Understanding the language of your mortgage deal
The decisions you make when getting a home are important and some of the terminology can be complicated. We want to make sure you’re in the know about your mortgage, so you’ll find a glossary below that will explain the words and phrases you’ll hear when buying a home.
Advance (Mortgage Advance)
This is any sum of money which we lend to you under the Mortgage Deed.
Annual Percentage Rate of Charge (APRC)
This is the total cost of the mortgage shown as a yearly percentage of the amount you borrow. It takes into account your monthly payments and all other charges for arranging the mortgage.
For some types of mortgage we will ask you to pay an application fee before your mortgage can be considered. The fee is non-refundable.
Bank of England base rate
This is the interest rate set by the Bank of England, currently 0.75%.
Buildings Insurance covers the structure, fixtures and fittings of your home e.g. roof, walls and ceilings. When you take a mortgage with us we require you to have insurance cover for the property mortgaged. You’ll need to have home insurance in place as soon as contracts are exchanged, as you’ll then be responsible for the property even though you haven't complete yet.
Buy to Let Mortgage
Buy to Let Mortgages are a type of mortgage product for customers who wish to purchase property for business purposes.
This is a lump sum payment made to a mortgage account in addition to the agreed monthly payment. This can reduce the balance of your mortgage and means you may be able to reduce your monthly payments or pay off your mortgage more quickly.
When buyers and sellers are reliant on other parties being able to sell their properties, this is called a chain. Where there is a chain, at least one person in the chain needs to sell their property before they are able to complete the purchase of another property. If one link in the chain breaks it may cause a collapse of all of the deals in that chain. If this happens, any costs you’ve already paid, such as surveys and legal fees, are not normally refundable.
This is an agreed date by which all contracts are signed and money has changed hands. This means you now own the house and will have the keys to start making it your home.
This is the fee you pay to us to complete your mortgage, in some cases this can be added to the mortgage balance.
Consumer Buy to Let mortgage
Consumer Buy to Let is a type of mortgage for customers who are renting out a property they or their family have previously lived in.
This is the legal process of transferring property from one owner to another.
A check we carry out to ensure the applicant’s credit history allows us to lend to them.
Daily Interest for mortgage accounts
This means that we charge interest on the balance outstanding on the account at the end of each day. The interest is then added to your mortgage at the end of the month. Every time you make a payment, reducing the balance of your account, the daily interest charge is reduced the following day.
Decision in Principle (DIP)
This is the initial agreement letter that we will lend you the money to buy your home, subject to all conditions, criteria and checks being met.
There are two types of deposits, one being the amount of money you need to pay up front, so that you can take out a mortgage. This deposit allows you to pay for a percentage of equity in the property and unlike some forms of deposit this isn’t refundable. The amount of deposit you’ll need will vary depending on the value of the property you’re looking to purchase, your circumstances and the mortgage product.
Secondly, there is the deposit you can give using the equity of the house you already own and are selling to buy your new house.
Discount Variable Rate
An agreed reduction to our Standard Variable Rate (see below for explanation of Standard Variable Rate).
Early Repayment Charge
A fee you may have to pay if your mortgage is repaid or transferred during the initial product period or if you overpay more than the maximum allowed.
Your signed contract will be sent to the seller’s solicitor who will arrange, once signed, for a copy to be sent back to your solicitor. This is what is known as an exchange of contracts and makes the property transaction legally binding. Exchange is not to be confused with Completion (see above) which is the date when all parties transfer legal ownership of the property and the keys are handed over.
The mortgage of a property which is let to a family member.
Fixed Rate Mortgage
A Fixed Rate Mortgage means that the interest rate is set for an agreed period of time (the Fixed Rate term). During this term the rate won't change.
Income and Expenditure Form
This is a form all potential borrowers will need to fill in to ensure they can afford the monthly mortgage payments.
Interest is charged from the start date of your mortgage. This is the date we transfer funds to your legal representative. The interest from the start date to the end of that month is known as the ‘initial interest’ and we will ask you to pay this sum by direct debit. Shortly after funds are released to your legal representative we will confirm in writing to you the initial interest that is due.
