Mortgage Glossary Mortgage Terms Explained A–Z
Mortgages come with their own language.
AIP, APRC, LTV, ERC, SVR, conveyancing, exchange, completion — if you're buying your first home or arranging a mortgage for the first time, it can sometimes feel as though everyone is speaking in abbreviations.
This mortgage glossary explains some of the most common terms you may encounter when buying a property, applying for a mortgage or reviewing an existing mortgage.
You don't need to memorise them. Use this page as a reference whenever you come across a mortgage term you don't recognise.
A
Agreement in Principle (AIP)
An initial indication from a mortgage lender of what it may potentially be prepared to lend based on the information and checks carried out at that stage.
It may also be called a Decision in Principle (DIP) or Mortgage in Principle (MIP).
An AIP is not a formal mortgage offer and doesn't guarantee that a mortgage application will ultimately be approved.
Read our Agreement in Principle Guide for a more detailed explanation.
APRC
Annual Percentage Rate of Charge.
APRC is designed to show the annual cost of a mortgage using prescribed assumptions and taking certain mortgage-related costs into account.
It can be useful when looking at mortgage information, but it shouldn't be the only factor used when comparing mortgage products.
Arrangement Fee
A fee that may be charged by a lender for a particular mortgage product.
It may also be described as a product fee.
Depending on the mortgage, it may be possible to pay the fee upfront or add it to the mortgage. If added to the mortgage, interest may be charged on it while it remains outstanding.
B
Bank of England Bank Rate
The official interest rate set by the Bank of England's Monetary Policy Committee.
Bank Rate can influence borrowing and savings rates across the economy.
However, fixed mortgage rates don't necessarily move by exactly the same amount or at exactly the same time as changes to Bank Rate.
Base Rate
A term commonly used when referring to the Bank of England Bank Rate.
Some variable and tracker mortgages may be directly linked to Bank Rate.
Bridging Finance
Short-term finance commonly used where funding is required for a limited period.
It can be used in certain property transactions, but bridging finance works differently from a standard residential mortgage and can involve higher costs and different risks.
Buildings Insurance
Insurance designed to cover the physical structure of a property against specified risks, subject to the terms and exclusions of the policy.
A mortgage lender will normally require suitable buildings insurance to be in place at the appropriate stage of the purchase.
C
Capital
The amount of money borrowed, excluding interest.
On a repayment mortgage, part of each monthly payment normally goes towards reducing the outstanding capital.
Capital and Interest Mortgage
Another term for a repayment mortgage.
Your regular mortgage payments include both interest and repayment of the amount borrowed.
Assuming all required payments are made, the mortgage is designed to be repaid by the end of the agreed term.
Completion
The stage when the property purchase is legally completed and ownership transfers to the buyer.
The purchase funds are transferred through the solicitors, and the buyer can normally collect the keys once completion has been confirmed.
Completion Date
The agreed date on which the property transaction completes.
Conveyancing
The legal process involved in transferring ownership of a property from one party to another.
A solicitor or licensed conveyancer normally carries out this work.
Credit Check
A search of information held by credit-reference agencies.
Mortgage lenders may use credit information as part of assessing a mortgage application.
There are different types of searches, including soft and hard searches.
Credit Report
A record containing information relating to your credit history.
It can include credit accounts, payment history, outstanding balances, address information and certain public-record information.
Reviewing your credit information before applying for a mortgage can help you identify potential issues or inaccuracies.
D
Decision in Principle (DIP)
Another term commonly used for an Agreement in Principle (AIP).
It is an initial indication of potential lending rather than a formal mortgage offer.
Deposit
The portion of the property purchase price that isn't being funded by your mortgage.
For example, if you purchase a property for £250,000 using a £225,000 mortgage, you would be providing £25,000 towards the purchase price.
Discount Mortgage
A variable-rate mortgage where the interest rate is set at a discount from a specified lender rate for an agreed period.
The rate can change, so the mortgage payment may also change.
E
Early Repayment Charge (ERC)
A charge that may apply if you repay or redeem a mortgage, or make repayments above permitted limits, during a specified period.
ERC structures vary between mortgage products.
You should understand any applicable ERCs before taking a mortgage, particularly if you may move home or repay the mortgage during the product period.
