If you’re taking out your first mortgage, the array of acronyms and terminology can seem quite bewildering. In this blog, we explain some of the key acronyms, initials and terms you’re likely to come across – we hope it will make you feel more confident as you navigate your way through the mortgage process.
We’ve put them in alphabetical order to help you find what you’re looking for.
AIP – Agreement in Principle, also known as a Decision in Principle (DIP), Mortgage in Principle or Mortgage Promise. If your lender gives you an AIP, it means that they are prepared to lend you the money to buy your house, based on the information you’ve given them and the amount you’re planning to spend on the property. Having an AIP can make you more appealing to sellers because it means you’ll be able to move quickly once you’re offer is accepted.
APR – Annual Percentage Rate. This is the cost of your mortgage, on top of repayments. It includes not only the interest due on the loan, but also any fees and charges. It’s a good idea to compare APRs when you’re considering which mortgage would be best for you. It’s important to note the period that an APR will apply – it is typically just two years, after which the rate can change, so it’s important to plan for an increase.
APRC – Annual Percentage Rate of Charge. This is different from the APR and gives you a full view of your mortgage as if you were to stick with it until it was fully paid off, not just the initial rate. If you’re considering a mortgage with a variable rate, the APRC will not be able to give you a 100% accurate picture of future payments, but it will provide a rough idea to help you budget.
BTL – Buy to Let. This is a mortgage specifically designed for landlords. Landlords take out a mortgage which is then repaid through the rent they earn from their property every month.
CHAPS – Clearing House Automated Payment System. This is a payment system for when you need to transfer a large sum of money and have it arrive safely in the payees account on the same day e.g. when you buy your house.
DIP – See AIP
EQL – Equity Loan. If you borrow money in addition to your deposit and your mortgage, the additional money is called an equity loan. An example is Help To Buy, where the Government will top up the deposit you’ve saved by 25%. It’s important to remember to factor in your EQL repayments as well as your mortgage repayments.
ERC – Early Repayment Charge. If you find yourself in a position to pay off your mortgage early, you may be charged an additional fee, the ERC. If you’re planning to do this, it’s worth checking whether you’ll be penalised for early repayment – depending on how much longer you have to go, it might be cheaper to see the mortgage through to the end, or remortgage.
FCA – Financial Conduct Authority, the body that regulates lenders and mortgage brokers. As a consumer and a house-buyer, you can complain to the FCA if you think a licensed broker or lender has acted unlawfully. The FCA is also provides independent advice for consumers on financial matters like banking and house-buying.
FTB – First Time Buyer. Just what it sounds like – someone making their first house purchase. First time buyers are sometimes eligible for mortgage benefits, like Help to Buy (see below).
H2B – Help To Buy. This is a government scheme for first time buyers planning to purchase new-build properties. If you’ve saved at least 5% of the price of your house, the government will lend you up to 20%, bringing your deposit up to 25%. While there is nothing to pay for the first five years, it must be paid back after that time, at an initial rate of 1.75%.
KFI – Key Facts Illustration. This is a document that sets out the details of a mortgage deal, including interest and any fees. It is not a mortgage offer – it is simply an illustration of what your broker or lender thinks would be the best mortgage for you and your circumstances.
LTB – Let to Buy. If you already own property, you can rent it out, and take out a mortgage on another home for you to live in. The mortgage repayments are calculated against your income from renting your first property, rather than your income from your job. It can be a good idea if you live in an area where the property market is stagnating, or if it’s not convenient to sell your old house at the same time as you’re buying a new on, e.g. if you need to move quickly.
LTV – Loan to Value. Understanding LTV will help you to get the best mortgage rate for your circumstances. If you had saved up 25% of the price of the house you want to buy, you would need to borrow 75% of the price from a lender, or an LTV of 75%. But you could probably get a cheaper rate of interest if you could save a bigger deposit. The lender could lend you less money, making you less of a risk.
Taking our your first mortgage can seem scary, but if you do your research and talk to the experts, you should get through it without a hitch. At YES Mortgage Services, we have lots of experience of guiding first time buyers through the process. To get the right deal for you, book your free, no-obligation consultation with us today.
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