Mortgage jargon: A beginner's guide

For many people, entering the realm of homeownership can feel like deciphering a secret code, especially when faced with the wide variety of mortgage terms that accompanies the process.

As a beginner, understanding the language of mortgages is crucial for making informed decisions about one of the most significant financial commitments you'll likely undertake. So in this article, we'll demystify some common mortgage terms to empower you on your journey to homeownership.

1. Agreement in principal: An agreement in principle (AIP), also known as a ‘mortgage in principle’ or ‘decision in principle’, is the initial amount of money you borrow to purchase a home. It doesn't include interest or additional fees, but it’s something you can use with an estate agent to show that you’re in a financial position to buy the property.
   
   
2. Interest rate: This is the amount of interest you'll pay on the money you borrow to buy a property, shown as a percentage. It’s a key factor in determining your monthly mortgage payments. There are three interest rate options when it comes to choosing a mortgage – fixed, variable and tracker.
   
   
3. Fixed-rate mortgage: A fixed-rate mortgage has a constant interest rate throughout the loan term, providing stability in monthly payments.
   
   
4. Variable-rate mortgage: A variable-rate mortgage - sometimes known as a 'standard variable-rate mortgage' - has an interest rate that can change periodically, potentially impacting monthly payments. Understanding the terms and adjustment intervals is crucial.
   
   
5. Tracker-rate mortgage: With a tracker mortgage, the interest rate is set at a fixed amount above or below another rate, which it tracks – this is usually the Bank of England base rate. As with a variable-rate mortgage, a tracker mortgage interest rate can change over time meaning your repayments can go up or down.
   
   
6. Capital and interest payment: Also known as a ‘repayment mortgage’, this is when your monthly payment covers the interest and also reduces the total balance outstanding.
   
   
7. Interest-only payment: This means all you pay each month is the interest on the amount you borrowed. You don't have to pay the full amount back until the mortgage term has ended.
   
   
8. Standard variable rate: This is the default mortgage interest rate your lender will charge you after your current mortgage deal ends.
   
   
9. Deposit: A deposit is the upfront payment you make toward the home's purchase price. It's usually expressed as a percentage of the total price.

10.Annual percentage rate of charge (APRC): This is the total cost of the loan expressed as an annual percentage, provided to help you compare different offers.

1. Conveyancing: This the legal process of buying and selling property. This can be done by a solicitor or licensed conveyancer.
   
   
2. Early repayment charge: Some mortgages, such as a fixed rate mortgage, charge a fee if you pay back the loan early.
   
   
3. Equity: Equity is the difference between the current market value of your home and the remaining amount you owe on your mortgage.
   
   
4. Mortgage illustration: This describes the key things you need to know about your mortgage such as payments and fees.
   
   
5. Loan to value. The loan-to-value (LTV) ratio is a measure that expresses the size of your mortgage as a percentage of the value of your property.
   
   
6. Guarantor: A guarantor acts as a co-signer, providing a guarantee to the lender that the loan will be repaid, even if you face difficulties. This is more common with first-time buyers, with the guarantor likely to be their parent or guardian.
   
   
7. Exit fee: This is an administration fee payable to service providers when you fully repay your mortgage.
   

Navigating the world of mortgages becomes much more manageable when armed with a basic understanding of these terms.

As you embark on your homeownership journey, don't hesitate to ask us for clarification on any unfamiliar terms. Remember, an informed borrower is an empowered one, and clarity on mortgage jargon is the first step toward making confident and well-informed decisions. Happy home hunting!

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