When it comes to buying your first property, it’s really easy to get confused. There is a lot to understand, a lot of big processes going on and a lot of excitement at every stage. In the past, we’ve done posts breaking down the jargon around the property market in general, to make it easier to understand what us estate agents are talking about at every stage of the process. But today we wanted to look at one specific area that causes people a few issues – mortgages. So, here are some of the most common terms around getting a mortgage, and what they mean.
Agreement In Principle
This is a type of document you will get at the beginning of the mortgage process. Once you have spoken to a provider, you will be sent an agreement in principle confirming that the lender is happy to lend a certain amount of money. You can then use this to prove to a seller that you can afford to buy their property. It’s usually one of the first mortgage documents you will see.
APR
APR stands for Annual Percentage Rate. This is the overall cost of a mortgage, including the interest and fees on top of it. The rate assumes you will have the mortgage for the whole term, so while it can be a useful number to know, it can be a bit misleading if you’re trying to compare deals.
Arrangement Fee
This is the name for the fee brokers charge to set up your mortgage. Most providers will be happy for you to add this fee to the total amount of the mortgage if you want to, but this does mean you will be paying interest on that amount for the whole term of the mortgage. Alternatively, you can pay this individually at the beginning.
Arrears
If you go into arrears on your mortgage, this means you have ‘defaulted’ at least once on the repayments. I.e. you have missed more than one month’s payments. If you think you’re going to go into arrears, it’s important you get in touch with your mortgage provider as soon as possible to discuss your options.
Base Rate
This is a rate of interest set by the Bank of England. Your mortgage broker has no control over this, but most mortgage products, like tracker mortgages and standard variable rate mortgages will usually follow this baseline. This means your interest payments can change at any time, in line with the base rate.
Broker
The name for an adviser who can help you arrange a mortgage. Some brokers are independent, and therefore will have complete access to the whole of the mortgage market and can find you the best deal. But beware, some brokers will have deals with certain lenders, meaning they get paid more commission for recommending those deals over others. It’s also worth noting that some of the best mortgage deals are only available if you apply for them directly, so it’s worth keeping your options open.
Buy-to-Let
A type of mortgage aimed at people looking to buy a property that they can then lend out to tenants. There are a special sub-set of mortgage deals available specifically for this kind of purchase, and you have to let the mortgage lender know this is what you intend to do.
Capped Rate
If the mortgage deal you have has a capped rate, then the interest rate charged by your lender will never exceed the upper ‘capped’ limit, regardless of the increases to the Bank of England base rate.
Collar
A collar is the opposite of a capped rate. If your mortgage deal has a collar, then your interest rate will not fall any lower than the specified amount. So if rates drop to 3.75% and your deal is collared at 4%, then you’ll miss out on the savings that this lower rate could bring.
Cashback Mortgage
This is a specific type of mortgage that allows your lender to give you a certain amount of cash on completion. While this might sound appealing at first, it’s always worth factoring into the total cost of your mortgage over the initial period, helping you decide whether or not it’s a good deal.
That’s all we’ve got room for today, but don’t worry, we’ll be back! As well as finishing the A-Z of mortgage terms, we’re going to look at the jargon around renting next, running through the entire A-Z until you’re just as knowledgeable as any estate agent, helping you understand the process a little better. In the meantime, if you would like to know more about any of the terms we’ve talked about today, or if you want some advice on buying your first home, we’d love to help. Just get in touch with us today and book your free consultation visit.
