Mortgage Glossary

Understanding mortgage jargon — every term explained in plain English

Mortgages come with a lot of jargon. Whether you are a first-time buyer or remortgaging for the fifth time, this glossary covers the most common terms you will come across. If there is anything you are still unsure about, get in touch and we will explain it in plain English.

A

AIP (Agreement in Principle): A statement from a lender confirming they would, in principle, lend you a certain amount based on a basic credit check and your financial details. It is not a guarantee of a mortgage but shows sellers and estate agents you are a serious buyer.
APR (Annual Percentage Rate): The total annual cost of a mortgage expressed as a percentage, including interest and any mandatory fees. APR is designed to help you compare the true cost of different mortgage deals on a like-for-like basis.
Arrangement Fee: A fee charged by the lender for setting up your mortgage. It can range from a few hundred to over a thousand pounds and can usually be added to the loan, though this means you will pay interest on it.
Adverse Credit: A term used to describe a poor credit history, which may include missed payments, defaults, CCJs, or bankruptcy. Specialist lenders offer mortgages for borrowers with adverse credit, though typically at higher interest rates.

B

Base Rate: The interest rate set by the Bank of England. It influences the rates that lenders charge on mortgages, particularly tracker and variable rate products. When the base rate rises, many mortgage payments increase too.
Bridging Loan: A short-term loan used to bridge the gap between buying a new property and selling your existing one. Bridging loans carry higher interest rates and are typically repaid within 12 months.
Broker: A mortgage broker is an intermediary who searches the market on your behalf to find a suitable mortgage. Whole-of-market brokers like Option Finance have access to deals from dozens of lenders, including some not available directly to borrowers.
Buy-to-Let: A mortgage designed for people buying a property to rent out rather than live in. Buy-to-let mortgages usually require a larger deposit (typically 25%) and are assessed based on expected rental income as well as personal income.
Building Survey: A detailed inspection of a property carried out by a qualified surveyor. It identifies structural issues, necessary repairs, and potential problems. A building survey is more thorough than a basic valuation or homebuyer report.

C

Capital Repayment: A type of mortgage where your monthly payments cover both the interest and a portion of the loan amount. By the end of the mortgage term, you will have repaid the entire loan in full.
CCJ (County Court Judgment): A court order registered against you if you fail to repay a debt. A CCJ stays on your credit file for six years and can make it harder to get a mortgage, though specialist lenders may still consider your application.
Chain: A sequence of linked property transactions where each sale depends on the next. For example, your buyer needs to sell their property, and your seller is also buying elsewhere. Chains can cause delays and sometimes break down entirely.
Completion: The final stage of a property purchase when ownership legally transfers to the buyer. On completion day, the remaining funds are sent to the seller, keys are handed over, and you can move in.
Conveyancer: A solicitor or licensed professional who handles the legal aspects of buying and selling property. They conduct searches, manage contracts, and ensure the transaction complies with all legal requirements.
Credit Score: A numerical rating that reflects your creditworthiness, based on your financial history. Lenders use your credit score to assess the risk of lending to you. Higher scores generally mean access to better mortgage rates.

D

Debt-to-Income Ratio: A measure of how much of your gross monthly income goes towards debt repayments. Lenders use this ratio to assess whether you can comfortably afford mortgage repayments on top of existing commitments.
Deposit: The upfront cash payment you make towards the purchase price of a property. The remainder is covered by your mortgage. A larger deposit usually means access to better interest rates and lower monthly payments.
Disbursements: Additional costs paid by your conveyancer on your behalf during the property purchase, such as Land Registry fees, search fees, and Stamp Duty. These are separate from the conveyancer's own professional fees.
Discount Rate: A type of variable rate mortgage where the lender offers a set discount below their standard variable rate (SVR) for a fixed period. For example, SVR minus 1% for two years. Your rate changes if the SVR changes.
DMP (Debt Management Plan): An informal agreement to repay debts at a reduced rate. Having a DMP on your record can affect your ability to get a mortgage, though some specialist lenders will consider applications from borrowers with a managed DMP.

