Here’s a list of mortgage terms and phrases you might come across and an explanation of what they mean.
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Royal Bank Mortgage Guides
Mortgage Jargon Buster
A
Agreement in Principle
An Agreement in Principle (AIP), also known as a mortgage in principle or decision in principle, gives you an understanding of how much you may be able to borrow towards the purchase or remortgage of a property. It's a document that you can use with an estate agent, or those selling a property, to show that you may be in a financial position to purchase it.
APRC
The annual percentage rate of charge (APRC) is the total cost of the loan expressed as an annual percentage. The APRC is provided to help you compare different offers.
Arrears
If you fall behind on your mortgage payments you are "in arrears".
Arrangement fee
An arrangement fee is a charge you pay the lender for setting up your mortgage. You can sometimes add this fee to your mortgage instead of paying it upfront, but this means you’ll pay interest on it over time, which can make the total cost higher.
B
Base Rate
A rate of interest set by the Bank of England, which tracker mortgage rates and lenders' standard variable rates usually follow.
Broker/Intermediary
An independent adviser who can help you with mortgages and other financial matters.
C
Capital and Interest Payment
Your monthly payment covers the interest and also reduces the total balance outstanding.
CHAPS Fee
A fee to cover the cost of electronically transferring the mortgage funds to the borrower.
Collar
A collar is a limit that can apply to some variable or tracker mortgages. It sets a minimum and/or maximum interest rate, which means the rate can only move within a defined range. RBS doesn't don't currently offer collars.
Conveyancing
Is the legal process of buying and selling property. This can be done by a solicitor or specialist-licensed conveyancer.
Cost of Credit
The difference between the amount you borrow and the amount you’ll end up paying back taking into account interest and other charges.
D
Decision in Principle
A Decision in Principle is another term used for what we refer to as an 'Agreement in Principle'.
Deeds
Title deeds are the legal documents which record the ownership of a property and any accompanying land.
The amount you need to pay towards the total purchase price of the property. This varies depending on the product and lender. Some lenders offer an as little as 5% deposit mortgage for first time buyers.
Discounted Standard Variable Rate
A discounted Standard Variable Rate (SVR) mortgage offers a lower rate than your lender's Standard Variable Rate for a set period. Your rate can still go up or down if the lender changes its SVR. When the discount ends, you'll usually move onto the full SVR. RBS doesn't currently offer discounted SVR mortgages.
E
Early Repayment Charge (ERC)
Some mortgages, such as a fixed rate mortgage, charge a fee if you pay back the loan early. This can vary, so check your original letter of approval or terms and conditions for the amount. This is known as an Early Repayment Charge (ERC).
End Date
Refers to either the end date of your mortgage deal (like a fixed rate period) or the maturity date of your entire mortgage.
Estimated Cost of First Year
The total amount of money you’re expected to pay towards your loan during the first 12 months.
Estimated Monthly Payment
A calculation of how much money you’ll pay each month towards a mortgage.
Estimated Property Value
A calculation of what a property is worth on the current market.
Equity
Is the difference between the current value of your home and the amount outstanding on your mortgage.
Exit Fee
An exit fee is a charge some lenders apply when your mortgage is paid off and your account is closed.
F
Fixed Rate mortgage
A mortgage where the interest rate stays the same for a specific period (e.g two or five years) even if the base rate changes in the meantime.
Freehold
You own both the property and the land it stands on.
G
Gazumping
Gazumping occurs when a seller accepts an oral offer (a promise to purchase) on the property from one potential buyer, but then accepts a higher offer from someone else. It can also refer to the seller raising the asking price or asking for more money at the last minute, after previously orally agreeing to a lower one. In either case, the original buyer is left in a bad situation, and either has to offer a higher price or lose the purchase.
Gifted deposit
A gifted deposit is when someone else, perhaps a family member, provides the funds for some of, or all, your mortgage deposit.
Guarantor
A third party who agrees to meet the monthly mortgage repayment if you are unable to. This is more common with first-time buyers, with the guarantor likely to be their parent or guardian.
H
Help to Buy
Help to Buy was a UK Government scheme that helped eligible home buyers purchase a property with a smaller deposit.
You can learn more about Help to Buy and other home ownership schemes
Higher lending charge (HLC)
This is sometimes charged by your mortgage lender if you are borrowing more than 75% of the property’s value. It protects the lender against you defaulting on your mortgage.
I
Initial Period
A specific timeframe at the start of a mortgage where a special, often lower, interest rate applies to the loan. This could last 2, 3, or 5 years. When the initial period ends, your interest rate will switch to the lender’s Standard Variable Rate (SVR).
Insurance
A policy that protects your property and/or your belongings from damage or theft, usually made up of buildings and contents insurance. Building insurance covers the physical structure of your home, while contents insurance covers objects inside the home.
Interest Only Mortgage
With an interest only mortgage, you only pay the interest on your loan each month. The amount you borrowed stays the same, so you'll need to repay the full mortgage balance at the end of the term.
Learn more about interest only mortgages.
Interest Rate
The fee a lender charges you for borrowing the money to buy a property. It’s the extra money you pay back on top of the money you borrowed (the capital). Interest rates are usually an annual percentage, but lenders calculate the charge based on your remaining loan balance each month.
Learn more about mortgage interest rates.
J
Joint Applicants / Joint Mortgages
A joint mortgage is a mortgage taken out by two people. Both applicants are responsible for making the mortgage repayments. Ownership of the property can be shared in different ways depending on the legal arrangement chosen.
L
Land Registry
The official body that holds the details of property ownership.
Land and Buildings Transaction Tax
Land and Buildings Transaction Tax (also known as Stamp Duty) is a type of tax you pay when buying a property or piece of land in Scotland.
