Blog written 13/11/2023
Here’s a glossary of some of the most common phrases you will hear when taking out a new mortgage.
Understanding Mortgage Terminology, Loan to Value (LTV)
This is the percentage of your mortgage loan when compared to the purchase price or value of the property that you are borrowing against. For example, if your loan is £150,000 and the value is £200,000, your Loan To Value would be 75%. You can calculate your loan to value by dividing your loan amount by the value which is this example would be £150,000 divided by £200,000 multiplied by 100.
Understanding Mortgage Terminology, 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 complete, your mortgage balance will be zero and you will own the property outright.
This is how long the mortgage loan is for.
Many lenders allow you to make overpayments to your mortgage within certain limits. The most common overpayment allowance is 10% of your mortgage balance per year. You could overpay each month, or you could pay off a lump sum. You can contact your lender for details of your overpayment allowance.
Some lenders will charge an arrangement fee to set up a mortgage product. This fee can vary but is commonly £999. This fee can be paid up front when you submit an application, or, in some cases, you can add it to your mortgage balance. There are disadvantages to adding it to your loan as you will be charged interest and the amount you owe will increase.
This is a fee which may be payable when purchasing a property or transferring the ownership of part of a property. The amount payable is dependent on your status i.e. if you are a first-time buyer, a home mover or purchasing an additional property. The fee is also based on the price of the property. You can calculate stamp duty for a purchase by visiting https://www.tax.service.gov.uk/calculate-stamp-duty-land-tax/#!/intro
Early Repayment Charges
This is an exit fee charged by the lender if you leave a promotional deal early or exceed the overpayment allowance. The amount varies and you can check your applicable early repayment charge by contacting your mortgage lender.
Exchange of Contracts
This is when the purchase of a property is legally binding for both parties involved (seller & buyer) without consequences to pull out. At this date, the buyer is asked to pay their deposit and they must purchase Buildings Insurance.
This is the final stage of the buying process. It usually comes after exchange of contracts but can be on the same day. This is when funds are released by the mortgage lender and your solicitor sends the monies required to the seller to purchase your new home. Once monies are safely received by the seller, the keys are officially released to the buyer.
For more information on the mortgage advice service we provide please follow the link. https://onerooffinancial.co.uk/mortgage-advice/
Your home may be repossessed if you do not keep up repayments on your mortgage.
The information contained within this blog was correct at the time of publication (13/11/2023), and is subject to change.