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Commonly used
mortgage and
protection terms

Mortgage:

APR (Annual Percentage Rate) & APRC (Annual Percentage Rate of Charge)

APR – Short for Annual Percentage Rate, it’s a legal requirement for APR to be shown on personal loans, credit cards and hire purchase agreements so that an easier and fairer comparison can be made.

APRC – This stands for Annual Percentage Rate of Charge and is now used for mortgages, including second charge mortgages (secured homeowner loans).

An APRC (previously known as APR until recent regulatory changes) shows how much your borrowing will cost over the period of an average year, over the term of your debt. It takes into account the interest charged as well as any additional fees (such as an arrangement fee on a mortgage) you’ll have to pay. They also consider the frequency with which interest is charged on your borrowing, as this has an impact on how much you’ll pay as well.

However, please note it assumes you keep the mortgage for the entire term rather than just the initial deal period, and that the interest rate charged never changes. Most people will never actually pay this rate, as AscentiaUK can help them switch deals several times before their mortgage is paid off.

Agreement in Principle (AIP) or Mortgage in Principle (MIP)

A document from a mortgage lender or broker confirming that you will be able to borrow a certain amount. You can use this to prove to a seller that you can afford to buy their property. AscentisUK can provide you with an MIP certificate based on your circumstances and without carrying out a credit search.

Arrangement fee

A set-up fee for your mortgage. Most mortgage lenders will allow you to add this fee to the loan, but this will mean you pay interest on it for the whole mortgage term.

Arrears

If you go into arrears it means you have ‘defaulted’ at least once on your mortgage repayments, ie. you have missed a month’s payment. Contact your lender as soon as possible if you think you may go into arrears.

Base rate

A rate of interest set by the Bank of England, which tracker mortgages and standard variable rate mortgages usually follow.

Booking fee

A type of mortgage set-up fee. Usually paid up front to secure the rate..

Broker

An adviser who can help you arrange a mortgage.

Buildings insurance

Insurance which covers you for damage to the structure of your home. A lender will require you to have this in place when you take out a mortgage. Read more on buildings insurance. AscentiaUK can provide you with a competitive quote for your buildings insurance needs.

Buy-to-let

A buy-to-let property is let to tenants. Most mortgage lenders offer special buy-to-let mortgage deals for this purpose. AscentiaUK can advise you on the most suitable and competitive BTL deals.

Capital

The amount of money you borrow to buy a property.

Capital and Interest (Repayment Mortgage)

With this type of mortgage you repay part of the amount borrowed, together with the interest being charged each month. At the end of the mortgage term (assuming no changes have been made to term or the borrowed amount) your mortgage balance will reduce to £0.

Capped rate

If your mortgage deal has a capped rate, the interest rate charged by your lender will never exceed the upper ‘capped’ limit, regardless of increases to the Bank of England base rate.

Cashback mortgage

Your lender gives you a certain amount of cash on completion. You should factor this into the total cost of your mortgage over the initial period to decide whether it’s a good deal. AscentiaUK can advise you on the suitability of this type of mortgage.

CCJ

County Court Judgement. These are made against you for non-payment of debt, and could make it harder for you to get a mortgage.

Collar

If your mortgage deal has a collar, your interest rate will not fall any lower than the specified amount. So if rates drop to 3.75% and your deal is collared at 4%, you’ll miss out on the savings this lower rate will bring

Conveyancing

The legal process you must go through when you buy or sell property. This can be done by a solicitor or licensed conveyancer. AscentiaUK can provide you with competitive quotes for your conveyancing requirements.

Deposit

This is the amount you are required to put down yourself towards the cost of the property. The minimum deposit you will usually need is 10%, but the cheapest deals are available to people who can pay a deposit of at least 40%.

Discounted-rate mortgage

A discounted-rate deal is one where the interest rate you are charged is a set amount less than your mortgage lender’s standard variable rate (SVR). For example, if the lender has an SVR of 4.5% and the discount is 1%, then you will pay 3.5%.