E

Early Repayment Charge (ERC): A penalty fee charged by your lender if you repay your mortgage or overpay beyond your allowance during a fixed or discounted rate period. ERCs are typically a percentage of the outstanding loan and decrease as the deal period progresses.
Equity: The difference between your property's current market value and the amount you still owe on your mortgage. For example, if your home is worth £250,000 and your mortgage balance is £150,000, you have £100,000 in equity.
Exchange of Contracts: The point in the buying process when the buyer and seller are legally committed to the transaction. After exchange, pulling out usually means losing your deposit. Completion typically follows within one to four weeks.

F

First-Time Buyer: Someone who has never owned a property before. First-time buyers may qualify for specific mortgage products, government schemes, and Stamp Duty relief that are not available to existing homeowners.
Fixed Rate: A mortgage where the interest rate stays the same for a set period, typically two to five years. This means your monthly payments are predictable regardless of changes to the Bank of England base rate.
Freehold: A type of property ownership where you own both the building and the land it sits on outright, with no time limit. Most houses are freehold. This is different from leasehold, where you own the property for a limited period.
FCA (Financial Conduct Authority): The UK's financial services regulator, responsible for overseeing mortgage brokers, lenders, and other financial firms. Working with an FCA-regulated broker like Option Finance ensures you receive advice that meets strict regulatory standards.

G

Gazumping: When a seller accepts a higher offer from another buyer after already accepting yours but before exchange of contracts. It is legal in England and Wales, though frustrating. It cannot happen in Scotland where the process differs.
Guarantor: A person, usually a family member, who agrees to cover your mortgage payments if you are unable to. Guarantor mortgages can help borrowers who might not qualify on their own, such as first-time buyers with a small deposit.
Ground Rent: An annual charge paid by leaseholders to the freeholder of the land on which their property sits. The Leasehold Reform Act 2022 set ground rent to zero on most new leases, but older leases may still include escalating ground rents.

H

Help to Buy: A former government scheme that offered equity loans to first-time buyers purchasing new-build homes. The scheme closed to new applications in 2023, but some borrowers still have active Help to Buy equity loans that need managing when remortgaging.
Higher Lending Charge: A fee some lenders charge when you borrow a high percentage of a property's value, typically above 90% LTV. It covers the lender's additional risk. Not all lenders apply this charge.
HMO (House in Multiple Occupation): A property rented out to three or more tenants who form two or more separate households and share facilities. HMO mortgages are a specialist product and the property may require an HMO licence from the local council.

I

Interest-Only Mortgage: A mortgage where your monthly payments cover only the interest on the loan, not the capital. The full loan amount remains outstanding and must be repaid at the end of the term, usually through savings, investments, or selling the property.
IVA (Individual Voluntary Arrangement): A formal agreement with creditors to repay a proportion of your debts over a set period, typically five to six years. An IVA significantly impacts your credit file and most mainstream lenders will decline applications while one is active.

J

Joint Mortgage: A mortgage taken out by two or more people together, most commonly a couple. All parties are equally responsible for the repayments. Joint mortgages allow you to combine incomes, which usually means you can borrow more.

K

KFI (Key Facts Illustration): A standardised document that lenders must provide showing the key details of a mortgage product, including the interest rate, monthly payments, total cost, and any fees. Now largely replaced by the European Standardised Information Sheet (ESIS).

L

LTV (Loan-to-Value): The ratio of your mortgage amount to the property's value, expressed as a percentage. For example, a £180,000 mortgage on a £200,000 property is 90% LTV. Lower LTVs generally mean better interest rates because the lender's risk is lower.
Leasehold: A type of property ownership where you own the property for a fixed number of years as set out in a lease, but not the land it sits on. Flats are usually leasehold. Lease length matters — mortgages can be harder to obtain on short leases below 80 years.
Lender: The bank, building society, or specialist institution that provides the mortgage loan. Lenders set their own criteria, rates, and fees. A broker searches across multiple lenders to find the right one for your circumstances.