Equity
Broadly, the difference between a property's value and the borrowing secured against it.
For example, if a property is worth £300,000 and the outstanding mortgage is £200,000, there is £100,000 of equity before taking account of other secured borrowing or transaction costs.
Exchange of Contracts
An important legal stage of purchasing a property in England and Wales.
Your solicitor or conveyancer will explain the implications of exchange. Once contracts have been exchanged, the transaction generally becomes legally binding.
F
Fixed-Rate Mortgage
A mortgage where the interest rate is fixed for an agreed period.
During the fixed period, the mortgage interest rate doesn't normally change because wider market interest rates have moved.
Common fixed periods include two and five years, although other periods may be available.
Freehold
A form of property ownership where you generally own the property and the land it stands on indefinitely, subject to the legal title and any applicable rights or restrictions.
This differs from leasehold ownership.
G
Gifted Deposit
Money provided by another person, often a family member, towards a property deposit.
Mortgage lenders and solicitors may require evidence concerning the gift, the person providing it and the source of the funds.
Tell your mortgage adviser early if any part of your deposit is being gifted.
Guarantor Mortgage
A broad term sometimes used for mortgage arrangements involving financial support or guarantees from another person.
The precise structure and responsibilities depend on the particular mortgage product.
H
Hard Credit Search
A credit search that may be visible to other organisations reviewing your credit file.
Some lenders may conduct a hard search during parts of the mortgage process.
Help to Buy ISA
A government savings scheme that is closed to new accounts. Existing eligible account holders may still have relevant rights subject to the scheme's rules and deadlines.
It shouldn't be confused with a Lifetime ISA.
Higher Lending Charge
A fee that some lenders may apply in particular higher loan-to-value lending situations.
Whether one applies depends on the lender and mortgage product.
I
Income Protection
Insurance designed to provide an income if illness or injury prevents you from working, subject to the policy's definitions, terms, exclusions and underwriting.
Interest
The cost charged by a lender for borrowing money.
The interest rate applied to your mortgage affects your monthly payments and the overall cost of borrowing.
Interest-Only Mortgage
A mortgage where the contractual monthly payments generally cover interest rather than repaying the capital borrowed.
A suitable repayment strategy is therefore required to repay the outstanding capital at the end of the mortgage term.
Interest-only mortgages are subject to lender criteria and aren't appropriate for every borrower.
J
Joint Mortgage
A mortgage taken by more than one borrower.
Each applicant's income, commitments, credit position and circumstances may be considered by the lender.
Borrowers are generally jointly responsible for the mortgage obligations in accordance with the mortgage contract.
L
Leasehold
A form of property ownership where you own the right to occupy the property for the remaining term of a lease rather than owning it indefinitely.
Leasehold properties can involve matters such as:
Remaining lease length
Service charges
Ground rent
Management arrangements
Lease restrictions
The lease can also affect mortgage availability.
Lender
The bank, building society or other financial institution providing the mortgage.
Lifetime ISA (LISA)
A type of Individual Savings Account with specific government rules concerning contributions, bonuses and permitted withdrawals.
Eligible first-time buyers may be able to use Lifetime ISA funds towards an eligible property purchase, subject to the applicable rules.
Loan-to-Value (LTV)
The mortgage amount expressed as a percentage of the property's value or purchase price used by the lender.
For example:
Property value: £200,000
Mortgage: £180,000
LTV: 90%
LTV can influence which mortgage products and rates are available.
M
Mortgage
A loan secured against property.
If you don't maintain the required mortgage repayments, the lender may ultimately take possession of the property in accordance with the applicable legal process.
Mortgage Adviser
A professional who helps clients understand their mortgage requirements and, where advice is provided, recommends an appropriate mortgage based on their circumstances and the products available within the adviser's scope of service.
Mortgage Illustration
A document containing important information about a proposed mortgage.
It can include the interest rate, monthly payments, mortgage term, fees, APRC, Early Repayment Charges and other product information.
You may also hear it called an ESIS.
Mortgage in Principle (MIP)
Another term sometimes used for an Agreement in Principle or Decision in Principle.
Mortgage Offer
The formal mortgage offer issued by the lender after it has assessed the application and property to its satisfaction, subject to the conditions contained within the offer.