Early repayment charges (ERCs)

Penalty fees you have to pay if you want to leave your mortgage during a specified period, usually the period of the initial deal. Read more on mortgage fees.

Endowment mortgage

A form of interest-only mortgage where you also pay money into a type of investment called an endowment to pay off the mortgage at the end of the term. This type of mortgage is now uncommon due to the risk factors.

Equity

The amount of the property that you own outright, ie your deposit plus the capital you’ve paid off on your mortgage.

Equity release scheme

An equity release scheme allows older homeowners to release the cash tied up in their property. There are two types: lifetime mortgages and home-reversion schemes. These schemes should only be taken out after getting independent financial advice.

Fixed-rate mortgage

The mortgage interest rate stays the same for the initial period of the deal, which can be anything from one to 10 years. This means you can be sure of exactly what you will be paying on your mortgage each month, as your rate won’t go up – or down – with the Bank of England base rate.

Flexible mortgage

A flexible mortgage deal allows you to overpay, underpay or even take a payment holiday from your mortgage. This can help you pay your mortgage off early and save money on interest, but flexible mortgages are usually more expensive than conventional ones. The term flexible is also applied to mortgages whereby you can simply make overpayments as and when required.

Freehold

You own the building and the land it stands on.

Freehold

You own the building and the land it stands on.

Gazumping

When an offer has been accepted on a property but a different buyer then makes a higher offer, which the seller accepts.

Guarantor

A third party who agrees to meet the monthly mortgage repayments if you are unable to. This used to be common with first-time buyers, and the guarantor is usually their parent or guardian. These days guarantor mortgage are not widely available.

Higher lending charge (HLC)

This is sometimes charged by your mortgage lender if you are borrowing more than 75% of the property’s value. It protects the lender against you defaulting on your mortgage. AscentiaUK will not recommend any mortgages where an HLC is charged.

Interest-only mortgage

You only pay the interest on your mortgage each month, without repaying any of the capital loan itself. The idea is that you build up enough money to be able to pay off the mortgage at the end of the term in other ways – for example through investing in stocks and shares, pension endowment or the sale of another property. As you only pay the interest each month, your mortgage payments will be lower. Fewer lenders now offer Interest Only mortgages and those that do have very strict lending criteria.

Intermediary

An adviser who can help you arrange a mortgage.

Joint mortgage

A mortgage taken out by two or more people. This might be used if you buy a house with a partner or friend, and can also be used by parents who want to help their children buy a property.

Joint Tenancy

In estate law, joint tenancy is a special form of ownership by two or more persons of the same property. The individuals, who are called joint tenants, share equal ownership of the property and have the equal, undivided right to keep or dispose of the property. Joint tenancy creates a Right of Survivor-ship. This right provides that if any one of the joint tenants dies, the remainder of the property is transferred to the survivors.

Land Registry

The official body responsible for maintaining details of property ownership.

Leasehold

You own the building but not the land it stands on, and only for a certain period (anything up to 999 years). You may find it hard to get a mortgage if there are fewer than 70 years left on the lease of the property you want to buy.

Loan-to-value (LTV)

The size of your mortgage as a percentage of the property’s value. The cheapest deals tend to be available to people who are borrowing 60% or less.

Monthly repayment

The amount you pay your mortgage lender each month. If you’re on a repayment mortgage (the most common kind), the payment will cover a percentage of your mortgage plus interest.

Mortgage agreement in principle (MIP)

A document from a mortgage lender or broker confirming that you will be able to borrow a certain amount. You can use this to prove to a seller that you can afford to buy their property. AscentiaUK can provide you with an MIP certificate based on your circumstances and without carrying out a credit search.

Mortgage deed

A formal contract between lender and borrower, outlining the legal obligations of the borrower and the rights the lender has if the borrower fails to make a repayment.

Mortgage payment protection insurance (MPPI)

Insurance that covers your mortgage, usually for a year, if you are unable to work due to accident, sickness or unemployment. It is also know as ASU insurance.

