Finance - Home Owner Loans

Anyone considering a mortgage needs to understand the home owner loan jargon. Most terms have reference to a charge or a fee that will be required. Home loans are not limited or restricted to just formal mortgages.

Home owner loans jargon covers quite a large area of terms and phrases that often relate to financial products which are various ways of borrowing and paying back the money.

Failure to understand the full implications of the homes owner loan jargon can lead to obligations and commitments on the side of the home owner that they are unable to service that could result in the loss of your home.

Home Owner Loans Jargon.

apr

Annual Percentage Rate of charge. The true rate of interest charged on a loan taking into account the total cost of interest and other charges e.g. brokers fees/legal fees. The calculation is set out in statutory regulations.

(Life) Assurance

A Specific type of life insurance policy often linked with a mortgage or loan. A portion of premium goes toward insuring your life, and will pay off loan in the event of death. The rest is invested and will pay a lump sum at the end of the term.

(Level Term) Assurance

Life assurance which pays out a lump sum if you die during the term. Suitable for interest only loans as the amount owed on the loan remains the same throughout the life of the loan.

Autoscore

The process of using specialised online credit search databases to identify an applicants credit status.

(Mortgage/Finance) Broker

An intermediary who identifies, and places, customers requiring a loan or mortgage etc. with a company (Lender) able to provide it. The broker often carries out the administration to do with processing the loan.

BSQ

BUILDING SOCIETY QUESTIONNAIRE: A questionnaire completed by bank/building society or other lender providing details and conduct of an applicant‘s mortgage account.

Cashback

A type of loan where the borrower is given back a sum of money (usually a percentage of the loan). Used by lenders as an incentive to promote their products.

CCJ

County Court Judgement. An order of a court against a debtor to pay money owed.

Conveyancer

A person, used as an alternative to a solicitor, to carry out the legal work involved in buying and/or selling a property. Note: It should be checked that they are licensed to carry out this function.

Discounted Rate

A discounted rate gives you a reduction of, for example, 2% off the standard variable rate (SVR) for a specific period. So, during this period should the SVR rise and fall, you will still qualify for the discount and therefore pay a lower rate.

Double Insurance

Policies vary from lender to lender. Generally double insurance offers protection against sickness, accident and redundancy for the first and second wage earners. Cover is also available for self employed borrowers and under certain circumstances for non working partners. Details of the specific insurance plan will accompany the lenders offer. We strongly recommend that you consider some form of insurance protection, especially in the case of secured loans and mortgages.

Exchange of Contracts

Agreement signed by house purchaser and vendor committing themselves to the transaction. Once this has occurred a legally binding contract is in existence and the purchaser must complete the purchase within a specific period of time.

Emergency Home Assistance

An insurance policy that will provide a suitable tradesman to effect a repair in the event of an unforeseen home emergency e.g. a plumber for burst pipes, a roofer for lost tiles etc.

Endowment

A life assurance policy that is designed to produce a lump sum to pay off an interest only mortgage. There are a number of different kinds of endowment policies: 'with-profits', 'unit-linked' etc.

Fixed Rate

The rate is fixed for a specific number of years, so you know what your payments will be over that period. Following this period, the rate will usually revert to the lender's standard variable rate.

Flexible mortgages

A more recent innovation, these give various benefits which usually include the ability to vary payments in line with your circumstances. They may also allow you to take "payment holidays" and to borrow back any overpayment you may have made.

Freehold

Land / Property is owned outright by the Freeholder. Whether the property is held on a lease or a freehold basis will be identified in the deeds to the property.

IFA

Independent Financial Advisor.

(Term) Insurance

A life insurance policy often linked with a mortgage or loan. The premium goes towards insuring your life, and will pay off loan in the event of death. No benefits are received after the policy expires.

Interest Only Mortgage

With this type of product, your monthly repayments will only cover the interest element of the loan. You will typically set up another repayment vehicle eg an endowment or ISA to repay the capital element of the loan.

Income Replacement

An insurance policy that will provide an income in the event of job loss or illness.

Leasehold

A leaseholder holds the title to land only for a finite term i.e. the length of the lease upon payment of a consideration e.g. rent.

Lender

The actual company that provides the finance to satisfy a loan or mortgage request.

(Secured) Loan

A loan to be used for any purpose. The equity in the property is put up as security against not paying the loan back.

(Unsecured) Loan

A loan to be used for any purpose. The credit rating or financial position of the applicant is such that no security for the loan is required.

LTV

Loan to value. This is the size of the loan or mortgage as a percentage of the value of the property or price being paid for the property e.g. A property valued at £50,000 with a mortgage of £45,000 would have an LTV of 90%.

MCRI

Mortgage Code Register of Intermediaries. A register maintained by the Council of Mortgage Lenders of the names of mortgage brokers subscribing to the Mortgage Code.

MGI

Mortgage Guarantee Insurance. An insurance policy designed to make good any shortfall between the amount owed on a mortgage and the value of the mortgaged property. Provides a benefit to the lender in the event of repossession resulting from non-payment.

