Mortgage language explained

Financial terminology can sometimes be confusing, so our guide unpicks some of the terms and explains them in plain English.

Additional borrowing

When a homeowner increases their borrowing from their mortgage lender to release some of the equity available in their property.

Annual Percentage Rate of Charge (APRC)/Overall Cost for Comparison

This shows the overall annual cost of a mortgage, including interest and fees. It’s a useful way to compare mortgages between lenders.

Application fee

This fee is for assessing and processing an application (even if the application is unsuccessful or it is withdrawn). At M&S Bank, we will refund the application fee if the application was declined because the property was unsuitable and a new application is submitted within 3 months for a different property.

Bank of England base rate

An interest rate set by the Bank of England which can fluctuate up and down. Tracker rate mortgages are usually set at a fixed margin above the base rate.

Capital repayment

Also known as ‘capital and interest repayment’, this is when each month the repayment covers the interest due and part of the capital borrowed. The total amount owed is reduced every month.

Early repayment charges

A charge you may have to pay if you make more overpayments than your mortgage terms allow, or if you switch your mortgage to another rate or lender whilst you are in an agreed period (e.g. whilst you are on a fixed rate term), or if you redeem your mortgage early. Details of any early repayment charge will be set out in your ESIS document.

Equity

This is the difference between the property's actual value and the outstanding mortgage.

Estimated property value

A fair market value put on the property being mortgaged. This will not necessarily be the price paid.

European Standardised Information Sheet (ESIS)

Also called a ‘mortgage illustration’, this information sheet allows lenders to set out the details of all associated rates and fees for a mortgage product in the same format so it’s easier for you to compare products.

Existing M&S Bank Mortgage customer

A person who holds an M&S Bank Mortgage.

Exit fee

A fee charged by some lenders to close your mortgage account once you’ve repaid your mortgage. M&S Bank does not charge an exit fee.

Extended tie-in period

This is a period of time beyond any introductory discount or fixed rate term. If the borrower moves their mortgage elsewhere during this tie-in period, they may have to pay an early repayment charge. M&S Bank does not stipulate any extended tie-in periods.

Fee Saver

Some lenders offer mortgages without charging some of the usual fees associated with taking a new mortgage and the offer will vary from lender to lender. At M&S Bank, ‘Fee Saver’ means that no application, booking or completion fees are charged. Other fees and charges may apply including, but not limited to, valuation fees and legal fees, as well as charges levied by the current lender (if applicable).

First time buyer

Lenders define ‘first time buyers’ differently. At M&S Bank, to be eligible for our First Time Buyer mortgages, you or another party to the mortgage must be buying your first property. You should seek professional advice on eligibility for stamp duty land tax relief for first time buyers.

Fixed rate mortgage

A mortgage where the interest rate is fixed for an agreed period of time. During that period, monthly mortgage payments won’t change, no matter what happens to interest rates in general.

Fixed until

The date when a fixed rate comes to an end.

Funds transfer fee

A funds transfer fee, also known as a completion fee, covers the cost of electronically transferring the mortgage funds to the borrower, solicitor or licensed conveyancer.

Initial rate period

The period during which any fixed, tracker or discounted rate applies. Once the rate period ends, the mortgage rate usually reverts to the lender’s standard variable rate.

Interest only

This is when the monthly mortgage payment only covers the interest due. The capital amount borrowed will need to be repaid in full at the end of the mortgage term.

Interest rate

The percentage rate at which the lender calculates the interest they charge the borrower for the mortgage.

Interest type

There are different ways that the monthly interest payment can be set. A fixed rate stays the same for an agreed period. A tracker or variable rate can go up and down over the term of the mortgage.

Loan to value (LTV)

This is the percentage of the property value that a customer wants to borrow by way of a mortgage. For example, an £80k mortgage on a property valued at £100k has an 80% LTV.

Lump sum payment

A one-off payment (over and above any regular monthly repayment) made by the customer to reduce the outstanding balance on their mortgage. Early repayment charges may apply in some circumstances.

Monthly repayment

This is the amount a customer has to pay each month calculated by reference to the current interest rate.

Mortgage term

The number of years a mortgage lasts for.

New build property

Different lenders will have different criteria for defining what is classified as a ‘new build’ property. At M&S Bank, we classify a ‘new build’ as a property that:

  • has been built in the last 24 months, including property bought directly from a builder or developer
  • has yet to be occupied for the first time and/or
  • is yet to be occupied in its current form, for example following a renovation or conversion.

Lending criteria for new build properties can vary, so please get in touch if you are considering buying a new build.

Outstanding balance

The amount of an existing mortgage that is still owed to the lender.

Overpayment

When a borrower chooses to make an additional repayment(s) over and above the agreed monthly repayments. Overpayments could incur early repayment charges.

Overpayment allowance

This is how much extra can be repaid towards the mortgage balance, in addition to the agreed monthly repayments, without incurring any early repayment charges. If the overpayment allowance is exceeded, an early redemption charge may be charged on the amount repaid over the allowance.

Porting

When a homeowner sells one property and buys another, they may be able to ‘port’ their mortgage. Porting means to transfer a mortgage loan from one property to another.

Product fee

A product fee, also known as a booking or arrangement fee, is sometimes charged to secure a particular mortgage rate or deal.

Remortgage

When a person transfers their mortgage from or to another lender.

Standard variable rate

The standard variable rate is an interest rate set internally by the lender. It does not track the Bank of England base rate and may go up and down over the term of the mortgage.

Standard valuation report

This report is carried out by the lender to assess whether the property is adequate security for the loan. Customers shouldn’t use it to assess either the suitability or saleability of the property or its market value.

Switching

When a customer moves to a new mortgage rate with the same lender.

Tracker rate mortgage

A mortgage where the interest rate is set at a fixed percentage above the Bank of England (BoE) base rate. The interest rate payable will fluctuate in line with any changes to the BoE base rate.

The material contained in this article is intended for information purposes only and not as advice.

You should obtain professional legal or other advice if you are unsure about the effect on you of any matter in this article.

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Published: 26 January 2018

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