Comprehensive Mortgage Terminology Guide

Feb 15


Commercial Lifeline

Commercial Lifeline

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Navigating the world of mortgages can be complex, with a plethora of terms and phrases that can be confusing for both first-time homebuyers and seasoned investors. Understanding these terms is crucial to making informed decisions about your mortgage options. This guide provides a detailed explanation of the most common mortgage-related terms, helping you to demystify the jargon and better understand the intricacies of mortgage transactions.

Understanding Credit Terms

Adverse Credit

When a borrower has a history of financial difficulties,Comprehensive Mortgage Terminology Guide Articles such as missed loan payments, bankruptcies, or County Court Judgments (CCJs), they are said to have adverse credit. This can impact their ability to secure a mortgage, leading to the need for specialized mortgage products, including:

  • Bad credit mortgage
  • Poor credit mortgage
  • Non-status mortgage
  • Credit impaired mortgage
  • No credit mortgage
  • Low credit score mortgage

APR (Annual Percentage Rate)

The APR represents the annual cost of a mortgage, including interest and other fees, allowing borrowers to compare different mortgage products. It's a broader measure of the cost to the borrower than the interest rate alone.

Arrangement Fee

This is a charge levied by lenders for setting up a mortgage. It can be due upon application or at the completion of the mortgage process and is common with fixed-rate, discount, or cashback mortgages.

Tenancy and Property Ownership

AST (Assured Shorthold Tenancy)

This is a tenancy agreement that gives landlords the right to reclaim their property after a specified period, as outlined in the agreement. Most new tenancies are automatically ASTs unless specified otherwise.

Assured Tenancy

Under the Housing Acts of 1988 and 1996, landlords can charge market rent and reclaim the property under certain conditions.

Freehold vs. Leasehold

  • Freehold: The outright ownership of a property and the land on which it stands. Most houses are freehold.
  • Leasehold: Ownership of a property for a fixed term but not the land it stands on. Flats are often leasehold.

Financing and Loans

Bridging Loan/Finance

A short-term loan that allows the purchase of a property before the sale of another. It's a complex financial product that should be considered with professional advice.


A loan used to purchase a property, with the property itself serving as collateral.

LTV (Loan to Value)

The ratio of the mortgage amount to the appraised value of the property, expressed as a percentage. For example, a £90,000 mortgage on a £100,000 property has an LTV of 90%.

MIG (Mortgage Indemnity Guarantee)

An insurance policy for the lender, protecting against the property's value falling below the mortgage amount. It's typically required for borrowers with a deposit of less than 10%.

Legal and Transactional Terms


The legal process of transferring property ownership from the seller to the buyer, usually conducted by a solicitor or licensed conveyancer.

Exchange of Contracts

The point at which the buyer and seller legally commit to the sale and purchase of a property, often accompanied by a deposit payment.


The final stage in the property transaction process, where the buyer becomes the legal owner of the property.

Mortgage Types and Features

Fixed Rate

A mortgage with an interest rate that remains constant for a set period, providing stability in repayment amounts.

Interest Only Mortgage

A mortgage where the borrower pays only the interest on the loan for the mortgage term, with the responsibility to repay the principal at the end of the term.

Variable Rate

An interest rate that fluctuates over time, causing mortgage payments to increase or decrease accordingly.

Additional Fees and Costs

Early Redemption Fee

A penalty charged by lenders if a mortgage is paid off before the end of the agreed term, particularly during a fixed or discounted rate period.

Valuation Fee

A fee paid for the lender's assessment of the property's value to ensure it's suitable as mortgage security.

Stamp Duty

A tax paid by the buyer of a property, with rates varying based on the property's value. As of the knowledge cutoff in 2023, the thresholds and rates may have changed, so it's important to consult the latest government guidelines or a financial advisor.

Insurance and Protection

Buildings Insurance

Insurance that covers damage to the structure of a property, which is often a requirement when taking out a mortgage.

Life Insurance

A policy that can cover mortgage repayments in the event of the policyholder's death, ensuring the loan does not become a burden to survivors.

Term Assurance

Insurance designed to repay the mortgage upon the death of the insured, with variations such as Level Term Assurance and Reducing Term Assurance to match the balance of a repayment mortgage.

Miscellaneous Terms


A sequence of buyers and sellers involved in linked property transactions, where each sale and purchase is dependent on another.


When a seller accepts a higher offer from a new buyer after already accepting an initial offer, leaving the original buyer without the property.


The process of paying off one mortgage with the proceeds from a new mortgage, often done to take advantage of better interest rates or to borrow additional funds against increased property value.


The lender's process of assessing the risk of a loan application, considering the borrower's creditworthiness and the property's value.

For a more in-depth understanding of these terms and how they apply to your specific situation, it's advisable to consult with a mortgage advisor or financial expert. The mortgage landscape is ever-evolving, with new products and regulations frequently introduced. Staying informed can help you make the best decisions for your homeownership journey.

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