Navigating the world of mortgages can feel like learning a new language. But fear not! We’ve got you covered with this handy glossary to help you understand the key terms.
Loan to Value (LTV)
Loan to Value, often abbreviated as LTV, is a measure of the amount you need to borrow compared to the value of the property you want to buy. It is expressed as a percentage. For example, if you’re buying a property worth £200,000 and you have a deposit of £20,000, you’ll need to borrow £180,000. This means your Loan to Value ratio is 90% (£180,000 divided by £200,000).
The higher the LTV, the higher the risk for the lender, which often results in higher interest rates. Conversely, a lower LTV means less risk for the lender, which can result in better interest rates for you.
Here’s a more detailed example:
- Property Price: £250,000
- Deposit: £50,000
- Loan Amount: £200,000
- Loan to Value (LTV): (Loan Amount divided Property Price) multiplied by 100 = (£200,000 / £250,000) x 100 = 80%
So, in this example you’re putting down a 20% deposit which means your LTV is 80%.
Capital and Interest
Also known as a capital repayment mortgage. This means that over the term of the mortgage, you pay capital (to decrease your mortgage balance), and interest. Once the term of the mortgage is over, your mortgage balance will be £0 and you will own the property outright.
Mortgage Term
This is how long the mortgage lasts for.
Overpayments
Many lenders allow you to make overpayments to your mortgage; this is usually capped at a certain percentage % of your mortgage balance per year. You could overpay each month, or you could pay off lump sums.
Arrangement Fee
Some lenders will have an arrangement fee on their mortgage products; this usually varies and can be a fixed amount or a percentage of how much you are borrowing. This fee can be paid up front upon submission of the application, or, where possible, this can be added to your mortgage balance where interest will be paid on top.
Stamp Duty
This may be applicable when purchasing a property or transferring a share in a property. The amount payable depends on whether you are a first-time buyer, moving home or buying an additional property. For a stamp duty estimate, click here.
Fixed Rate
This is a rate that you lock in for a certain period, ensuring your mortgage payments stay the same. For example, if you choose a 5-year fixed rate at 4%, your interest rate won’t change for those five years, providing stability and predictability. You will usually be tied into the fixed rate product for the duration of the fixed rate meaning you cannot exit the deal without paying Early Repayment Charges (ERCs).
Tracker Rate
This is an interest rate that is subject to change. These types of rates are usually adjusted by the Bank of England’s Base Rate which is subject to change mostly each month. If the Base Rate reduces, so will your mortgage interest rate and payment for the next month. If the Base Rate increases, so will your mortgage interest rate and payment for the next month.
Standard Variable Rate (SVR)
This is a lender’s main interest rate. If you are not on a promotional rate, for example a fixed rate, you will pay the lender’s SVR which is usually higher than a promotional rate.
Early Repayment Charge (ERC)
This is an exit fee charged by the lender (amounts vary by product & provider) if you exit a promotional deal early, or if you repay the loan in full before the deal end date.
Bank of England Base Rate
This is the UK’s main interest rate, set by the Bank of England, which influences how much you pay on your mortgage.
Exchange of Contracts
This is when the purchase of a property becomes legally binding for all parties involved. This is the date when Buildings Insurance must be in place for the buyer.
Completion
This is the final stage of the house buying process, which comes after exchange of contracts. This is when all funds are released, and you get the keys to your new home.
Buildings Insurance
This is MANDATORY when you have a mortgages. The sum insured must cover the full re-build cost of the property. This must be in place for the full mortgage term, or you are in breach of your mortgages conditions.
Your understanding throughout the process is crucial. We’re here to help you every step of the way!
If you need help or advice on mortgages, you can book a meeting with an adviser by clicking here.
https://onerooffinancial.co.uk/contact/
Your home may be repossessed if you do not keep up repayments on your mortgage.
Blog written: 17/02/2025
The information contained within this blog was correct at the time of publication (17/02/2025), and is subject to change.
