Do you know your IFAs from your ISAs? Check out the list below for some simple explanations of mortgage jargon. You will learn all about these in your CeMAP training.
Accident, Sickness and Unemployment Insurance (ASU) – Also called mortgage payment protection insurance (MPPI), ASU is insurance that will keep up your mortgage repayments for a period of time if you are unable to work because of accident, sickness or redundancy. The redundancy cover will not kick in for the first few months of the policy. Note this is different from Mortgage Protection Insurance (MPI)
Agreement In Principle – If you are looking for a property to buy, you may wish to know exactly how much, in principle, that you can borrow. It also helps to show the seller that you are serious buyer. It is not a guarantee that you can definitely have a mortgage on that property because you will still need a valuation. This practice is not as prevalent in Scotland
Annual Percentage Rate (APR) – The APR shows the total cost of taking out a mortgage or any other loan. It includes not only the interest rate but also any other charges you might have to pay, so this is can be the best way to compare mortgages
Arrears – If you get behind with your mortgage payments you are in arrears. The overdue amount is the amount you are in arrears by. If you get into arrears, the lender may wish to repossess your house
Bank Base Rate (BBR) – This is the interest rate set by the Bank of England once a month and this is used by mortgage lenders to set their Standard Variable Rate (SVR)
Broker – This is an intermediary who will help you to find, choose and apply for a mortgage. There is usually a commission or fee for the service
Buildings Insurance – All lenders require that you take out buildings insurance as part of the terms and conditions of your mortgage. It should cover the entire cost of rebuilding your property. Most lenders offer their own buildings insurance but you are free to shop around and can often find cheaper
Capital – This is the amount of money you borrow from the lender as the mortgage. Also sometimes referred to as the ‘advance’ or ‘principal amount’
Capital & Repayment Mortgage – also called a ‘capital and interest’ mortgage or ‘repayment’ and means that you are paying part capital and part interest with each payment.
Capped Rate Mortgage – This is where the interest rate of your mortgage is guaranteed not to rise about a specific level during an agreed period, often three to five years.
Cap & Collar Mortgage – This is similar to the Capped Rate Mortgage but it also sets a minimum interest rate level as well as the maximum.
Cashback Mortgage – This is any mortgage where the lender offers some sort of cashback. For example, they may offer 5% of your mortgage as cashback, so if you borrowed a £100,000 mortgage, then once the mortgage had gone through the lender would give you a lump sum of £5,000 to spend on whatever you wish. However, there is usually a minimum amount of time that you need to stay with the lender before you remortgage or you may need to pay them back the cashback.
CAT Standards – CAT stands for Charges, Access and Terms. These are government specified standards set for mortgages. CAT Standard mortgages didn’t prove to be very popular so you’ll probably find it quite difficult to find one.
Deposit – This is the amount of money that you pay or ‘put down’ towards the purchase of your house. For example, if you’re buying a house for £100,000 and you put in £10,000 of your own money and borrow £90,000 from the lender, then you paid a deposit of £10,000 or 10%
Early Redemption – When you pay off your mortgage before you get to the end of the term or the agreed special deal, this is called an ‘early redemption’. Your lender may charge a penalty for it and this is called an ‘early redemption charge’
Endowment Mortgage – see Interest Only Mortgage and Endowment Policy
Endowment Policy – This was a savings plan very popular in the 1980’s that ran alongside an interest only mortgage and used to repay the capital at the end of the mortgage term.
Endowment Shortfall – Many people who took out an endowment policy in the 1980’s found that the policy didn’t make enough money to pay off the mortgage at the end. This is called an ‘endowment shortfall’
Equity – This is the difference between what your house is worth and the amount of mortgage you owe. If for example your house is worth £100,000 and your mortgage is £90,000, your equity is £10,000. However, if your house is worth £100,000 and your mortgage is higher, say £110,000, then you are in negative equity of £10,000.
Guarantor – This is someone who offers to back or guarantee your mortgage so that if you default on the loan, the lender will be able to go after the guarantor for the money. The guarantor will be legally responsible for making the payments so it is a big commitment. The lender will want to assess the guarantor’s ability to make payments. Usually used by students or those on a low income, where their parents offer to act as guarantor.
Higher Lending Charge (HLC) – Previously known as the Mortgage Indemnity Guarantee (MIG), but also previous known as a Mortgage Insurance Premium (MIP) or High Loan To Value fee. This is an insurance policy for the benefit of the lender, that you have to pay for. If you borrow more than the lender’s specific Loan-To-Value limit, this insurance policy will cover the lender if you default on your mortgage. For example, if you borrow £90,000 on a £100,000 house that is a 90% loan-to-value. You will then pay a one-off fee for the Mortgage Indemnity Guarantee. If you then default on the mortgage, the lender will repossess your home and sell it. If the lender cannot sell the house to cover the remaining mortgage, the insurance pays them the excess.
Income Support Mortgage Interest (ISMI) – If you are on benefits or unemployed and have problems paying your mortgage, you may be able to claim ISMI. This helps to pay the interest on the mortgage loan – but not the capital.
Independent Financial Adviser (IFA) – IFA’s give independent, impartial advice on any aspects of your personal finances. They can help you find the right mortgage, insurance, savings or pension for your circumstances.
