Wednesday, 20 March 2013 09:43

Mortgage Glossary

There is a lot of 'jargon' used in the mortgage industry. We have tried to provide you with a comprehensive explanation of all the terminology that you may come across during the mortgage process

APR
APR is the commonly used acronym for the Annual Percentage Rate of the total charge for credit: this is the standard way (as laid down by the Consumer Credit Act 1974 and the Financial Services Authority) of working out the true interest rate.

All lenders are legally obliged to show the APR alongside quoted interest rates for each mortgage term, this enables you the potential borrower to accurately compare mortgages from different lenders to work out exactly how much you will repay on your loan each month.

Arrangement Fee
These are usually charged by the lender when arranging a loan on certain products.
Bank of England Base Rate
The Bank of England Base Rate determines how much other banks and building societies pay for the loans that they take out from the Bank of England. These base rates will in turn affect the interest rate paid for loans including the loan on your mortgage.

Bridging Loan
This is a temporary loan which enables you to complete the purchase of your property before completing the sale of your existing house. A typical example of when you may need one would be if you wanted to buy a second property before you'd sold your first.

Booking Fee
These are usually charged by the lender when arranging a loan on certain products.

Buy To Let
This is a type of mortgage used to buy property that will be used solely for the purposes of renting to a third party i.e. you as the owner never intend to live there.
Capital and Interest
This is simply another term for capital repayment
Capital Repayment
There are two ways of repaying a mortgage either by the capital repayment or interest only route. With a capital repayment mortgage, the capital and interest elements of the loan are paid off with each monthly installment, with the balance reducing over the length of the loan.

Therefore by the end of the mortgage term, assuming all mortgage payments are made, you have paid off the balance in full and you therefore own your property outright.
Capped Rate Mortgage
This is a type of loan where a maximum rate of interest is set at the start of the mortgage term. During the capped rate period the interest rate can fall below the capped rate but will never rise above it.

What this means for you the borrower is that you know how high the mortgage payments could rise but are guaranteed the rate will not go any higher, therefore making home loan budgeting easier.
CAT Mortgage (Charges Access Terms)
This is a mortgage that complies with specific guidelines laid down by the government who wanted to set out basic and transparent conditions for all mortgage products.

Particularly in terms of the charges applied the flexibility of the mortgage and the terms applicable to it. The aim is to make mortgages more straightforward and easier to understand.

Commercial Mortgages
This is a mortgage used by businesses for the purpose of purchasing their own business premises or for financing for investment purposes.

For example, you would need to apply for a commercial mortgage when investing in commercial property or purchase commercial property for investment purposes.
Completion
This is the point at which the money to buy your new property is released to the seller, ownership is then transferred to you and you become a proud home owner!
Conveyancing
This is the legal process involved when buying or selling property. Most people use a solicitor or a licensed conveyancer when buying or selling a property because there's quite a lot of detailed work to do when transferring ownership of a property. If you are obtaining a mortgage your lender will insist that you use a solicitor.
Decreasing Term Assurance
Decreasing Term Life Insurance (sometimes called mortgage protection assurance) is where the sum assured decreases over the term of the policy. This type of policy is typically purchased by people who want to protect their repayment mortgage in the event of death.

As the outstanding mortgage balance reduces every year, so does the level of insurance. The purpose of this type of plan is to repay any capital you owe if you died.
Deposit
A deposit is the term used for the monies that you use as a down-payment on a property that you intend to buy.
Disbursements
These are the fees your solicitor has to pay on your behalf (e.g. Stamp Duty, Land Registry fees and search fees) which will be added to your conveyancing bill from the solicitor on completion of the buying or selling of a property.
Discount Rate
A discounted rate mortgage offers you reduced repayments for a given term. This interest rate is discounted from the published lender standard variable rate, for an agreed period from the start of the mortgage.

What this means for you the borrower is that you are guaranteed to pay a set amount below the standard variable rate for the period of the discount. The standard rate can go up and down, but the discount amount remains fixed during the agreed period.
Early Redemption Charge
If you pay off your mortgage in full or make overpayments in excess of the amount agreed by your lender at the outset you may be asked to pay an early repayment charge by your lender.

This charge is raised in order to recover any losses or costs incurred by your lender as a result of your early payment.
Endowment Assurance
This is a form of life assurance savings scheme that pays out a lump sum at the end of an agreed period.

If the Endowment is linked to an interest only mortgage, the lump sum from the endowment policy is designed to repay the mortgage, subject to investment returns.
Endowment Mortgage
An endowment mortgage is a type of interest only mortgage designed to repay the mortgage, subject to investment returns. They usually have two parts, the first is a monthly interest payment to the mortgage lender and the second, a monthly payment into an endowment policy that is mainly invested in stocks and shares.