MIG

Mortgage Indemnity Guarantee. See MGI

Mortgage

A loan to purchase a home where the property is used as security in the event of non-payment of the mortgage.

Negative Equity

The situation where the amount owed on a mortgage exceeds the value of the property.

No Insurance

Insurance is offered to provide peace of mind against life's unexpected problems which invariably occur. Selecting "No insurance" means that you are choosing not to protect your proposed loan repayment in the event of you being unable to work due to an accident, sickness or redundancy.

Offer of Advance

Sometimes informally known as a mortgage offer. This document details the terms and conditions upon which the lender is prepared to make a mortgage loan. The applicant must sign and return a copy of the offer indicating their acceptance of the proposed terms.

Office Copies

Copies of documents held at Land Registry showing ownership and mortgages outstanding on a property.

Processing

The administration and paperwork related to a loan from the time a completed application form is received through to completion of the loan process.

(Capped) Rate

Usually for a set number of months/years where the interest rate can go up and down but there is a maximum (capped) interest rate which it can not go above.

(Variable) Rate

A rate of interest which may vary up or down during the lifetime of a loan. The circumstances causing any change are outlined in the loan conditions.

Remortgage

Loan taken out by a borrower to replace another one secured on the same property. Typically taken out by borrowers switching lenders to achieve a better rate.

Representatives

Local representatives (Reps) who are available, if required, to pay home visits to help and advise in the completion of loan applications.

Repayment Mortgage

With a repayment mortgage you pay part interest and part capital repayments to the lender each month and in this way the capital that you borrowed is reduced until the loan is repaid.

Retention

Sum of money retained from a mortgage pending completion of improvements or repairs as stipulated by the Valuer.

RTB

A term associated with legislation that gives council house tenants the Right to Buy their homes.

Redemption Penalties

When a loan is redeemed (paid off) early, either in full or in part, many lenders will charge a fee. This particularly applies to Fixed, Discounted or Capped rate loans or mortgages.

Sealing Fee

A charge made by lenders when a mortgage is paid off.

Second Charge

Mortgage ranking behind a first mortgage ie a second loan.

Second Mortgages

Company or building society who have registered a charge or mortgage directly behind that of the first mortgages.

Secured Loan

Mortgage ranking behind a first mortgage ie a second loan.

Security

When a loan is taken out it is ‘secured‘ on a property, the borrower agrees to the lender creating a charge over the property; the deed makes reference to the rights and obligations of both parties as detailed in the Legal Charge, Standard Security or Loan Agreement. Thus the property is known as the ‘security‘.

Security Address

When taking a secured loan or mortgage, the security address is the address of the property which is being offered as collateral for the loan. Where property is offered as security in this way, lenders are generally prepared to offer more flexible terms and lower interest rates.

Self - Certified

Lenders that operate this type of scheme allow the applicant to confirm how much they earn by "Self-certifying" their income. Schemes are available to both employed and self employed applicants. Typically for the employed, the schemes are designed to help those applicants with incomes that incorporate a large element of bonus or where they derive income from a number of jobs. Where as for self employed there is no need for full 3 years audited accounts to be provided.

Settlement Figure

The sum quoted in order for the loan to be repaid during the contracted term.

Single Insurance

Policies vary from lender to lender. Generally single insurance offers protection against sickness, accident and redundancy for the main wage earner. Cover is also available for self employed borrowers. Details of the specific insurance plan will accompany the lenders offer. We strongly recommend that you consider some form of insurance protection , especially in the case of secured loans and mortgages.

Stamp Duty

A tax of 1% paid on the purchase of properties costing more than £60,000 - £250,000; 3% on properties over £250,000 - £500,000; 4% on properties over £500,000. Please Note: rates change on non-residential properties and on land in disadvantaged areas.

Standard Security

The equivalent of the Legal Charge in Scotland.

Status

The credit-worthiness or otherwise of a potential borrower.

Structural Survey

A detailed survey of the structure of a building carried out by a Structural Engineer or Chartered Building Surveyor. Surveyors are liable for negligence.

Sub-prime Mortgage

Mortgage granted to a person who is unable to borrow money secured on a property from a normal lending source. The reasons the applicant may not be granted a mortgage by a high street lender, could fall into one of three categories:-

Adverse Credit information registered against them Existing arrears on current mortgage facilities An inability to satisfactorily prove the level of income required by a high street lender.

Term

Period of a loan expressed in months or years.

Title Deeds

Set of documents relevant to present and past ownership of a property. Details names of owners and details of institutions that have registered a charge against the property. Held by the first mortgagee lender whilst their charge remains in existence.

Underwriting

The process by which the ability of a prospective borrower to repay a loan is assessed (also the name of the department that undertakes this work). The process takes into account various factors including employment history, financial status, previous credit history and current earnings.

Unsecured Loan

A loan to be used for any purpose. The credit rating or financial position of the applicant is such that no security for the loan is required.

Valuation

A brief inspection of a property for mortgage purposes. Whilst it is for the lenders use it is often paid for by the loan applicant.

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