Buying a home for the first time can feel like learning a new language. Here are some of the most common mortgage terms explained.
Agreement in Principle (AIP) / Decision in Principle (DIP)
A lender’s initial indication that they may be willing to lend you a certain amount, based on basic information and a credit check. It isn’t a guaranteed mortgage offer but shows sellers you’re a serious buyer.
Affordability Assessment
The process lenders use to work out how much you can realistically borrow based on your income, outgoings and financial commitments.
Annual Percentage Rate of Charge (APRC)
The overall cost of your mortgage shown as a yearly percentage. It includes the interest rate and certain fees, making it easier to compare different mortgage products.
Base Rate
The interest rate set by the Bank of England. Changes to the Base Rate can affect mortgage interest rates.
Buildings Insurance
Insurance that covers the structure of your home against events such as fire, flood or storm damage. Mortgage lenders require this from exchange of contracts.
Capital
The amount you’ve borrowed, excluding interest.
Capital & Interest Mortgage (Repayment Mortgage)
The most common type of mortgage. Your monthly payments repay both the amount borrowed and the interest, so your mortgage is fully repaid at the end of the term.
Completion
The day the money is transferred, ownership changes hands and you receive the keys to your new home.
Conveyancing
The legal process of buying or selling a property, carried out by a solicitor or licensed conveyancer.
Credit Score
A score used by lenders to assess how you’ve managed credit in the past. A good credit history can improve your chances of getting a mortgage.
Critical Illness Cover
Insurance that pays a lump sum if you’re diagnosed with one of the serious illnesses covered by the policy, such as certain types of cancer, heart attack or stroke.
Deposit
The amount you contribute towards the purchase price yourself. The larger your deposit, the more mortgage options you may have.
Early Repayment Charge (ERC)
A fee charged if you repay your mortgage or switch lenders before your current deal ends.
Equity
The part of your property you own outright. It’s the property’s value minus any outstanding mortgage.
Fixed Rate Mortgage
Your interest rate stays the same for an agreed period, giving you predictable monthly payments.
Income Protection
An insurance policy that can provide a monthly income if you’re unable to work due to illness or injury, helping you continue paying your mortgage and household bills.
Interest Only Mortgage
You only pay the interest each month, meaning the original loan amount still needs to be repaid at the end of the mortgage term.
Land Registry
The government department that records who legally owns land and property in England and Wales.
Life Insurance
A policy that pays out a lump sum if you die during the policy term, helping your family pay off the mortgage or maintain their lifestyle.
Loan to Value (LTV)
The percentage of the property’s value you’re borrowing. Eg:
- Property price: £300,000
- Deposit: £30,000
- Mortgage: £270,000
- LTV = 90%
Generally, the lower the LTV, the better the interest rates available.
Mortgage Broker
A qualified adviser who compares mortgage products from different lenders and recommends the most suitable option based on your circumstances.
Mortgage Illustration (ESIS)
A personalised document showing the mortgage you’ve been recommended, including payments, fees, interest rates and important information.
Mortgage Offer
The lender’s formal agreement to lend you the money. This is issued after your application has been fully assessed.
Mortgage Term
The length of time you’ll take to repay your mortgage, typically between 25 and 40 years.
Porting
Taking your existing mortgage deal with you when moving home, subject to the lender’s approval.
Product Fee
A fee charged by some lenders for certain mortgage products. It can often be paid upfront or added to the mortgage.
Product Transfer
Switching to a new mortgage deal with your current lender without changing lender.
Remortgage
Replacing your existing mortgage with either a new lender or a new deal to secure a better rate or release equity.
Repayment Vehicle
For interest-only mortgages, this is the plan you’ll use to repay the original loan at the end of the mortgage term.
Standard Variable Rate (SVR)
The lender’s default interest rate, which usually applies once your fixed or tracker deal ends. It’s often higher than introductory rates.
Stamp Duty Land Tax (SDLT)
A tax that may be payable when purchasing property in England, depending on the purchase price and your circumstances.
Stress Test
A lender checks whether you could still afford your mortgage if interest rates were to increase in the future.
Tracker Mortgage
A mortgage where the interest rate moves in line with the Bank of England Base Rate.
Underwriting
The detailed assessment carried out by the lender before issuing a mortgage offer. This includes checking income, documents, credit history and affordability.
