Accident, Sickness and Unemployment Insurance (ASU):

In the event of an accident, sickness or involuntary unemployment befalling a borrower, this insurance is designed to cover their mortgage repayments and certain other monthly payments. It usually only pays benefits for 12 to 24 months and excludes pre-existing conditions. Also known as:

Mortgage Payment Protection Insurance (MPPI).

Annual Percentage Rate (APR):

The APR is a rate calculated using a generic formula applicable to all Lenders, which includes all the costs associated with a mortgage. This allows for easy comparisons to be made between the different mortgage products offered by each Lender.

Arrangement fee:

This fee may be charged on specific products and is either payable in advance, added to the loan or deducted from the advance on completion. It covers the administrative expenses incurred whilst processing an application.

Bank of England Base Rate:

Every month the Monetary Policy Committee sets the Bank of England Base Rate, to which some mortgage rates are linked either directly, as with certain Tracker mortgages, or indirectly, in most other cases.

Booking fee:

This fee may be charged on specific products and is either payable in advance, added to the loan or deducted from the advance on completion. It is normally payable in order to reserve funds when a product is likely to sell out quickly.

Buildings and Contents Insurance:

This insurance is designed to cover damage to the mortgaged property and/or its contents in a variety of specified scenarios. The lender will require you to arrange buildings insurance as a condition of lending, and if their own insurance is not taken, they may charge an administration fee.

Business Loan Protection:

Life assurance designed to offer protection for all business loan arrangements including commercial mortgages, director’s personal guarantees and director’s loan accounts.

Buy-to-Let mortgage (BTL):

This is a mortgage for property that will be let by the borrower to other tenants. When Lenders calculate how large a loan the borrower can afford to repay on BTL they do so primarily on the basis of projected rental income though income or a combination of both may be taken into account.

Capital and Interest mortgages:

With this method the monthly mortgage repayments pay off both the initial loan amount and the interest that is charged upon it. At the end of the loan term the entire debt will be repaid providing that all mortgage payments are met and the terms of the mortgage are not changed. Also known as: Repayment mortgage.

Capital Rest Period:

This is the regularity with which a Lender calculates the outstanding balance on mortgages, and hence the size of monthly repayments. It is usually annually, monthly or daily. With Capital and Interest mortgages this can be important; an annual interest calculation means that the borrower will pay interest on capital repayments that have been made in the course of that year. In contrast a daily or monthly interest calculation means that the balance, and consequently the interest charged, will reduce with every capital repayment made.

Capped rate mortgage:

This is a mortgage that is guaranteed not to rise above a specific rate (the 'cap') within a set period. The interest rate and monthly payments can go up or down during the capped rate period but will not rise above the capped level. The monthly payments may increase when the capped period ends.There are often early repayment charges applicable if the loan is repaid within the capped period.

Cashback mortgage:

This is a mortgage in which the Lender refunds a sum of money, either as a percentage of the loan or a flat figure, to the borrower upon completion. With this type of offer, the borrower will typically be required to repay the cashback if the loan is repaid within a set period.

Completion:

This is the moment when a transfer of property has legally taken place, after all legal documentation has been completed and funds have been transferred from the buyer's solicitor to the seller's solicitor.

Critical Illness Cover:

This provides cover against the risk of you having a serious illness such as a heart attack or some types of cancer. If you diagnosed with one of the illnesses listed in the policy, a lump sum (or occasionally a regular income for a set period) will be paid.

Current Account mortgage:

This is usually a flexible mortgage combined with a current account. Money in the current account is automatically set against the mortgage balance and interest is only charged on the amount of the mortgage minus the balance in the current account, meaning interest payments may be reduced.These can be complex products which may not be suitable for all customers.

Death in Service:

Life cover for your employees. Amount of cover is normally, though not exclusively, allied to multiples of their annual gross salary.

Decreasing Term Assurance:

The sum assured (the amount paid out on death) reduces by a fixed amount each year, decreasing to nil at the end of the term. The premium will normally stay the same throughout the term and may be a suitable vehicle to cover the repayment of capital and interest/repayment mortgage in the event of death and/or certain other events.

Discounted rate mortgage:

This is a variable mortgage that is discounted from a Lender's Standard Variable Rate (SVR) by a set percentage within a set period. The interest rate and monthly payment can go up as well as down during the discount period and will increase at the end of this period. There are often early repayment charges applicable if the loan is repaid within the discounted period.

