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Mortgage terms - Mortgage glossary
Category: Economy and Finance > Mortgage
Date & country: 08/11/2007, UK
Words: 391


Overpayment
The difference between your regular monthly repayment and a higher amount that you choose to pay.

Payment default
This results when you are unable or simply unwilling to meet your mortgage repayments. If you default on your payments, the lender is ultimately entitled to sell your home in order to recover the loan. Different lenders will have different policies on how long they give you before they start the legal proceedings to recover the loan. Many will have a separate schedule of charges which you will incur before they start proceedings.

Payment holiday
A short break from regular mortgage repayments, sometimes offered with flexible mortgages. This can sometimes be a useful feature for self-employed people or others with irregular income.

Payment of balance
This usually takes place between a week and a month after exchanging contracts. It is possible to have a simultaneous exchange and completion if you are in a real hurry to get moving. When you complete the sale, your solicitor forwards the remaining balance of the purchase price to the seller's solicitor. You then have the right to take occupancy of the property and are free to move in.

Payment protection insurance
A type of insurance that pays your loan for you if you become unable to work for an extended period of time, as a result of redundancy, accident, sickness or disability. Most non-mortgage PPI products are taken out for a length of time that corresponds to the life of the loan it is protecting.

Payment shock
Payment shocks are when the discount period ends and the monthly repayments jump by a large amount to match the Standard Variable Rate. You must be sure that you can budget for this in your monthly expenses.

Pension mortgage
A type of interest-only mortgage where your mortgage payments are combined with payments into your personal pension fund. This is designed to mature on your retirement, so the mortgage loan term must end between the ages of 50 and 75 unless the borrower is in an industry where the Inland Revenue permits earlier retirement. The pension also needs to provide you with an income during retirement, so only twenty five percent of the pension fund can be taken as a lump sum to pay of your mortgage.

Pension plan
An investment plan which can provide a lump sum on and an income after retirement. A pension plan is sometimes used as a way of providing a lump sum to repay the capital of an interest only mortgage.

Personal pension
A structured personal savings and investment plan to provide for your financial needs after you retire. You can use some or all of the proceeds from a personal pension to pay off an interest-only mortgage. You will need to arrange life assurance separately to a personal pension.

Personal search
This is a manual search by a conveyancer or some other specialist, who manually undertakes the same activities as in a local search. These can be completed in a matter of days rather than weeks or months, though they do end up being up to fifty pounds more expensive.

Policy excess
The amount you will have to pay when you make a claim. For example, this may be the first £100 of a £1000 claim for damage caused by a fire.

Policy exclusions
These are events, instances or possessions which are not covered by your household or other insurance policy. This can be confusing as the main policy may seem to imply that such events, instances or possessions are covered only to excluded in the small print of the policy. Moral: Read the small print.

Policy schedule
A policy that details how much cover you have (the sum insured), the discount you qualify for (if any), and the premiums you have to pay. With some policies you may get a new schedule when you renew the policy or whenever you want to change your policy.

Portability
A product feature that governs whether you can take the mortgage with you if you move during the introductory offer period and beyond. This saves you having to pay off the loan and take out a new one.

Portable mortgage
The mortgage can be transferred from one property to another without incurring penalties.

Possession
When a buyer signs the papers and receives the keys to the house, they officially take possession.

Possessory title
The description given by the Land Registry to the title or ownership of a property where the registry is not entirely satisfied as to the vendor's ownership of the property due to a discrepancy. It is satisfied only that the person is lawfully in possession of the property, as opposed to title absolute and good leasehold title.

Pre approval
Where a potential home buyer attempts to secure a guaranteed mortgage approval before making an offer on a house.

Pre approval letter
A letter from a lender that informs a seller about the amount of money that a potential buyer can obtain.

Premium
In the context of insurance, a premium is the regular sum you pay to keep your cover in force.

Prepayment penalty
Lenders can impose a penalty on a borrower who pays a loan off before its expected end date.

Prime rate
The best interest rate available to a lender's most qualified customers.

Principal
The amount of money that the borrower owes on a mortgage - the amount on which interest is calculated.

Private Medical Insurance
This insurance which gives you access to private medical care in the event of injury or illness. This will not normally cover injuries or illnesses present prior to accepting a policy. The main downside to most of these plans is that you usually have to pay for hospital accommodation, surgeon's fees, and drugs or medication upfront and then receive a refund once your claim has been processed.

Private treaty
The sale of property by private treaty is the most common method employed by estate agents and involves preparing descriptive details of the property and quoting a definitive asking price. Details can then be viewed by potential buyers and viewings arranged.

Quotations
Borrowers are advised to shop around for quotations from different mortgage lenders and insurance lenders before making a commitment. A quotation is also an illustration of the costs involved in the mortgage and repayments.

Redemption
This is the right of the mortgagor to recover mortgaged property on repayment of the loan and any interest due. This legally means that once you as the borrower have finished repaying the mortgage you took out, the property is yours and the lender has no further claim on it. If you pay of the mortgage ahead of schedule you may face a redemption penalty which compensates the lender for loss of interest.