Independent Savings Account (ISA) – Tax efficient savings plan
Interest – As well as paying back the amount that you borrowed from the lender, you’ll also have to pay interest. This can be calculated daily, monthly or annually, depending on the mortgage terms you agreed.
Interest Only Mortgage – If you have an interest only mortgage, this means that you are paying just the interest with each payment to the lender. At the end of the mortgage term you still owe the same amount of capital as you borrowed. You should be paying into some sort of investment plan as well as the interest only payments in the hope that the investment will clear your mortgage debt at the end of the term – and will hopefully give you a surplus amount as well. Slightly risker than Capital & Repayment Mortgages.
Intermediary – This is the advisor who helps you to find, choose and apply for the mortgage. It could be an Independent Financial Advisor (IFA), a mortgage advisor, mortgage broker firm, a solicitor or an estate agent.
Joint Mortgage – If you take a mortgage out with another person, for example, a partner, spouse, friend or anyone else, this is known as a joint mortgage
Lender – This is the bank or the building society who lends you the money for the mortgage
Letting – This is when you rent out or ‘let’ your house of part of your house. If you have a mortgage on the house, you will need your lender’s permission to let the house out
Loan To Value (LTV) – This is the percentage of the house value that you borrow. For example, if the house is worth £100,000 and you borrow £90,000 then you have a 90% LTV. If your mortgage is a high LTV, then you may have to pay a Higher Lending Charge
Mortgage Certificate – see Agreement In Principle
Mortgage Indemnity Guarantee (MIG) – Now officially known as the Higher Lending Charge (HLC), but also previous known as a Mortgage Insurance Premium (MIP) or High Loan To Value fee. This is an insurance policy for the benefit of the lender, that you have to pay for. If you borrow more than the lender’s specific Loan-To-Value limit, this insurance policy will cover the lender if you default on your mortgage. For example, if you borrow £90,000 on a £100,000 house that is a 90% loan-to-value. You will then pay a one-off fee for the Mortgage Indemnity Guarantee. If you then default on the mortgage, the lender will repossess your home and sell it. If the lender cannot sell the house to cover the remaining mortgage, the insurance pays them the excess.
Mortgage Interest Run On (MIRO) – If you are unemployed, you may be able to claim Income Support Mortgage Interest (ISMI). When you return to work, it is possible to continue getting help with the mortgage interest for an extra four weeks. You do not need to claim MIRO, it is paid automatically.
Mortgage Payment Protection Insurance (MPPI) – Also called accident, sickness and unemployment cover (ASU), MPPI is insurance that will keep up your mortgage repayments for a period of time if you are unable to work because of accident, sickness or redundancy. The redundancy cover will not kick in for the first few months of the policy. Note this is different from Mortgage Protection Insurance (MPI)
Mortgage Protection Insurance – This is life insurance that runs alongside the mortgage to make sure that if you or your partner dies, the mortgage will be paid off
Mortgage Rescue Scheme – These are schemes run by lenders and also offered by some private institution, where if you are having trouble paying your mortgage then you can sell your house but stay there as a tenant paying rent. You will generally have to sell your house for less than it is actually worth though
Negative Equity – If your mortgage is higher than the value of the house, you are in negative equity. For example, if your house is worth £120,000 but your mortgage is £130,000 then you are said to have a negative equity of £10,000
Ombudsman – This is a ‘watchdog’ organization. The one relating to mortgages is called the Financial Services Ombudsman. They offer free, impartial advice for consumers and help to resolve any disputes or complaints with lenders. See the Financial Services Ombudsman website for more information
Pension Scheme Mortgage – This is a mortgage where you use part of your pension to pay off the mortgage. Particularly well suited to higher rate taxpayers or self-employed
Redemption – This is when you pay off your whole mortgage, either because you’ve reached your final payment, won the lottery or you’re remortgaging with a different lender
Remortgage – This is when you switch to a different lender or different mortgage deal, without moving house
Repayment Mortgage – Also called a ‘capital and interest’ mortgage or ‘capital and repayment’ and means that you are paying part capital and part interest with each payment. See our article on Repayment Methods for more information
Repossession – If you don’t keep up the repayments on a mortgage secured on your home, the lender can repossess the house and you will be evicted
Stamp duty – this is a tax levied by the government when you buy a home. Houses below a certain value or in certain redevelopment areas are exempt and the rate increases according to the value of the home
Standard Variable Rate (SVR) – This is the lender’s standard interest rate, after any special deals have ended, and goes up and down according to the base rate. Never pay this! By reading this site, you’ll learn why
Term – This is the length of time that you have taken your mortgage over. The normal is 25 years but you can have more or less
Valuation – Before the mortgage is approved, a valuer needs to look at the property and assess whether it is suitable security for the mortgage loan. The valuer must be approved by the lender and you usually have to pay for it, although some lenders offer deals. See also Survey, as this is different
Value – How much your house is worth at the moment. This may be more or less than the amount you paid for your house
If all of this seems confusing, do not worry. Many people attend CeMAP training courses who have never even heard of these terms, and some have never even had a mortgage. If they can do a CeMAP training course in five days, pass the exam and go on to become successful mortgage advisors, then so can you.
We have CeMAP training courses in Birmingham, Scotland, Manchester, Liverpool, Leeds, London and many more. Ring for your nearest course.