Discounted Tracker rate mortgage:

This is a variable mortgage that is discounted from the Bank of England's Base Rate by a set percentage within a set period. There are often early repayment charges applicable if the loan is repaid within the discounted period.

Early Repayment Charge (ERC):

This is a penalty charged on traditional mortgages when the loan is repaid in full within a set period. Usually it applies on a pro rata basis when capital repayments are made outside of the agreed monthly payments. Many Early Repayment Charge periods are linked to those of offers, such as Capped, Discounted or Fixed rate periods. However, some mortgage rate have extended Early Repayment Charges which tie-in borrowers even while they are paying the Lender's SVR. Also known as: Early Redemption Penalty (ERP); Redemption Penalty.

Early Redemption Penalty (ERP):

See Early Repayment Charge (ERC).

Family Income Benefit:

If you die or are diagnosed with a specified critical illness during the term of the policy, this is designed to pay a regular income to your dependants for the rest of the term. The income can be paid monthly, quarterly or yearly.

Fixed rate mortgage:

This is a mortgage that is charged at a fixed rate within a set period. This means that the interest rate and monthly payments will not go up during the fixed period but may increase at the end of this period.There are often early repayment charges applicable if the loan is repaid within the fixed period.

Flexible mortgage:

As its name suggests, this is a type of mortgage that offers considerably more flexibility than traditional mortgages. Although specific details vary between Lenders, the core features of Flexible mortgages are:
- daily or monthly capital rest
- ability to make overpayments at any point of the loan term without an early repayment charge

In addition, many Flexible mortgages allow borrowers to:
- defer payment by taking payment holidays
- drawback overpayments
- drawdown further advances
- underpay without penalty (often only to the amount of any previous overpayments)

Freehold:

The buyer of a Freehold property owns both the property and the land it stands on indefinitely. See also Leasehold.

Gazumping:

This is when a prospective purchaser has an offer for a property accepted, before another potential buyer puts in a higher offer for the same property.

Group Income Protection:

Designed to offer you a greater level of protection helping to ensure that your business does not suffer as a result of long term sickness.

Group Life Insurance Scheme:

Life cover for your employees. Also referred to as Death In Service.

Higher Lending Charge:

This is a premium charged by Lenders in order to indemnify themselves, and NOT the borrower, against any financial shortfall they may incur in the event of repossessing a property which must then be sold at a loss. It is applicable if the amount required is higher than a certain percentage of the property value, usually 75% LTV; often the Lender will pay the cost of this insurance themselves between 75% and 90% LTV. The charge may either be added to the loan ( in which case it will attract interest at the same rate as the mortgage over the term of the loan)or deducted from the advance on completion. Also known as: Additional Security Fee; Mortgage Indemnity Guarantee (MIG).

Homebuyers' Report:

See Valuation Fee.

Income Multiples:

These are the multiples that Lenders apply to borrowers' income in order to determine the maximum loan they will offer them.

Income Protection:

This is designed to pay an income to you, proportionate to your earned income, in the event you are unable to work due to ill health or incapacity. This could pay you until the end of your mortgage term or until you reach retirement - and without it you must rely on your own resources to maintain your mortgage payments, associated costs and lifestyle.

Increasing Term Assurance:

The sum assured and premium increases each year by a fixed percentage of the original sum assured. These policies are designed to increase your insurance protection as your earnings increase.

Interest Only mortgages:

With this method the initial loan amount remains the same throughout the term of the loan, while the monthly mortgage payments only pay off the interest being charged on this amount. For this reason, Interest Only mortgages may be linked to an investment backed repayment vehicle suitable to repay the initial loan amount at the end of the term. These repayment vehicles include endowment policies, personal pensions, ISAs etc. It is the borrower’s responsibility to ensure they are able to repay the mortgage in full at the end of the term.

Key Person Protection:

Designed to offer Financial Protection for your business if a key individual dies or is diagnosed with a specified critical illness.

Leasehold:

The buyer of a Leasehold property owns the property for a set number of years, but doesn't own the land on which it stands. See also Freehold.

Let to Buy mortgage (LTB):

This is a mortgage where the borrower's current property is let to other tenants and the rental income is used to cover the mortgage repayments on a new property, bought as the borrower's main residence. This will normally involve two mortgages – a Let to Buy product and standard residential mortgage. When Lenders calculate how large a loan the borrower can afford to repay on LTB ,they do so primarily on the basis of projected rental income, whereas on the residential loan will be based on salary income multiples.