What this means is that you are only paying off the interest on the loan during the term on the mortgage so the balance of your mortgage never changes. The mortgage is designed to be repaid at the end of the term with the proceeds of the endowment policy, subject to investment returns

Equity
This is the positive difference between the value of your property and the amount of any outstanding loans secured against it.

For example if your home was worth £300,000 and the mortgage on your property was £100,000 your equity would be £200,000.
Exchange of Contracts
This is the stage in England, Wales and N.Ireland when both the buyer and seller have legally committed themselves to the sale and purchase of a property and are legally bound to complete the transfer.
First Time Buyer Mortgage
There are mortgages available exclusively for first time buyers and can have some special features such as; assistance towards legal fees, cash backs and free valuations.
First Time Buyer
This is the term for a person taking out their very first mortgage.
Fixed Rate
This is a mortgage rate where the interest rate is agreed at the start of the mortgage and will not change during the term of the fixed rate.

So you know exactly how much your monthly payment will be each month during the fixed rate period.
Freehold
When you have the freehold on a property this means that you solely own the property and the land it is situated on.
Gazumping
This rather unfortunate state of affairs occurs when another potential buyer puts in a higher offer for a property after your offer on the same property has been accepted.

This means that your offer is then rejected. This can happen because under English law, the seller is not legally committed to go ahead with the sale until the point at which contracts are exchanged.
Higher Lending Charge
This is the term used for insurance for the lender for you defaulting on your payments when your property is worth less than the loan or in some cases this charge is payable when you are only able to pay a small deposit. There are many mortgages that do not carry this charge and based on your situation it is possible that this type of charge can be avoided altogether.
Interest Charges
These are the charges made on a loan, calculated as a percentage of the total amount that you borrowed on your mortgage.
Interest Only
There are two types of mortgage, interest only or capital repayment. With an interest only mortgage the balance of your mortgage stays the same throughout the mortgage term.

Interest and sometimes a premium in a suitable investment vehicle are paid monthly. At the end of the term, the proceeds from the investment vehicle are intended to repay the mortgage. This amount will depend on the performance of the investment vehicle.

If you do choose an interest only mortgage you are responsible for ensuring that you have sufficient funds available to repay your mortgage at the end of the term.
Leasehold
This is a system used mainly in England where you own the property for a set period before handing back ownership to the freeholder. When you hold a leasehold on a property, it remains the property of the freeholder.

A leasehold will set out the details of obligations of the leaseholder for repairs and maintenance of the property.
Legal Fees
These are the fees charged by a solicitor or other qualified individual to carry out the legal work associated with buying a property.
Level Term Assurance
This is a life assurance policy which will repay your mortgage should you die during the term of the loan. The amount repaid is set as the balance of your mortgage at the start of your loan; this doesn't change during the term of the mortgage. Should you survive, there will be no benefit.

It is very important to understand the concept that if you are to live until the end of the term, your policy will expire and no payment will be made.
Mortgage Rate
In a nutshell this is the interest rate on a mortgage loan.
Mortgages
This is the term used for the type of loan used to buy a property.
Mortgagee
This is the creditor or lender i.e. your bank or building society, that lends you the money for your mortgage.
Mortgagor
This is the person who borrows money, usually to buy a property.
Negative Equity
This situation occurs when a mortgage is greater than the actual value of the property. This can occur due to a decline in the value of the property after it is purchased.

For example, if the mortgage on the property is £300,000 but the value of the property is only £270,000 then a negative equity situation has occurred.
Offer of Loan
This is the formal document approving the mortgage you have requested. This document details the terms and conditions that will apply during the whole term of your mortgage.
Pension Plan Mortgages
This is a type of interest only mortgage where the loan is designed to be repaid by a lump sum from a pension plan on retirement. If you have a personal pension you can link your mortgage loan to a pension plan. At the end of the mortgage term, part of the tax-free proceeds (the tax free lump sum) of the pension fund is used to repay the capital outstanding.

It is worth noting however, that a pension plan mortgage will reduce the amount available to providing you with a pension in retirement. However, tax relief is available on your pension plan contributions. Having paid off your mortgage with your pension fund, the remainder of your pot of money will then be used to provide you with retirement income via an annuity.
Remortgaging
This is the term used when moving your mortgage from one lender to another without actually moving house. You may do this to save money.

This might be possible by switching to another mortgage product with the same lender or by switching your mortgage to a competitor. But remember, if you move lenders, the saving you make on the interest rate you pay may be partially or wholly eaten up by the transaction charges associated with moving your loan.