M

Mortgage Deed: A legal document that you sign to give the lender a charge over your property as security for the loan. It means the lender has the right to repossess the property if you fail to keep up with repayments.
Mortgage Offer: A formal document from the lender confirming they will lend you a specific amount on agreed terms. A mortgage offer is issued after the lender has completed their valuation, underwriting, and checks. It is typically valid for three to six months.
MIG (Mortgage Indemnity Guarantee): An insurance policy that protects the lender if they need to repossess and sell a property for less than the outstanding mortgage. The cost is sometimes passed on to the borrower, especially at higher LTVs.
ESIS (European Standardised Information Sheet): A document that replaced the KFI, providing a standardised breakdown of a mortgage product's key features including interest rate, monthly costs, fees, and total amount payable. It helps you compare different mortgage offers fairly.

N

Negative Equity: When your property is worth less than the outstanding balance on your mortgage. For example, if you owe £200,000 but the property is only worth £180,000, you have £20,000 of negative equity. This can make it difficult to remortgage or sell.

O

Offset Mortgage: A mortgage linked to your savings account. Your savings balance is offset against your mortgage debt, so you only pay interest on the difference. For example, a £200,000 mortgage with £30,000 savings means you pay interest on £170,000.
Overpayment: Paying more than your required monthly mortgage payment to reduce your outstanding balance faster. Most lenders allow overpayments of up to 10% of the balance per year without penalty. Overpaying can significantly reduce the total interest you pay.

P

Porting: Transferring your existing mortgage deal to a new property when you move home. Porting lets you keep your current interest rate and avoid early repayment charges. However, you will still need to pass the lender's affordability checks for the new property.
Product Transfer: Switching to a new mortgage deal with your existing lender when your current rate ends, without moving home. Product transfers are often simpler and faster than remortgaging with a new lender, though you may miss out on better deals elsewhere.
Product Fee: Another name for an arrangement fee. This is charged by the lender for a specific mortgage product. Lower interest rate deals often come with higher product fees, so it is important to consider the total cost over the deal period.

R

Remortgage: Switching your mortgage to a new deal, either with your current lender or a different one, without moving home. People remortgage to get a better interest rate, release equity, or consolidate debts. It is usually worth reviewing your mortgage as your deal end date approaches.
Repayment Mortgage: A mortgage where your monthly payments cover both the interest and a portion of the capital. Over the full term of the mortgage, you gradually pay off the entire loan. This is the most common type of residential mortgage.
Retention: When a lender holds back part of the mortgage funds until specific conditions are met, such as essential repairs being completed on the property. The retained amount is released once the lender is satisfied the work has been done.

S

Shared Ownership: A government-backed scheme that lets you buy a share of a property (usually 25% to 75%) and pay rent on the remaining share. Over time, you can staircase by buying additional shares until you own the property outright.
Stamp Duty (SDLT): Stamp Duty Land Tax is a tax paid when you buy a property in England or Northern Ireland above a certain price threshold. The amount depends on the purchase price, whether you are a first-time buyer, and whether it is an additional property.
Standard Variable Rate (SVR): The default interest rate your mortgage reverts to after a fixed, tracker, or discount deal ends. SVRs are set by each lender individually and are typically higher than deal rates. Most borrowers remortgage before moving to the SVR.
Stress Test: An affordability check where the lender assesses whether you could still afford your mortgage payments if interest rates were to rise. Lenders typically stress test at a rate several percentage points above the product rate.
Surveyor: A qualified professional who inspects and values properties. Your lender will require a valuation survey, but you can also commission a more detailed homebuyer report or full building survey to understand the property's condition.

T

Tracker Mortgage: A variable rate mortgage that tracks the Bank of England base rate at a set margin. For example, base rate plus 1%. When the base rate changes, your payments change by the same amount. Tracker deals offer transparency but less payment certainty than fixed rates.
Term: The total length of time over which you agree to repay your mortgage, typically 25 to 35 years. A longer term means lower monthly payments but more interest paid overall. A shorter term costs more each month but less in total.

U

Underwriting: The process where a lender assesses your mortgage application in detail, reviewing your income, expenditure, credit history, and the property itself. The underwriter decides whether the loan meets the lender's criteria and should be approved.

V

Valuation: An assessment of a property's market value carried out on behalf of the lender. It ensures the property is worth enough to secure the loan. A valuation is not the same as a survey — it does not check for structural problems or defects.
Variable Rate: Any mortgage where the interest rate can change during the deal period. This includes tracker rates, discount rates, and the SVR. Variable rates can go up or down, meaning your monthly payments are not fixed.

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