Redemption penalties
Charges paid to the lender in compensation for lost interest if you redeem your mortgage ahead of schedule. During a discount period you will be severely penalised if you try to switch to another product or mortgage provider. Penalties can be stepped just like discounts, and can be particularly severe within the first year. This is to ensure that the costs that the lender endures in setting up the mortgage are always covered. Penalties can be a fixed sum of money, though are often proportion of the loan. With cashback mortgages, you often have to repay the amount of money you received as cashback.

Redemption penalty overhang
This is where the redemption penalty continues beyond a fixed or capped rate period, effectively tying you in to the much higher variable rate for a period of time after the fixed or capped period. As a result you get stuck paying an uncompetitive rate that eats into the gains you may have made from having the fixed rate or capped ratein the first place.

Redemption statement
The outstanding amount to be repaid on an existing mortgage. Redundancy insurance Another form of income protection, but one that does not cover any form of sickness, injury or disability. The purpose of this type of policy is to replace income lost through a short to medium term period of redundancy. It provides you with a monthly tax-free income to cover a portion of your lost earnings. It is often sold in conjunction with the accident, sickness and disability element of income protection policies, in which case it is known as Accident, Sickness and Unemployment (ASU).

Reinstatement value
The cost of rebuilding your home should it be destroyed.

Remaining term
The original loan term minus the number of payments made.

Remittance fee
A charge made by the lender for sending the mortgage funds to your solicitor when the purchase is just about to be completed

Remortgage
The process of switching your mortgage loan from one lender to another without necessarily moving house.

Repayment mortgage
Each month you will make a repayment to the mortgage lender. Part of this payment will go towards reducing the total amount of capital you owe and part of it will be an interest charge on the remaining balance of the mortgage. Unless interest rates change or your introductory offer period ends, you pay the same amount each month. When one of these things does happen, repayments are altered so that the loan is still repaid at the end of the specified term.

Repayment period
The period over which the borrower must repay the lender.

Repayment plan
When a borrower falls behind in mortgage payments, many lenders will negotiate a repayment plan rather than go to court.

Repayment term
The period of time over which you will repay your mortgage to the lender.

Repayment vehicle
The means by which a mortgage loan's capital is repaid. Examples include endowments, ISAs and personal pensions.

Repo rate
The Bank of England base rate.

Repossession
Usually occurs after a borrower seriously defaults on payments. The lender then legally evicts the borrower and usually auctions the property to recover losses.

Restructured loan
A mortgage in which new terms are negotiated.

Retail Price Index
An index of the average level of prices in the UK. Insurance companies often link contents insurance policies to it.

Retention
This relates to monies withheld by lenders until certain mortgage conditions are met. This will normally relate to repairs or improvements to the property that the lender is insisting on.

Retrieval cost
The cost incurred to recover amounts or items.

Revisionary bonus
A bonus paid annually on an endowment mortgage which is dependent on the performance of the investment fund you are using to repay your mortgage.

RPI
An index of the average level of prices in the UK. Insurance companies often link contents insurance policies to it.

Scheme switch
The transfer of your debt from one mortgage product to another one offered by the same provider. A fee is usually charged by your original lender for this.

Security
A piece of property designated as collateral.

Self build mortgage
Mortgage for those who wish to build their own home, renovate or convert their existing home. Funds are normally released in stages as work progresses following a satisfactory progress report from an architect.

Self certification mortgage
Mainly for people whose income is difficult to assess using the standard method adopted by most conventional mortgage lenders. Bonuses, commission and seasonal work can cause income to vary over time or be difficult to guarantee and this may not be considered acceptable in order to get a loan. The main groups of people that opt for self-certification mortgages are: Self-employed and unsalaried company directors, contract workers (increasingly common in technology-based industries), commission-based workers (often in sales, recruitment etc.), people with seasonal earnings. The interest rate you are charged will be higher to compensate the lender for the increased risk.

Self employed
A person who operates as a sole trader or as part of a partnership.

Shared appreciation mortgage
A loan that allows a lender or other party to share in the borrower's profits when the home is sold.

Shared equity transaction
A transaction in which two buyers purchase a property, one as a resident co-owner and the other as an investor co-owner.

Standard payment calculation
A calculation that is used to determine the monthly payment necessary to repay the balance of a home loan in equal installments.

Standard Variable Rate
The Standard Variable Rate is the rate which many mortgages revert to after the introductory offer, fixed rate or discount period is over. They are the simplest and most traditional mortgage product with no upper or lower limit on the rate charged, and the bank can raise or lower the rate at their discretion (though usually this is done broadly in line with the base rate).

Standing mortgage
An interest only mortgage where no arrangements are made at the outset for the repayment of the loan. If a specific investment vehicle has not been arranged to provide funds for this purpose, the borrower will have to repay the loan by some other means. If the capital is not repaid, the lender can repossess the property and sell it to recover as much of the debt as possible.

Standing order
A regular payment for a fixed amount that you can ask us to make from your account to another specified account.

Stepped discount mortgage
Where the discount is, for example, fixed at one level for one year and then a slightly lesser level for two further years. Remember it is the percentage discount that is stepped and not the monetary amount, so your repayment can still vary.

