Adverse credit mortgages are specialist loans for customers whose credit problems disqualify them from using mainstream lenders' standard products. Some lenders specialise in loans like these, which are also known as adverse credit loans.
Agreement In Principle
An Agreement in Principle (AIP) helps you understand how much you could borrow before you apply for a mortgage. It’s also known as a Mortgage Promise or Decision in Principle and is often seen as the first step to buying or remortgaging a home. An Agreement in Principle is obligation-free and only involves a soft credit check, which means there is no impact on your credit score.
The Annual Percentage Rate of Charge, often referred to as APRC is the total cost of the credit to a consumer, expressed as an annual percentage of the total amount of credit.
AVM stands for Automated Valuation Model. It is a search used by some lenders to establish the value of your property based on recent local sales and value trends. This is instant and means that they do not have to send a surveyor to your property.
The UK's core interest rate, set by the Bank of England. The lender's Standard Variable Rate (SVR) is higher than the Base Rate, but is often adjusted by reference to it.
Insurance cover protects the holder against damage to the property itself (although it can be linked with contents insurance in a combined policy). The amount insured may vary from the purchase price/valuation of the property depending on the type of location of the property. The valuer will usually provide a rebuild cost for insurance purposes.
Buy to let
Buy To Let Mortages are driven by certain circumstances where the potential borrower (a) did not set out to borrow for business or investment purposes, (b) does not have any other buy-to-let properties and (c) is only looking for a remortgage. For this reason, these mortgages are regulated giving you greater protection than with a business buy to let mortgage.
Capital and interest
In the context of mortgages, a capital and interest mortgage is also known as a repayment mortgage. It involves paying all of the interest plus repayment of a little of the capital each month; an interest only mortgage involves only paying off the interest.
A mortgage which allows your interest rate to climb no higher than a specified level, usually for the first few years of the loan.
A cash amount paid by a mortgage lender to a customer (typically at the beginning of a contract) as an inducement to enter into a mortgage contract with the mortgage lender.
The final stage of the house-buying process, which comes after exchange of contracts. The sale must proceed after Exchange, but Completion occurs when the property's agreed sale price (less any deposit already paid) safely reaches the seller's bank account.
Insurance cover which protects the personal belongings your home contains. In the case of rented accommodation, the landlord is responsible for insuring those contents which he owns, but not those owned by his tenants.
Normally carried out by a solicitor or licensed conveyancer on the buyer's behalf, conveyancing includes proving the property is really owned by its seller, making sure that all the loans secured on it are discharged, establishing its legal boundaries, and searching local planning information for upcoming developments which could affect the property's value.
County Court Judgement (CCJ)
If a County Court rules against you for defaulting on a debt, that ruling is listed on your credit record. Having such a judgement listed against you may mean you are turned down for future loans or be expected to pay a higher rate than other customers. The Scottish equivalent of an English CCJ is a Decree.
Credit Reference Agency
When assessing your application, a mortgage lender will study your credit records. These records are held centrally by credit reference agencies and contain information from many different aspects of your life.
In the context of mortgages, the deposit is the initial lump sum payment which the buyer must contribute to the property's total purchase price.
A mortgage which has an interest rate below the lender's standard variable rate (SVR), Bank Base Rate or Libor rate, typically for the first few months or years of the loan. The rate payable may move up and down, but the discount on SVR remains constant.
Early Repayment Charges (ERC's)
A charge levied by the mortgage lender on the customer in the event that the loan is repaid in full or in part before a date specified in the contract. Fixed-rate, capped-rate, cashback and discount rate mortgages commonly carry early repayment charges.
A term used by lenders to describe potential borrowers' working arrangements. Self-employed applicants are sometimes seen as a greater risk than employees are.
Exchange of Contracts
The terms of a property's purchase become legally binding for both parties when contracts are exchanged. The buyer is then committed to buying, and the seller to selling. As a buyer, you should normally ensure that you are covered by building insurance from this date, because even if the property were damaged badly, you would still have to buy it.
First Time Buyer
As well as being someone who’s never gone through the home buying process before, a first-time buyer is someone who doesn’t have a residential property (i.e. a house or a flat) with their name on the title deed, which they could sell to pay for their new home).
A mortgage which fixes your interest rate at a specified level, typically for the first few years of the loan.
Fixed rate mortgage
A fixed rate mortgage charges a set interest rate over an agreed period of time, which could be anything from 1 year, 3 years, 5 years, or occasionally even longer. At the end of the fixed rate, the mortgage will normally revert to the lender's standard variable rate.
Usually, you will find that a fixed rate mortgage offers very favourable terms, but early repayment charges will limit any flexibility to switch away from it.