A mortgage offer is different from an Agreement in Principle.
Mortgage Term
The period over which the mortgage is arranged.
For a repayment mortgage, a longer term generally reduces the contractual monthly payment but can increase the total interest paid because the money is borrowed for longer.
N
Negative Equity
A situation where the outstanding borrowing secured against a property exceeds the property's value.
For example, if a property is worth £190,000 but the outstanding mortgage is £200,000, the borrower may be in negative equity.
O
Overpayment
An additional mortgage payment above the normal contractual amount.
Many mortgages permit some level of overpayment, but limits and Early Repayment Charges can apply.
Check the terms of your particular mortgage before making additional payments.
P
Porting
The process of applying to take an existing mortgage product with you when moving to another property.
A portable mortgage doesn't guarantee that you'll be able to transfer it.
The lender will normally reassess your circumstances and the new property against its criteria at the time.
Product Fee
A fee associated with a particular mortgage product.
A mortgage with a lower interest rate but a substantial product fee isn't automatically cheaper than a product with a slightly higher rate and lower fees.
Protection
A general term for insurance designed to provide financial support when certain insured events occur.
This can include products such as life insurance, critical illness cover and income protection.
R
Remortgage
Replacing an existing mortgage with a new mortgage, often with a different lender, without moving home.
People may consider remortgaging when their existing deal is approaching its end, when their circumstances change or for other financial reasons.
Eligibility and suitability depend on individual circumstances.
Repayment Mortgage
A mortgage where the regular payments include both interest and repayment of capital.
Assuming the required payments are maintained, the mortgage is designed to be repaid by the end of the agreed term.
S
Soft Credit Search
A type of credit search that doesn't generally have the same visibility to other lenders as a hard credit search.
Some mortgage lenders use soft searches when carrying out an Agreement in Principle.
Solicitor
A legal professional who may handle the conveyancing involved in buying, selling or remortgaging a property.
Standard Variable Rate (SVR)
A variable mortgage rate set by a lender.
Borrowers may move onto an applicable reversion rate after an initial mortgage deal ends if another arrangement hasn't been made.
Because it is variable, the rate and mortgage payments may change.
Survey
An assessment of a property's condition carried out for the buyer.
A buyer's survey shouldn't be confused with the lender's mortgage valuation.
T
Tracker Mortgage
A variable-rate mortgage where the interest rate tracks a specified external rate, commonly Bank of England Bank Rate, plus or minus an agreed margin.
If the tracked rate changes, the mortgage rate can change accordingly, subject to the mortgage terms.
U
Underwriting
The lender's assessment of a mortgage application.
The lender may examine matters including:
Income
Employment
Affordability
Credit history
Existing commitments
Deposit
Supporting documents
Property information
The underwriter may request additional evidence or clarification before making a lending decision.
V
Valuation
An assessment used by the mortgage lender to help determine whether the property represents acceptable security for the proposed mortgage.
A lender's mortgage valuation is primarily for the lender's benefit and shouldn't automatically be treated as a detailed survey of the property's condition.
Variable-Rate Mortgage
A mortgage where the interest rate can change.
Tracker mortgages and certain lender variable-rate products are examples.
If the mortgage rate changes, the monthly payment may also change.
Still Confused by Mortgage Terminology?
Don't worry if some mortgage terminology still feels unfamiliar.
You aren't expected to become a mortgage expert simply because you're buying a home.
The important thing is that you understand the mortgage you're considering, the costs involved and the commitments you're making before proceeding.
Our other Guides & Resources explain the process in more detail, including:
Cambs Ely Mortgages helps clients in Ely, Cambridge, Cambridgeshire, East Anglia and across England understand their mortgage options and navigate the mortgage process.
Building Blocks for a Brighter Future.
#BuildingBlocksForABrighterFuture
Important Information
This glossary provides general explanations of commonly used mortgage and property terminology. Individual lenders, insurers, legal professionals and mortgage products may use terms differently or apply specific definitions.
This information is for general educational purposes and shouldn't be treated as personalised mortgage, financial, legal, tax or insurance advice.
Your home may be repossessed if you do not keep up repayments on your mortgage.