Yahoo Finance Buying a home: property jargon translated — from agreements in principle to stamp duty relief and variable-rate mortgages
Do you sometimes wonder if mortgage advisers are speaking in tongues? Buying a property seems to come with a language of its own.
Agreement in principle
Often shortened to AIP or called a decision in principle (DIP). This is an indication of what the lender will loan you based on details provided about your income, spending and debts.
Annual percentage rate
The APR is the cost you pay each year to borrow money, including fees, expressed as a percentage.
Arrangement fees
The fee your mortgage lender will charge for setting up the loan. This can either be paid at the time or rolled into the rest of what you owe.
Early repayment charges (ERC)
If your mortgage deal has an ERC, your lender may charge you if you overpay your mortgage, or if you pay off the loan early.
Fixed-rate mortgage
Popular with buyers who want to know how much they’ll pay every month, this loan has a fixed interest rate for its entire term.
Flexible mortgage
This type of mortgage will allow you to make overpayments, underpayments and even take a payment holiday.
Interest-only mortgage
You only have to pay the interest on your mortgage each month, not repay the loan itself. First-time buyers will find an interest only mortgage hard to obtain. Only a few lenders offer them, and the lending criteria is tough.
Loan-to-value (LTV)
How much your mortgage borrowing is in relation to your property’s worth. From a lender’s point of view, LTV is essentially an assessment of risk. If you are taking out a £150,000 loan on a £200,000 property, the LTV is 75%. The lower your LTV, the better the deals open to you.
Mortgage payment protection insurance (MPPI)
is designed to pay your mortgage each month if you’re unable to work due to sickness or injury.
Mortgage term
The length of time you’re taking out a loan for. Traditionally this was 25 years, but many people stretch it over longer lengths of time to bring down monthly outgoings.
Negative equity
When the value of your home falls to a level below the amount remaining on your mortgage.
Stamp duty relief
The holiday may have ended, but first-time buyers still qualify for Stamp Duty Land Tax (STDL) relief, paying no stamp duty on the first £300,000 of the property’s value.
Standard variable rate
An SVR mortgage is the default interest rate that you’ll be transferred to after your fixed-term deal comes to an end.
Tracker
Most tracker rates follow the Bank of England base rate, plus a margin of interest, so your monthly payments will go up and down.
Variable-rate mortgage
A type of home loan in which the interest rate is not fixed.
