Glossary of Commonly Used Mortgage Terminology

Amortization
a payment plan which enables the borrower to reduce his or her debt gradually through monthly payments of principal.
Appraisal (Valuation)
a written analysis of the estimated value of a property prepared by a qualified appraiser (valuer). This opinion of the property?s fair market value is called the Appraised Value.
Appreciation
an increase in the value of a property due to changes in market conditions or other causes. The opposite of depreciation.
Assessed Value
the valuation placed on property by a public tax assessor for the purposes of taxation.
Buy to Let Mortgage
a mortgage suited to borrowers who want to rent out the property. The decision on whether the borrower can repay this type of mortgage will take into account the future rental income from the property in addition to the personal income of the borrower.
Collateral
an asset that guarantees the repayment of a loan. The borrower risks losing the asset if the loan is not repaid according to the terms of the loan contract.
Credit
an agreement in which a borrower receives something of value in exchange for a promise to repay the lender at a later date.
Credit history
a record of an individual?s open and fully repaid debts. A credit history helps the lender to determine whether a potential borrower has a history of repaying debts in a timely manner.
Credit report
a report of an individual’s credit history prepared by a credit bureau and used by a lender in determining a loan applicant’s creditworthiness.
Default
failure to meet the legal obligations in a loan contract by not providing monthly mortgage payments.
Down payment
the part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage.
Equity
the difference between the market value of the property and the amount of the owner’s mortgage on that property.
Fixed instalment
the monthly payment due on a mortgage loan. The fixed instalment includes payment of both principal and interest.
Fixed Rate Mortgage
a mortgage where the interest charge rate does not change for a set period – usually a number of years or until a fixed date in the future. At the end of the period, the mortgage usually reverts to the lender’s variable rate.
Foreclosure
the legal process by which a borrower is default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale applied to the mortage debt.
Grace Period
a period of time in which payments of the principal on a mortgage are deferred. During this time, interest only will be payable on the loan.
Instalment
the regular periodic payment that a borrower agrees to make to a lender.
Interest
the fee charged for borrowing money.
Interest-only mortgage
a mortgage whereby the borrower is only required to pay interest on the amount borrowed during the mortgage term. It is the borrowers responsibility to ensure that enough funds will exist (either through an investment policy or other means) to repay the full mortgage at the end of the term.
Liabilities
a person’s financial obligations. Liabilities include long-term and short-term debt, as well as any other amounts that are owed to others.
Loan
a sum of borrowed money (principal) that is generally repaid with interest.
Loan-to-value (LTV) percentage
the size of the mortgage as a percentage of the value of the property. For example, a ?100 000 property with an ?80 000 mortgage has a LTV percentage of 80 percent.
Margin
the variable interest charged by a lender will comprise an interbank rate + margin. The margin will vary according to several factors, but mainly the capital equity of the borrower. When a bank is loaning a higher percentage of the purchase price, they will charge a higher margin to compensate for the greater risk.
Maturity
the date on which the principal balance of a loan, bond, or other financial instrument becomes due and payable.
Mortgage
a loan to buy a property, where the property is used as security against the borrower paying back the loan.
Mortgagee
the lender in a mortgage agreement.
Mortgagor
the borrower in a mortgage agreement.
Non-Status Mortgage
a mortgage where a lender may not require income details from you, or may accept some previous poor credit history.
Pre-approval
mortgage pre-approval specifies the actual amount a buyer is pre-approved by a lender to borrow before a house is purchased. The buyer has to apply and qualify for the mortgage. Pre-approval allows the buyer to negotiate like a cash buyer.
Prepayment (early Redemption)
any amount paid to reduce the principal balance of a mortgage before the due date. Payment in full on a mortgage that may result from sale of the property, the owner’s decision to pay off the mortgage in full, or a foreclosure. In each case, prepayment means payment occurs before the mortgage has been fully amortized. In some mortgages, there will be a Prepayment Penalty, a fee that is charged to a borrower who pays off a mortgage before it is due.
Pre-qualification
the process of determining how much money a prospective home buyer will be eligible to borrow before he or she applies for a loan.
Refinancing
the process of the same mortgagor paying off a mortgage with the proceeds from another mortgage.
Remortgage
the process of taking on a second mortgage to pay off the first. The most common reasons for doing this are that another mortgage is available at a better rate or that the value of the property has gone up allowing for the opportunity to borrow more money against the property.
Repayment Mortgage
a mortgage where part of the actual loan plus interest on the outstanding loan amount is repaid each month, gradually reducing the amount borrowed. A repayment mortgage guarantees to repay the total mortgage debt at the end of the mortgage term provided the correct monthly repayments are made on their due dates. Also called a Capital & Interest Mortgage.
Sanctioning Fee
the fee you pay your Lender in return for them providing you with a mortgage. Usually paid on completion or during the application process. Sometimes called an Arrangement Fee.
Security
the property that will be pledged as collateral for a loan.
Self-Certification Mortgage
refers to a mortgage where the borrower may declare their own earnings without having to provide proof of this income. These mortgages have been designed to assist borrowers who can afford to make mortgage payments, but find it difficult to prove their earnings via traditional methods.
Transfer of ownership
any means by which the ownership of a property changes hands. Lenders consider all of the following situations to be a transfer of ownership: the purchase of a property ‘subject to’ the mortgage, the assumption of the mortgage debt by the property purchaser, and any other land trust device.
Underwriting
the process of evaluating a loan application to determine the risk involved for the lender. Underwriting involves an analysis of the borrower’s creditworthiness and the quality of the property itself.
Variable Rate Mortgage
a type of interest rate which can be charged by a lender. It will be based on interbank rates which fluctuate according to prevailing economic conditions.

DISCLAIMER
Figures and information provided on this website are meant purely as an indicator of the loan products available through our affiliated mortgage lenders. Specific questions, such as those regarding commission, redemption penalties and paperwork requirements, should be aimed directly at the mortgage lenders themselves.
Your home may be repossessed if you do not keep up repayments on your mortgage.
The value of your loan repayments under a foreign currency mortgage can fluctuate in value if your income is not paid in the same currency.