So, if you are thinking about remortgaging it is advisable to do your sums carefully and take good advice from a mortgage adviser. If you don't do your homework properly you could face the equivalent of several months' mortgage payments which would effectively wipe out any of the benefits of remortgaging
Right to Buy Mortgages
These are mortgages specifically tailored for public sector tenants who qualify to buy their home under the Government's Right-to-Buy scheme. You may be eligible to qualify to buy your council home if you are a secure tenant of either; a London Borough council, a district council, a non-charitable housing association, or a housing action trust.

Discounted rates are usually offered to council tenants for their homes. So if you are a council tenant wanting to buy your home, the rate you will pay will depend upon how long you have lived there. The amount of discount you will receive is roughly in proportion to the number of years you have been paying rent.
Searches
These are the enquiries made, usually by your solicitor, at the Land Registry, the Land Charges Register and Local Authorities to ensure there is nothing to cause concern about title to the land and the property you intend to buy.
Self Build Scheme
This is a package for people looking to build their home themselves.
Stamp Duty Land Tax
This is a charge levied by the government on house purchases. There is a sliding scale of stamp duty depending upon the value of the property you are buying:
Up to £125,000 - nil
£125,001 to £250,000 - 2% of the purchase price of the property
£250,001 to £925,000 - 5% of the purchase price of the property
£925,001 to £1.5 million - 10% of the purchase price of the property
More than £1.5 million - 12% of the purchase price of the property
Subject to Contract
This is the provisional agreement made between the buyer and the seller, before contracts on a property are actually exchanged. This allows either side to back out of the agreed sale without any financial penalty.
Survey
This is an evaluation of the condition and value of a property, carried out by an approved surveyor and paid for by the buyer.
Term
This is the length of time over which your mortgage loan is repaid.
Title
This is the legal right to the ownership of your property.
Title Deeds
These are the legal documents showing the ownership of your property.
Tracker Mortgage
This is a variable rate mortgage where the interest rate is linked directly to the Bank of England Base Rate. Therefore when the Base Rate changes, the rate on your tracker mortgage changes by the same amount. For example, if the Base Rate increases by 0.25% then your mortgage payments will increase by the same amount.
Transfer Deed
This is the legal document which transfers ownership of registered land from the seller to the buyer.
Valuation
This is an independent assessment of the value of a property carried out by an approved surveyor and paid for by you the customer. All lenders insist that a valuation is carried out on a property. The valuation is used by the bank or building society to decide how much they are willing to lend you.
Variable Rate
This rate can go down as well as up during the course of your mortgage and is usually based on The Bank of England Base Rate, but can also be based on the lender's own standard variable rate that they can determine.
Published in Articles
Wednesday, 20 March 2013 09:43

Mortgage Process

 mortgages-2
Published in Articles
Wednesday, 20 March 2013 09:43

Equity Release

The term "equity release", when used in the UK financial services context, is given to a range of products aimed at older consumers who need or want to release value from assets (equity) tied up in the value of their homes.

There are two types of equity release products: lifetime mortgages and home reversions. This fact file explains how the schemes work and provides examples to illustrate typical features.

There is a range of providers active in the UK, which can be split into three basic types: mortgage lenders, insurance companies and specialist firms. However, compared to, say, the residential mortgage market, the number of firms involved is small and the number of providers has declined since 2008. This is due to funding issues and the long-term nature of achieving a return on investment in equity release. The trade body Safe Home Income Plans plays an important role in the sector.

In terms of regulation, equity release lending, arranging, advice and administration are activities supervised by the Financial Services Authority. Home reversions came under statutory regulation in April 2007, lifetime mortgages in October 2004. Equity release is deemed "higher risk" by the regulator, and therefore subject to additional rules and scrutiny.

There is a potential for both mis-selling and mis-buying in the equity release market. Advice - both financial advice and independent legal advice - is therefore essential for consumers considering entering into an equity release arrangement.

As well as the obvious impact on inheritance, equity release may impact on an individual's tax status and eligibility for benefits and grants. All are therefore very important considerations for customers and advisers.

Though the market is currently small (less than 1% of the residential mortgage market), there are strong demographic and socioeconomic factors indicating a potential for rapid growth in demand for equity release in the next 10-15 years despite the contraction in business volumes during the recessionary period 2008-9, which has continued in 2010 for the reasons explained above.

