclosure Document - A document given to you by your lender or mortgage adviser that sets out the extent of the service they will provide in arranging your mortgage and any fees they will charge.

KFI – Key Facts Illustration – This is a document given to you by your lender or mortgage advisor that gives you all the details of a proposed mortgage, including amongst other things the terms of the loan, the amount of the loan, the interest rate, what your payments will be and any charges involved.

LIBOR – London Interbank Offered Rate – This is A worldwide base borrowing and lending rate between lenders. This can sometimes be the rate to which your tracker rate is linked and often affects the price of fixed rate mortgages.

LTV – Loan to Value – This is the mortgage loan divided by the property value. Eg £150k loan and £200k property value = 150/200 = 75%. Typically the lower the loan to value, the less perceived risk for the lender and the more competitive the mortgage deal.

Mortgage Broker – This refers to an individual or company that will find the best solution to your mortgage situation, finding the best rate and most appropriate type of mortgage, and handling the majority of communication between yourself and the lender and solicitor. They can be very helpful with ensuring a smooth mortgage process and be especially beneficial in more complicated mortgage matters.

Remortgage – The process of repaying your current mortgage and replacing it with a new mortgage from a different lender.

SVR – Standard Variable Rate – This is the rate chosen by each particular lender as their standard rate for mortgage loans. This will generally move somewhat in line with the base rate, however there is no guarantee that it will move. This is typically what a fixed/tracker/discount rate will revert to upon the expiration of the deal.

Tie in period – This is the length of time for which you are tied into your mortgage, if you wish to repay your mortgage before this point you will probably be charged an ERC.

Tracker rate – This means the interest rate you are being charged on your mortgage is linked to an underlying public interest rate, typically the Bank of England Base rate or LIBOR. As this rate changes, the interest rate you are charged will vary with it. Typically you may have a rate that is for example 1% over the base rate. This rate may only be in force for a specified period, for example a 2 year tracker, or could be for the life of the mortgage ie a term tracker.

Tracker rate floor / collar – This is the minimum rate that a tracker rate will fall to. Not all tracker rates have a floor, but if they do, at the lenders discretion, they can impose this as the minimum interest rate charged on your tracker mortgage.

Valuation / survey – For mortgage purposes, this refers to the lender sending out an individual to assess the value of a property prior to them agreeing to lend against it.

Valuation fee – This is the fee charged by the lender to the mortgage applicant for sending out the valuer. These can often be free with particular mortgage deals but if you are paying for it, the fee will typically vary with the price of the house.

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