Instructing a Solicitor
Usually, when a solicitor is instructed to act for you in the purchase of a property, they carry out legal work which we require too. For this reason, The Cambridge works with an Approved Solicitor Panel from across East Anglia and other parts of England who we’ve approved to act on your behalf. If you choose to appoint a firm that’s not on our panel, the Society will require its own partner solicitor to act on its behalf. You’ll be responsible for the Society’s legal fees in addition to your own. Don’t worry – your Mortgage Adviser can easily help you find a suitable panel solicitor.
Interest Only Mortgage
With this type of mortgage the capital amount of your loan remains as a standing debt to us until the end of the term of your mortgage. It is then repaid, by you, in full. You only pay interest on the loan during the term of the mortgage.
If you choose this method, it is your responsibility to ensure that you have also arranged an appropriate repayment strategy to repay the outstanding mortgage, in full, at the end of the agreed term. You must check your repayment strategy regularly to see that it is on target to repay the amount of your mortgage. You must also ensure that payments for endowment or pension policies and other investment plans are kept up to date and continue to provide you with the level of cover required. Failure to provide for the repayment of the loan, at the end of the term, will result in your total loan being in arrears and we may take action against you.
Mortgage interest rates determine how much you’ll be charged to borrow money on a mortgage. The interest rate applied is decided by a number of factors, including the Bank of England base rate, LTV (see below), and your situation. They aren’t affected by geographical considerations such as house prices in any particular area.
The amount you pay in interest will depend on how much you’ve borrowed and the interest rate being charged. A higher interest rate will mean higher monthly repayments, as you’ll pay a set amount for the loan repayment each month plus interest. The exception is for those on an Interest Only Mortgage (see above), where you only pay the interest. Mortgage interest rates can be either fixed, variable, or tracker. Interest rates for Standard Variable Rate (see below) mortgages are set by your lender while Tracker Rate (see below) mortgages may follow the Bank of England base rate.
Interest Rate changes
Unless you’re on a Fixed Rate Mortgage (see above) your mortgage may be subject to interest rate changes. The rate of interest will fluctuate throughout the life of your mortgage depending on a variety of criteria. Those with a Tracker Rate mortgage (see below) may have an interest rate that changes based on the Bank of England base rate.
Interim Review for Variable and Tracker Rate Mortgages
If you have a variable or tracker mortgage, your monthly payments can go up or down. Following a change in your interest rate, your monthly payments will be adjusted accordingly and you will be personally notified of your new monthly repayments.
There are certain legal requirements that must be carried out when buying a house. These will need to be arranged by a legal representative and unless otherwise stated the borrower is responsible for this cost.
The amount of money you’ll be able to borrow when applying for a mortgage is calculated in relation to your income and expenditure and whether you’ll be able to continue making the repayments if interest rates rise or your circumstances change, it may also depend on the type of property. We are committed to responsible lending and it’s very important to us that we don’t lend you more than you can afford to repay.
Loan to Value (LTV)
LTV refers to the size of your mortgage in relation to the value of the property and is expressed as a percentage. For example, if you have a mortgage of £200,000 and you’re buying a property that costs £400,000, your LTV would be 50%. In this situation 50% of the property’s value is paid for by your mortgage with the remaining 50% paid by your deposit which may come from the equity in your current property. You can work out your LTV by dividing the value of your mortgage by the value of the property and then multiplying that number by 100.
LTV is often mistakenly thought to stand for ‘Long Term Value’ and to refer to the expected future value of a property; however, this is not the case.
You can choose a mixture of repayment and interest only. Your monthly payment is made up of the interest charge for the whole loan plus repayment for part of the capital of the loan. At the end of the term all the money you borrowed must be repaid.
Your Mortgage Adviser who will support you every step of the way. They will look at your individual circumstances and recommend a mortgage based on what you tell us.
This is the legal document you sign to give us security over the property.
After your mortgage interview your Mortgage Adviser will produce a mortgage illustration. They will use this to guide you through the important information about your recommended mortgage, such as the type and term of the mortgage, interest rates, cost of repayments and any fees.