Stepped fixed rate mortgage
Where the interest is, for example, fixed at one level for one year and then a slightly higher level for two further years. This is not as common as finding stepped discounted mortgages.

Surrender
The process of cashing in an unwanted endowment policy with the insurer who sold it to you. Doing this often produces a poor return for the money invested to date in the policy's early years.

Take back mortgage
A loan made directly from the seller to the buyer.

Tax relief
The government allows an artificially low tax rate to encourage purchases or savings such as with pensions and ISA's.

Telegraphic transfer
Electronic transfer of money between two parties on the sale/purchase of a property. Will often incur a fee from your solicitor and monies sent from a lender is usually in this form.

Tenure
Whether a property is freehold or leasehold.

Term
The period of years over which you take the mortgage and when you have to repay it. Most new mortgages are taken on a 25-year term.

Terminal bonus
This is a bonus paid at the end of an endowment mortgage and often depends of the performance of the investment fund you are using to repay your mortgage.

Tie in period
As a condition of a special mortgage deal (discount or fixed rate, for example), you may have to agree to stay with the lender for a period of months or years after the deal has ended. If you move your mortgage elsewhere during this period, you may have to pay an early redemption charge.

Tied agents
Many agents and advisers have access to mortgages that you would not be able to arrange on the high street or via a direct operation. They may be representatives of a particular financial institution or estate agents and only be able to offer products from that particular provider. They can still call themselves financial advisers, so long as they don't use the word 'independent'.

Title
Evidence of the right of property ownership; can be held solely, jointly, in common or in corporate or partnership form.

Title company
A company that performs and insures title searches. Usually selected by the seller, they sometimes work as a lender's agent. Depending on the preferences of the seller, buyer and others involved in the sale, the closing might take place at the title company's offices.

Title deeds
Documents stating who has title or right to the ownership of a property, which also show the boundary of the land.

Title documents
The legal documents which provide proof of ownership of a property.

Title insurance
Insurance that protects a property owner against defects to or claims against a property. Typically purchased by the buyer upon closing, sometimes as required by the lender. Title companies issue the policies.

Title risk
Possible impediments to the transfer of a title from one owner to another.

Tracker mortgages
They are usually linked to the Bank of England base rate, in that you pay a set margin above the current base rate level. Unlike many of the other types of rate, most tracker rates will not revert to the SVR at any point during the life of the loan. They will continue to track the base rate until you have either paid off your mortgage or switch provider or product. You can also get tracker mortgages that have discounts and stepped discounts built into them.

Traded endowment policy (Tep)
Another name for Second-Hand Endowment Policy (Shep).

Transfer deed
A form which provides details of the transfer of ownership to be entered on the Land Registry register.

Transfer of ownership
Any legal means by which a piece of real estate changes hands.

Unemployment insurance
Another form of income protection, but one that does not cover any form of sickness, injury or disability. The purpose of this type of policy is to replace income lost through a short to medium term period of redundancy. It provides you with a monthly tax-free income to cover a portion of your lost earnings. It is often sold in conjunction with the accident, sickness and disability element of income protection policies, in which case it is known as Accident, Sickness and Unemployment (ASU).

Unit linked endowment
Your monthly premiums are used to buy units in a fund or funds run by professional managers. Like unit trusts, the price of these units can go up and down, so the value of the endowment can constantly change.

Unitised with profit endowment
This is a hybrid unit-linked endowment, designed to smooth out price fluctuations that occur with unit-linked policies. The value of units is declared each year and that value is then guaranteed. The guaranteed value that is declared is at a discount to the actual value of the units. The guaranteed value will not reach the real value until the term of the endowment is up, so the chance of being able to pay of the loan early is minimised.

Unmortgagable
A property for which you are unable to find a lender willing to give to a mortgage due to the results or a survey, the valuation to price or details of the lease or title deeds.

Unpaid ground rent charge
If you are a leaseholder, and the freeholder notifies the lender that you have not paid your ground rent or service charge, the lender may penalise you. Costs £30 - £50.

Unregistered land
Land/property not yet held on the database at HM Land Registry.

Variable interest rate
A loan rate that moves up and down based on factors including changes in the rate paid on bank certificates of deposit or Treasury bills.

Variable rate mortgages
As you would expect from the name, variable mortgage rates go up and down and generally don't stay at the same level for too long. This is because the interest rate and subsequent level of repayment varies with the lender's interest rate. This is usually derived from Bank of England base rate or some other index. One such index is the banks' base rate - an average of the rates of several leading lenders.

Verification of deposit
As part of the loan process, a lender will ask a borrower's bank to sign a statement verifying the borrower's account balances and history.

Verification of employment
As part of the loan process, a lender will ask the borrower's employer for confirmation of the borrower's position and salary.

Water authority search fee
A fee charged by a solicitor as part of his conveyancing work for checking the infrastructture of the local water system and sewerage.

Wraparound mortgage
A loan to a buyer for the remaining balance on a seller's first mortgage and an additional amount requested by the seller. Payments on both loans are made to the lender who holds the wraparound loan.