A legal document which sets a contract between a borrower and a lender which outlines the legal obligations of the borrower and the rights of the lender if the borrower fails to make repayments.
When you are applying for a mortgage it can be hard to understand all the terminology and abbreviations. Here is a guide to some of the more common words you will come across.
Provided to you by a lender, confirming ‘in principle’ what they will allow you to borrow. This can be provided to agents and sellers to show that you can afford their property.
APR means the Annual Percentage Rate and APRC is the Annual Percentage Rate of Charge. These are both used to compare the overall cost of a mortgage. APR compares the cost of the mortgage for the initial fixed period (for example, the first two or five years) whereas the APRC is the overall cost of the mortgage should you pay it for the full term of the mortgage period (for example, 25 year term). A broker would use these to recommend the best mortgage, based on the initial term and the overall term and make their recommendation based on this information.
Automated Valuation Model, also known as a desktop valuation. The lender instructs their preferred surveyors to confirm the value of the property without the need to physically go to the property. Surveyors will base their valuation on recent sales and other recent valuations. You will not receive a copy of the valuation if an AVM is carried out.
Lenders will often charge an arrangement fee to set up your mortgage. You can choose to pay this up front or add the arrangement fee to the mortgage. If you choose to add the fee you will pay interest on the fee over the term of the mortgage. Your broker will compare products with and without fees and recommend the best deal for you.
If you do not pay your mortgage on the date that has been agreed each month, you will fall into mortgage arrears. Should you not be able to pay your mortgage for any reason, contact the lender immediately to discuss your circumstances.
Set by the Bank of England, this is the UK’s rate of interest. Lenders will set their Standard Variable Rate (SVR) above the Base Rate, normally setting their variable and tracker mortgages between 2-5% above the Base Rate.
A fee charged by your broker to arrange your mortgage and submit the application.
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