Should you decide to go ahead with a Cambridge mortgage, you'll need to attend a mortgage interview with a Mortgage Adviser.
At your interview your dedicated Mortgage Adviser will look at your individual circumstances and recommend a mortgage based on what you tell us. There are lots of choices to make and your Mortgage Adviser will guide you through the entire process, ensuring you get decisions and information as quickly as possible.
You will receive a formal written offer from us stating how much we will lend to you, how long for and how much in total you will be repaying.
Our security is created by the Mortgage Deed over your property and is held until the total mortgage debt has been repaid.
This is the period of time (usually up to 40 years) over which you agree to repay the mortgage to us.
With certain mortgage products from The Cambridge, you can make extra payments when you like; this can reduce your balance more quickly so that you pay your mortgage off earlier.
This is where the terms and conditions of a mortgage product can be transferred to a new property, subject to approval from the mortgage lender.
This is the act of paying off your mortgage in full.
After receipt of your binding mortgage offer you will have a seven day right of reflection period.
To remortgage is to move your mortgage from one provider to another while remaining in the same property. Read more about what remortgaging is and why you may want to in our guide.
With this method, you repay your loan, and interest charged, in monthly instalments. Your mortgage is repaid entirely over the term agreed.
For each mortgage product we show a representative example demonstrating the total amount of credit, the total cost of credit, the total amount payable and the APRC. Representative examples can be found on our product pages.
Retirement Interest Only (RIO)
RIO Mortgages are a way for people who have retired to borrow against their property, whilst only paying back the interest incurred on the loan each month for the lifetime of the mortgage.
The loan will only be repaid in full if a significant life event occurs - the homeowner(s) pass away, the property is sold or where the homeowner leaves the property for more than six months, such as moving into residential care or with family. More information on RIO can be found here.
Staircasing is the process of increasing your share of your property when you are part of a shared ownership scheme.
A tax paid by the person buying the property. You usually pay Stamp Duty on increasing portions of the property price. The tax rate is tiered and based on the purchase price and is set by the government:
|Property Purchase Price||Stamp Duty||Buy to Let/ Additional Home Rate (from April 2016)|
|Up to £125,000||0%||3%|
The next £125,000
(the portion from £125,001 - £250,000)
The next £675,000
(the portion from £250,001 - £925,000)
The next £575,000
(the portion from £925,001 – £1,500,000)
The remaining amount
(the portion above £1,500,00)
A stamp duty calculator has been created by HM Revenue and Customs.
Standard Variable Rate (SVR)
This is a mortgage rate. The interest rate may change from time to time which may result in changes to your monthly payments.
There are different types of survey, including a Condition Report, HomeBuyer's Report, L&G SmartrSurvey and a Buildings Survey. If you decide you need one of these surveys, it will be your responsibility to pay for these. These surveys differ from the Valuation for mortgage purposes and can help you identify any structural or other important issues relating to the property. For example, if you’re looking to purchase an older property and are keen to understand whether a big structural investment may be needed in the future, you may opt for a Building Survey. Read more about the different types of survey in our guide.
Tariff of Mortgage Charges
These are different fees that you may need to pay throughout the mortgage process. Your Mortgage Adviser will advise you of these fees during your mortgage interview. You can also refer to our Tariff of Mortgage Charges to see what fees may apply to your mortgage.
This follows a rate, such as the Bank of England’s base rate for a set period of time. We guarantee that any changes to the Bank’s base rate will be passed on to your mortgage interest rate within 30 days.
Valuation for mortgage purposes
A standard valuation will be needed on the property you’re purchasing to help us understand the current market value of the property. This is required by law and it will also identify any significant issues that could affect the property's value - helping us to decide whether and how much to lend on the property but not in as much depth as a survey. There are different survey options you may want to think about in addition to a valuation (see Surveys above).
Verbally accepted offer
You're able to make an offer to buy a property verbally but, this isn’t legally binding until it’s been formalised in writing and contracts have been exchanged.
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