The good thing about a fixed rate mortgage is that you know how much you'll be repaying each month for the length of the fixed period, which can make budgeting much easier. Where fixed rate mortgages don’t necessarily work is if the standard rates begin to fall - and you end up fixed on a higher rate with prohibitive early repayment charges.
A mortgage which allows borrowers to make overpayments when they have spare cash. Other features could include the option to reduce or miss payments altogether when times are tight, and to reborrow any overpayments. Not all flexible mortgages offer all of these features. Often useful for self-employed people whose income varies from one month to the next. The most flexible form of mortgage is a Current Account Mortgage (CAM), which can potentially save you money by linking your current account and mortgage together.
Higher Lending Charge
This is an insurance premium that you have to pay for some mortgages, usually when the Loan To Value is higher than a certain figure. It protects the lender to some extent if you default on the mortgage for any reason. It is important to understand that although you have to pay the premium, the lender benefits from any payout, and that if the payout doesn't cover their costs they may seek further money from you. With many mortgages you can add the Higher Lender Charge to the loan, unless this takes your Loan To Value over a certain figure. The insurer may pursue the defaulter for reimbursement of any monies which have been paid out in respect of lenders claim.
Home and Contents Insurance
A joint term, referring to both building and contents cover. The two policies may or may not be bought from the same insurer, but buying them together can sometimes save money or make life simpler.
Someone who is moving home and not a first time buyer.
An income strategy for investments is one which seeks to achieve a minimum level of income from the investment to fund day-to-day spending (often used by retired people).
The premium which a borrower must pay a lender in return for use of the lender's money.
An interest only mortgage or interest only remortgage is where you simply pay the lender the minimum amount to cover the interest on your loan and invest enough each month in an investment vehicle to build up a large enough fund to pay off the capital part of the mortgage, when it becomes due at the end of the agreed term.
Loan To Value
This is the amount you want to borrow divided by the purchase price. In other words, it reflects the size of your deposit. Generally, the lower the loan to value, the safer the lender will view the loan.
London Inter-Bank Offered Rate (LIBOR)
The interest rate at which leading banks lend to one another. Sometimes used as an alternative to base rate in setting the benchmark for a tracker mortgage. There are separate LIBOR rates for different periods up to a year but either "1" or "3" months LIBOR is what is normally used in setting mortgage rates.
A mortgage term is the whole lifespan of a mortgage. This can be 5 to 40 years depending on the mortgage product you have selected. Some mortgage terms are restricted by a maximum age rather than a maximum term.
Most mortgage borrowers also have savings, even if they are small, and using this money to cancel out mortgage debt makes sense. This is the basic principal behind offset mortgages. With interest only paid on the balance between savings and mortgage debt you achieve the same effect as overpaying a home loan: but you retain the ability to get the money back if you need it.
A mortgage repayment bigger than the one needed to meet the loan's minimum requirements. Mortgages that allow these without penalty are often useful for people whose type of employment means that from time to time they receive significant bonuses or other influxes of money.
A short break from regular mortgage repayments, sometimes offered with flexible mortgages. This can sometimes be a useful feature for self-employed people or others with irregular income.
The process of switching your mortgage loan from one lender to another without moving house.
A mortgage loan funded by simple monthly repayments, calculated to repay capital and interest usually over a term of 25 years (less if preferred).
If you should default on your mortgage, the lender can ultimately repossess your property to recover their money. The loan is hence said to be "secured" on the property. A second charge mortgage is a type of secured loan.
Self build mortgage
A self build mortgage is designed to help you finance the building and ownership of a house that you are about to build. The UK self build mortgage market is a specialist area, because you are asking lenders to put forward money against an asset which does not exist at the beginning of the project.
Stamp duty, or stamp duty land tax to give it its full title, is the tax levied by the government on house purchases. The amount of stamp duty you'll pay depends on if you are a first time buyer and whether you're buying a main, secondary residential property or a buy to let investment.
Standard Variable Rate (SVR)
A mortgage lender's main interest rate. Fixed-rate and discount loans usually switch to SVR when the special offer period expires. Conversely, tracker mortgages switch to a fixed percentage above Bank Of England Base rate (or LIBOR).
An expert examination of the property you are considering buying, aimed at discovering any structural flaws or repairs needed which you may have failed to notice yourself.
Tracker mortgages link your interest rate to a benchmark, such as Bank of England base rate. The rate you pay moves up and down in line with the benchmark selected.
A mortgage repayment smaller than the regular agreed sum. Some flexible mortgages have this feature, which can be useful for people with irregular income.