Leasehold
You own the property but not the land it is built on for a specific number of years. Flats are usually owned on a leasehold basis. You may find it hard to get a mortgage if there are fewer than 70 years left on the lease of the property you want to buy. Leases are renegotiable, but the shorter remaining terms, the more expensive it will usually be.
LTV (Loan to Value)
LTV means Loan to Value. The size of your mortgage as a percentage of the value of your property. For instance, if you have £50,000 mortgage and your home is worth £100,000, your LTV is 50%.
M
Maturity Date
The date the mortgage must be repaid in full, or by which a new agreement needs to be taken out.
Maximum Loan Amount
The highest amount of money a lender allows you to borrow to buy a property.
Minimum Loan Amount
The lowest amount of money a lender allows you to borrow to buy a property.
Monthly Repayment
The amount you pay to your lender for your mortgage each month.
Mortgage Balance
The total amount of money you still owe on your mortgage at any given time.
Mortgage Illustration
A Mortgage Illustration should be given to you before you make a mortgage application. It describes the key things you need to know about your mortgage such as payments and fees.
Mortgage Offer
This is your guaranteed offer. Once your mortgage is approved you'll get a formal offer setting out the terms and conditions.
Mortgage in Principle
A Mortgage in Principle is another term used for what we refer to as an 'Agreement in Principle'.
Mortgage Parts
Your mortgage can be split into different parts, each with its own interest rate, term or repayment type. Together, these parts make up your total mortgage balance.
For example, you may have taken out additional borrowing to build an extension on your home. Your existing mortgage could stay on its current rate, while the additional borrowing is taken on a new rate. These would be treated as separate mortgage parts within the same mortgage.
Mortgage Term
The amount of time you are repaying your mortgage over (e.g. 25 years).
N
Negative Equity
When the value of your home falls below the amount of your mortgage.
New Build
A residential property that has been recently constructed or substantially redeveloped. Some new builds are being sold for the first time, with no prior owner or tenant. Other new builds may be less than two years old from the date of practical completion.
O
Offset Mortgage
An offset mortgage links your savings account to your mortgage. Instead of earning interest on your savings, the balance is used to reduce the amount of your mortgage that you're charged interest on.
This could lower your monthly mortgage payments or help you pay off your mortgage sooner. RBS doesn't currently offer offset mortgages.
Outstanding Balance
The total amount of money owed to the lender on a mortgage, including the remaining capital, interest, and any fees or charges.
Overpayment
This is when you pay extra, over and above your monthly mortgage payment. You could choose to make a one-off lump sum overpayment or overpay a regular amount with your normal mortgage payment. Overpayments save you interest and will shorten your mortgage term.
Overpayment Allowance
The maximum amount of extra money you can pay towards your mortgage each year. Going beyond this allowance can result in an Early Repayment Charge (ERC).
Overall Cost for Comparison
The overall cost for comparison is shown using the Annual Percentage Rate of Charge (APRC). It takes into account the interest rate and certain mortgage charges to help you compare mortgage deals from different lenders.
While it's a useful comparison tool, it's also important to consider fees, features and flexibility when choosing a mortgage.
P
Portability
Where an existing mortgage can be transferred between properties when you move house.
Payment Holiday
This is a period during which you make no payments on your mortgage. While you make no payments interest will continue to be charged. This feature is usually only available on a flexible mortgage.
Product Fee
This is a set-up fee for your mortgage. Lenders will charge different product fees so do shop around.
R
Rebuild costs
The amount it would cost to rebuild your home if it is destroyed (by fire for instance). This is needed for insurance purposes.
Redemption
A mortgage redemption or redeeming your mortgage means to pay off your entire mortgage in full. You’ll need to request a redemption statement, which shows your remaining mortgage balance, any interest due up to the payment date, and any Early Repayment Charge (ERC) that apply.
Remortgage
When a person transfers their mortgage from another lender.
Rental Yield
The amount a property earns from rent each year, shown as a percentage of its purchase price. Calculating your rental yield could give you an idea of if a buy to let property is worth the investment.
Repayment Type
The method you use to pay back a mortgage, such as capital and interest (repayment), interest only, or part and part.
Representative Example
A representative example gives an illustration of the typical costs of a mortgage, including the interest rate, monthly payments and any fees. It's designed to help you understand what a mortgage might cost.
S
Stamp Duty
Stamp Duty is a type of tax you pay when buying a property or piece of land in the UK. It has different names depending where you buy. In England and Northern Ireland it’s called ‘Stamp Duty Land Tax’, in Scotland it’s called ‘Land and Buildings Transaction Tax’ and in Wales ‘Land Transaction Tax’.
The default mortgage interest rate your lender will charge you after your initial mortgage deal ends.
Service fee
The fee charged by a lender who, with the customer's written consent, requests details from their existing mortgage lender.
T
Title Deeds
Legal proof that shows who has owned land and property since it was registered, as well as any mortgages secured on the property.
Tracker Rate Mortgage
The mortgage interest rate is set at a fixed percentage above the Bank of England (BoE) base rate. The interest rate payable will rise and fall in line with changes to the BoE base rate.
U
Underwriting
Mortgage underwriting is when a lender checks the details in your mortgage application to make sure everything is correct and that you can afford the repayments. They also look at the level of risk in lending to you, following rules set by the Financial Conduct Authority (FCA), so they can decide if the mortgage is right and safe for you and the lender.
V
Valuation
Mortgage lenders require a valuation to prove that the property is worth the amount you want to borrow.
When you're buying a property in Scotland, the home report will provide you with information about the property including the property valuation.
Variable rate
This means the interest rate can go up or down if your mortgage lender decides to change their Standard Variable Rate (SVR).