Level Term Assurance:

You are insured for the same amount throughout the agreed term and this type of cover may be suitable for use in conjunction with an interest only mortgage.

Libor-Linked mortgage:

It is often associated with Lenders that offer loans to borrowers with elements of adverse credit.

Life Cover:

Designed to provide a lump sum to your beneficiaries/family in the event of your death. Often this sum of money can be used to pay off a mortgage and/or provide for your family. See also term assurance and family income benefit.

Loan to Value (LTV):

This is a percentage figure of the loan amount in relation to the property value. For instance a £100,000 property bought with a mortgage of £70,000 has an LTV of 70%. The higher the LTV, the higher the interest rate charged will be; above certain LTVs a Higher Lending Charge may come into effect.

Mortgage Indemnity Guarantee (MIG):

See Higher Lending Charge.

Mortgage Payment Protection Insurance (MPPI):

See Accident, Sickness and Unemployment Insurance (ASU).

Offset mortgage:

This is a fully Flexible mortgage which allows a borrower to keep balances (such as mortgage debt, savings account and current account) in separate accounts, but, for the purposes of interest calculation, all balances are aggregated. Money in savings or current accounts is set against the mortgage balance and interest is only charged on the outstanding amount, meaning interest payments are reduced.

Overpayment:

This is when an unscheduled capital repayment is made or when monthly payments are increased, in order that the mortgage is repaid before the end of the mortgage term, potentially saving considerable sums in interest. Many traditional (i.e. non-Flexible) mortgages include early repayment charges if overpayments are made within a set period. In contrast, some Flexible mortgages may allow unlimited overpayments without penalty and, increasingly, mortgages are semi-Flexible, allowing borrowers to overpay a certain percentage of their loan each year without incurring early repayment charges.

Portability:

A portable mortgage is one that can be transferred to another property without penalty if the borrower moves house within an early repayment charge period. The new interest rate that the Lender will be prepared to offer depends on whether the loan amount increases or decreases. If the latter, early repayment charges may apply.

Procuration Fee:

This is commission paid by Lenders to intermediaries for introducing business to them. Also known as: Introducer Fee.

Redemption Penalty:

See Early Repayment Charge (ERC).

Repayment mortgage:

See Capital and Interest mortgages.

Right to Buy (RTB):

This is when a tenant living in a council-owned property purchases it at a discount, the size of which depends on the length of their tenancy.

Self Build:

This is a mortgage for property under construction. The loan is paid out in stages as the property is completed, in order to ensure the LTV does not rise too high at any point.

Share Protection:

This is designed to provide cover to protect your business if a shareholder or partner dies or is diagnosed with a specified critical illness.

Shared Ownership:

This is a scheme operated by a Housing Association where the borrower owns part of a property, and pays the mortgage on this, while a Housing Association owns the rest of the property, and the borrower pays rent on this.

Split Loan:

This is a mortgage that is taken partly on a Capital and Interest basis and partly on an Interest Only basis.

Stamp Duty:

This is a government tax charged on the sale of properties. The tax is calculated as a percentage based on the value of the property above a threshold set in the Chancellor’s annual budget. The tax rate is divided into bands with the percentage increasing with the value of the property. It is not payable on remortgages.

Standard Variable Rate (SVR):

This is a variable rate determined entirely at each Lender's discretion. The SVR is normally the reversionary rate at the end of any special offer period, such as a Capped, Discounted or Fixed rate, unless specifically linked to Libor or the Bank of England Base Rate,

Term Assurance:

This is one of the cheaper forms of protection and is designed to offer life insurance cover for a low premium over a specified term. This can be ideal if you have a limited income. Cover can usually be arranged to cover just one person, but in some cases cover will also be available for spouses or partners in the same policy. See also decreasing term assurance, level term assurance and increasing term assurance.

Tracker mortgage:

This is a variable mortgage that is either above or below the Bank of England's Base Rate by a set percentage within a set period. Interest rates and monthly payments may go up as well as down during the tracker period and early repayment charges may apply if the loan is repaid within the tracker period.

Trusts:

A legal arrangement whereby a person (trustee) holds property (e.g. an insurance policy) as its nominal owner for the good of one of more beneficiaries.

Valuation Fee:

Whether purchasing or remortgaging the Lender undertakes a valuation of the property to ensure it provides adequate security. The charge is borne by the borrower and increases exponentially with the valuation/purchase price. There are 3 levels of valuation: in order of increasing detail these are Basic, Homebuyers' Report, and Structural survey. The more stringent the valuation, the higher the fee.