Here we share some of the key mortgage phrases and give you a simple explanation of what they mean.
Buying a house can be one of the biggest purchases you will ever make so it’s important to understand the terminology that you will find popping up time and again.
It’s common for people involved in the house-buying process to use words, phrases and acronyms that not everyone else will understand.
Here, we cut-through the complex and give you some basic explanations.
Agreement in Principle (AIP)
This is a provisional agreement to lend to you based on the information you shared with the lender in order to calculate the amount of mortgage they think you can afford. This Agreement in Principle does not constitute an offer to lend and you should not enter into a legally binding commitment until you have applied for and received a full mortgage offer. Agreement in Principle is also sometimes referred to as a Decision in Principle (DIP).
Simply put, this is the size of your mortgage displayed as a percentage of the property’s value. The cheapest deals tend to be available to people who are borrowing 60% or less.
This is the length of time you are looking to repay your mortgage over. People generally repay a mortgage over a standard term of 20, 25 and sometimes 40 years. But, keep in mind, the longer you are paying, the more interest you will have to pay.
If you have chosen an interest-only mortgage, your monthly payments pay only the interest on your mortgage. By the end of the mortgage term, you will still owe the amount that you originally borrowed and will need to repay the outstanding amount as a lump sum. You will have confirmed the repayment plan(s) with which you intend to settle the outstanding loan amount when you applied for your mortgage. You will also be responsible for checking that your plan(s) remain on track to repay the mortgage at the end of the term.
This is when two people or more are applying for one mortgage. The benefit of having a joint-mortgage is that you will usually have the ability to borrow more money, as you are combining your income which could give you more spending power.
Stamp duty land tax (SDLT) is payable when you buy a property for more than £125,000 (or it’s for a second home). It’s therefore important that this is included in your budget, alongside other fees like legal and valuation fees. You should also ensure that checks are carried out so that there are no nasty surprises before you move in. The amount of stamp duty tax will vary depending on the value of the house and if you are a first-time buyer you will be exempt.
Standard Variable Rate
With a Standard Variable Rate (SVR) mortgage, the amount of interest you pay each month could change. Each lender has its own SVR; at Aldermore we call it the Aldermore Managed Rate (AMR) and it is the default interest rate that applies if you don’t have a limited-term deal or discount. So when a fixed or discount mortgage deal comes to an end, you’ll usually be transferred automatically onto your lender's SVR.
Bank of England Base Rate
The Bank of England or the ‘BoE’ base rate is the official interest rate set by the BoE Monetary Policy Committee (MPC) and is the rate which tracker mortgage and standard variable rate mortgages usually follow.
For a leasehold property, you own the building but not the land it stands on, and only for a certain period (anything up to 999 years). You may find it hard to get a mortgage on a property if there are fewer than 70 years left on the lease. Leases can be extended but this can add a layer of complication and cost and could delay proceedings. So if you are looking to purchase a leasehold property firstly check how long is remaining on the lease before making an offer.
Here's a few words and phrases to digest for now. We hope you find them useful and it gives you a better understanding. We’re here to help, so if there’s something you are not quite sure of, get in touch and we will do our very best to explain.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
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