Active Financial Partners Ltd are not authorised to give advice on Home Reversion Schemes

Published in Articles
Wednesday, 20 March 2013 09:43

Shared Ownership Home

Buying a Shared Ownership Home


Not everyone can afford to buy a home on the open market. Recognising that most people want to become home-owners, the Government supports a number of schemes that provide people with a lower-cost way of buying a home. The main ones are set out below, and there is a much wider range of information and leaflets about low-cost home-ownership available on the Department of Communities and Local Government website. If you are a "key worker" you may also qualify for help to buy a home under special schemes.

The "right to buy"


If you rent your home from a social landlord such as a local authority or housing association, you may be able to buy your home from them. Some schemes offer discounts on the price of the property. The "right to buy" is the most widely known scheme for buying your home from the council, and it offers discounts which can be quite large. Ask your landlord whether you qualify to buy your home.

Shared-ownership


For some people, shared ownership is a suitable option to consider. Shared ownership is a "half-way house" between buying and renting. You buy a chunk of the property - say 50% - with a normal mortgage from a lender. You then pay rent on the other chunk to a social landlord such as a housing association and you have the facility to buy another chunk at a later date - for example, when your earnings have risen thereby allowing you to qualify for a larger mortgage. There isn't always a big difference between the cost of shared ownership and the cost of full ownership, but it is definitely worth checking out this option if you would find it difficult to get a large enough mortgage to buy a home in the normal way. Shared ownership schemes are normally run through housing associations, who will have their own mechanisms for deciding who can qualify for them.

Homebuy


"Homebuy" is another form of part-ownership. Unlike shared ownership, on which the householder pays rent on the proportion of the home they do not own, no rent is payable under Homebuy. Instead, you get a mortgage for 75% of the value of the property (sometimes 50% in Wales), but the remaining amount is held by a housing association, which reclaims its share when the property is eventually sold. This brings down the cost significantly, compared with full ownership. Like shared ownership, it gives you the opportunity to "staircase" and buy extra chunks of the property, if and when you can afford to do this. But availability of Homebuy is very limited, although the Government hopes to expand the scheme significantly in the future.

Extracted from the Council of Mortgage Lenders website (June 2011)

Published in Articles
Wednesday, 20 March 2013 09:43

Buying A Property to Rent (Buy to Let)


This can be a popular mortgage option for those wishing to invest in residential rental property. Although the perception is that buy to let mortgages are expensive, this isn't necessarily correct. There are many lenders who offer competitive rates, which in many cases are generally similar to the rates offered on a standard mortgage.
Landlords also have a choice between interest only and repayment mortgages. Buy to let mortgages do differ in several ways from standard mortgages. When lenders are considering approving a buy to let loan, they generally base their decision on the likely rental income from the property and not necessarily the applicants' income. A prospective landlord needs to be aware that the rental income typically needed is 125% of the mortgage repayment, although this can vary from as little as 100% rental income up to 130%.
With our expertise in this market, we can help you find the best product to suit your requirements. With our extensive access to thousands of mortgages and our knowledge of lender's requirements, we can find you the right buy-to-let mortgage.

The financial Services Authority does not regulate some aspects of Buy to Let Mortgages
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

Published in Articles
Wednesday, 20 March 2013 09:43

Re-mortgaging Your Property

Many of us are looking for a better mortgage deal, or would like to release some of the equity in our home but the process is often not as easy as it first appears.
So what do you need to know before you seriously consider remortgaging?

Where to start?

The first step is to contact us and we can advise you on the best remortgaging options.

We will work with you to check the terms and conditions of your existing mortgage. These will tell if you are tied-in to your mortgage deal or if there are any early repayment charges. You can then decide if it is worth switching to a different rate or stay put until the penalties have expired.

How do I apply?

We will of course guide you through the whole remortgaging process, which will include:

• An early repayment statement will be needed from your existing lender telling you how much you owe.
• An application form from your new lender will need to be completed, along with details of your income and proof of your identity
• Your new lender values your home
• Subject to all the paperwork being satisfactory, the lender will issue a mortgage offer which will contain the amount of the mortgage and the terms that they will offer you
• Solicitors will need to be instructed at this point to arrange the legal documentation, leading through to completion of the loan

How long does it take?

The whole process should take about a month to complete however this may vary from customer to customer.

Once you have received a completion statement from your solicitor or new lender, the process has finished and your new mortgage is in place.
You may have to pay an early repayment change to your existing lender if you remortgage

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*Please note we have updated our email address and trading style to LenRose Wealth Management but still under Active Financial Partners Ltd and part of the Harwood Wealth Management Group PLC.

The guidance and/or advice contained within this website is subject to the UK regulatory regime and is therefore primarily targeted at customers in the UK.


Jonathan Hales

Independant Financial Advisor

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T: 01795 477744

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