The maximum or minimum age that an insurer will issue a policy or continue one that’s already in place.
The person applying for the insurance policy.
The person or organisation that will receive the insurance policy payout if you pass away or have a terminal illness within the policy term, and the claim is successful.
The amount of money paid to the beneficiary when the insured person passes away. The payout is sometimes called the death benefit.
When you apply for a payout from the insurer that held the life insurance policy of the person who’s passed away, or has a terminal illness, within the policy term.
This is how much the life insurance will pay out when a claim is successful.
Critical Illness Cover can support you and your loved ones financially if you’re diagnosed with a specific illness or medical condition. You’ll receive a tax-free lump sum to help with things like bills and treatment costs.
You can take out life insurance and critical illness cover at the same time, as they cover you for different things.
Decreasing term life insurance
With Decreasing term life Insurance, the value of your policy gradually reduces over time until it reaches £0, but your premiums stay the same. This tends to be used to cover a mortgage or repayment loan.
A type of insurance that supports you if you can’t work due to sickness or injury. Income Protection pays you a fixed monthly amount and usually covers around 70% of your pre-tax salary.
The named person who is covered by the life insurance policy.
Joint life insurance
A policy that covers two people’s lives for one monthly premium. With Joint Life Insurance policy usually pays out when the first person passes away, and ends after that. If you and your partner have separate life insurance policies, the surviving partner’s policy will continue.
Length of cover
The amount of time you’ll be covered for by an insurance policy, also called the policy term.
Level term life insurance
With Level Term life cover the life cover amount stays the same throughout the term. This insurance has no cash-in value.
Like life insurance, this pays out when the person insured on the policy passes away. The main difference is that life insurance is designed to provide cover for a specific time period, while life assurance runs for a person’s lifetime.
Life Insurance is a policy that pays out if the policyholder passes away while they’re covered. Some policies also include a payout for terminal illness.
The lump sum might be used to help pay off a mortgage or go towards general living costs.
When you apply for life insurance, you’ll be asked about your health and lifestyle. In some cases, you may be asked to have a medical exam, but we’ll cover the costs.
Your insurer may need some additional medical information to assess your application, this could either be in the form of a medical report or an exam conducted by a nurse or doctor. If more information is needed, this is called a referral.
Mortgage protection insurance
A type of term life insurance that’s also called decreasing life cover. A mortgage usually goes down over time, and this cover decreases over time, too. So if you pass away during the policy term and before the mortgage is paid off, the payout could be enough to help your loved ones pay off the rest of the loan and stay in the family home.
The person, or people, taking out the life insurance policy.
Power of attorney
A legal document that lets you nominate someone to make important legal and financial decisions for you if you’re unable to. If you want someone to act on your behalf, you’ll need to give them power of attorney over your affairs.
Pre-existing medical condition
An illness, injury or disease you have when you take out a life insurance policy, also called an existing medical condition. When applying for a life insurance policy, you should answer all questions truthfully, to make sure your policy is valid.
The amount that you pay your insurer for cover. It’s usually paid monthly, but some insurers allow annual or twice-yearly payment.
A life Insurance quote is an estimate of your premium that’s based on things like the type of life insurance, the amount of cover and the length of the policy.
This is an option when you take out joint life Insurance It lets you split the policy into two if you and your partner are no longer together, and then both or either of you can take out a new policy without answering any more medical questions.
Single life insurance
A policy for one person, with one cover amount and one payment each month, which pays out if you pass away during the policy term.
The total cover amount that an insurance policy will pay out as a lump sum if you pass away, or are diagnosed with a terminal illness, within the policy term.
The length of time a life insurance policy runs for.
An illness that you’re not expected to recover from. Most Life Insurance plans include terminal illness benefit that pays out if you’re not expected to live longer than 12 months. Once the payment has been made, the insurance policy ends.
A way to leave something of value to someone without handing them full control. You can put assets like money, investments and property, as well as your life insurance policy, into a trust. This is known as writing life insurance in trust, or a policy written in trust. A trust won’t be counted as part of your estate when you pass away.
A trained expert or company that works out the risk of insuring someone. They decide the amount of cover the insured person can get, and how much they should pay for it. In some cases, they may decide the risk is too great to insure them.
The process used by an insurer that includes asking applicants health and lifestyle questions, so they can work out the financial risk of insuring them, and how much they should pay and be covered for.
Whole of life insurance
A policy that lasts the lifetime of the person that’s insured. It’s also known as permanent or traditional life insurance.
A legal document that sets out how you’d like your estate to be managed and distributed when you pass away. You can name executors in your will to carry this out.
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