Common Mortgage Terminologies
We’ve compiled a list of relevant terms and abbreviations commonly used in the mortgage journey, along with a brief explanation of their meaning.
| Term | Comments |
|---|---|
| LTV | The loan-to-value (LTV) is essentially the size of a mortgage in relation to the value of the property you’re buying or remortgaging. The higher a deposit, the lower the loan-to-value ratio. You can calculate this by dividing the value of the mortgage needed by the value of the property. |
| ERC’s | An Early Repayment Charge (ERC) may apply if you are repaying your mortgage early or paying over your overpayment allowance. Details of any early repayment charges payable can be found in your mortgage illustration. |
| AIP/DIP | An AIP is an Agreement in Principle, and a DIP is a Decision in Principle. Both are the same thing and may also be known as a ‘Mortgage in Principle’. It is confirmation from a mortgage lender of how much they’re willing to lend you for a mortgage subject to their final approval. |
| Fixed interest rate | A fixed rate means the monthly repayments have a fixed interest rate for specified period, typically between two to five years. It means you’ll know exactly how much your monthly repayments will be for the fixed rate period. Once you come to the end of that period, you automatically revert to the standard variable rate at the time, unless you remortgage onto a better deal. |
| Tracker interest rate | A tracker interest rate mortgage is a type of variable rate mortgage which tracks the movements of another interest rate, usually the Bank of England base rate, plus a set percentage. On a tracker mortgage, your mortgage repayments, and any interest you pay on your mortgage could change monthly. Once you come to the end of that period, you automatically revert to the standard variable rate at the time, unless you remortgage onto a better deal. |
| Discounted interest rate | A discount mortgage is a type of variable rate mortgage where the lender offers you a discount on its standard variable rate (SVR), for a fixed period. Once you come to the end of that period, you automatically revert to the standard variable rate (see “SVR”) at the time, unless you remortgage onto a better deal. |
| Variable rate | With a variable rate mortgage, the interest rate is not fixed. Instead, your interest rate can go up and down over time, which means your monthly payments can vary. There are three types of variable mortgages available: standard variable rate (SVR), discounted rate, and tracker. |
| BOE base rate | The Bank of England (BOE) Base Rate is the rate the Bank of England charges other banks and lenders when they borrow money. The Base Rate is used by banks and building societies to set their interest rates on their mortgage and savings products. The Bank of England’s Monetary Committee decide whether this rate should be changed. If it does change this can affect the interest rate you pay on your mortgage or receive on savings. |
| Interest only mortgage | An interest-only mortgage is where your monthly repayments only repay the interest on the mortgage, not the mortgage itself. Savings, investments, or other assets (known as ‘repayment plans’) are usually used to pay off the total amount borrowed at the end of the mortgage term. |
| Compound Interest | Compound interest applies an annual interest rate to the principal amount and the accrual of past interest payments. How often compounding occurs depends on the lender and the financial product. Compound interest is also sometimes referred to as ‘rolled up’ interest. |
| APRC | APRC stands for annual percentage rate of charge. It’s designed to show the annual cost of a mortgage. It brings together all charges, such as fees and different interest rates, allowing you to see how much you can expect to pay over the full term if no changes are made. |
| Top slicing | Top slicing is when a mortgage lender factors in a borrower’s personal income alongside rental income from a Buy to Let property (BTL) to secure the loan. Its is used when the property’s rental income is not enough to cover the repayments of the Buy to Let mortgage. |
| ILA | Independent Legal Advice (ILA) is where a lender requires the borrower to obtain specific advice from an independent legal adviser. This is confirmation for the lender that the borrower is aware of any personal risk, that they are not subject to undue influence and fully understand the document that they need to sign. |
| BTL | A Buy-To-Let (BTL) mortgage is a mortgage you can take out to buy an investment property that you or your family will not live in, and that you intend to rent out to tenants. |
| SVR | A standard variable rate (SVR) is the interest rate that will be charged once an initial deal period on a mortgage comes to an end and is set by the lender. A standard variable rate mortgage means payments can go up or down according to changes in interest rates. |
| DTI ratio | Debt-to-income ratio (DTI) is your monthly debt payments divided by your gross monthly income. This is one-way lenders measure your ability to manage the monthly payments to repay the money you wish to borrow. You can calculate your DTI by adding up all your monthly debt payments and divide them by your gross monthly income. Different loan products and lenders will have different DTI limits. |
| LTI Ratio | The LTI (Loan To Income) ratio or limit refers to how much the mortgage applicant can borrow relative to their income per annum. Typically most lenders will allow up to 4x Income for Mortgages but some will go higher |
| ESIS/Mortgage Illustration | A European Standardised Information Sheet (ESIS) and a Mortgage Illustration are similar documents. They are produced by mortgage lenders to provide the risks and features associated with the mortgage deal. It is presented in a standard format so you can check and compare the cost and terms of the mortgage. |
| DPA | The Data Protection Act 2018 (DPA) controls how your personal information is used by organisations, businesses, or the government. It’s important to us that we protect our customer’s personal data. That’s why you’ll be asked a few questions at the beginning of a call so that we can make sure we’re speaking to the correct person. |
| Reversionary rate | This is the rate to which a mortgage will revert to at the end of any fixed rate or offer period. The rate is determined by the lender and can move up and down. |
| LIR | Lending into retirement (LIR) is the term used if a borrower’s mortgage term goes beyond their retirement age. |
| DOP | A deed of postponement (DOP) is the legal agreement between the two lenders who each have a charge over a property. It usually gives priority to the lender holding the first charge. By postponing, both lenders will still be paid, but only one will be prioritised. |
| EV | An estimate of value (EV) is an approximate valuation of a property based on information such as the property’s location, size, age, as well as information about other property listings and previously sold prices in the area. |
| Adverse credit | Adverse credit describes problems with a person’s credit history which includes such things as late payments, arrears, CCJs or defaults. People with adverse credit history are likely to have low credit scores, however there is no set score that puts someone into the adverse credit category. In fact, the scoring systems change depending on the credit agency. |
| Unencumbered | An unencumbered mortgage is a type of mortgage that is taken out on a property that is owned outright (that has no mortgage to pay on it). This could be that the mortgage has been paid off in full, or the property was purchased with cash, or an inherited a mortgage-free property. |
| Redemption | Mortgage redemption is the process of completely paying off a mortgage. Redeeming a mortgage means paying the outstanding capital, any interest owed, and early repayment and/or administration fees for closing the mortgage account. |
| Debt Consolidation | “Debt Consolidation” is the act of paying off other items of credit (such as credit cards, loans or overdrafts) using money raised through mortgaged borrowing. Further detail on how this works in practice can be found in our “Consolidation Explained” guides here: Consolidating Credit Using a Mortgage Consolidating Credit through a Secured Loan Consolidating Credit with a Lifetime Mortgage |