Mortgage term

The amount of time you are taking the mortgage out for; 30 years, for example.

Negative equity

When the value of your home falls to a level which is below the amount remaining on your mortgage.

Offset mortgage

An offset mortgage links your mortgage with your savings and, sometimes, your current account. Your credit balances are offset against your mortgage debt so you only pay interest on the difference, while also paying off the capital.

Overpayments

Lenders will usually let you make additional payments of up to 10% of the total loan given. These will decrease the interest paid as well as the length of the mortgage.

Portability

A portable mortgage will allow you to transfer your borrowing from one property to another if you move, without paying arrangement fees. Portable mortgage are usually subject to the lender’s prevailing criteria at the time of ‘porting’.

Rebuild cost

The cost of rebuilding your home if it is destroyed (usually for insurance purposes).

Remortgage

When you change your mortgage without moving house. You can do this to save money, to change to a different type of mortgage or to release equity from your home.

Repayment mortgage

You pay off the mortgage interest and part of the capital of your loan each month. Unless you miss any repayments, you are guaranteed to have paid off the mortgage by the end of the term. Read more about repayment mortgages.

Repayment vehicle

Required by lenders if you take out an interest-only mortgage, this is the means by which you’re intending to pay off your mortgage at the end of the term – for example, another property, or a stocks and shares portfolio.

Right to Buy scheme (RTB)

Originally intended to enable tenants of council houses to buy the homes they lived in, this is now being opened up to housing association tenants too. AscentiaUK can advise you on the most suitable RTB deals. Please read our Affordable Housing section.

Service charge

The fee paid to a managing agent for the ongoing maintenance of a leasehold property.

Shared ownership

You buy a share of a property (usually between 25% and 75%) and pay rent on the remaining share, which is owned by the local housing association. AscentiaUK can advise you on the most suitable shared ownership deals. Please read our Affordable Housing section.

Stamp duty

Stamp duty land tax is payable when you buy a property for more than £125,000 (or £40,000 if it’s a buy-to-let property or second home). Please see our Help To Buy section and Stamp Duty FAQs.

Standard variable rate (SVR)

The default mortgage interest rate your lender will charge after your initial mortgage deal period ends. This could be higher or lower than your original rate.

Starter Homes Initiative

A government scheme which promises to build 200,000 new homes for first-time buyers aged under 40. Buyers will be given a minimum discount of 40%.

Sub-prime/non-conforming mortgage

A sub-prime, or non-conforming, mortgage is geared towards people who have had credit problems. It is now much harder to get a sub-prime mortgage than before the credit crunch.

Tenants in Common

If you buy a property as tenants in common each owner can own different shares of the property and the property doesn’t automatically go to the other owners if you die. You can also pass on your share of the property in your will

Tie-in period

This is the period during which you are ‘locked in’ to your mortgage deal. You’ll have to pay an early repayment charge if you leave your mortgage during this period. AscentiaUK will not recommend any mortgages that tie you in after your introductory rate has ended.

Tracker mortgage

This is the period during which you are ‘locked in’ to your mortgage deal. You’ll have to pay an early repayment charge if you leave your mortgage during this period. AscentiaUK will not recommend any mortgages that tie you in after your introductory rate has ended.

Valuation survey

Lenders always carry out a valuation survey to check whether the property is worth roughly the amount you’re paying for it. You should always have your own survey done too, to check for structural problems.

Protection:

Accidental Death Benefit

An accidental death benefit is a provision in a life insurance policy that stipulates that the insurance company would need to pay the beneficiary in addition to the death benefit if the policyholder were to die in an accident. Typically, insurance companies would carry out a thorough investigation of the circumstances of the policyholder’s death to verify the cause of death and determine whether the claim is valid before paying.

It is also known as a double indemnity clause.

Although an accidental death policy defines “accidental death” as death caused by an accident, it generally excludes death due to illegal activities, acts of war, hazardous activities, etc. It may also stipulate that death must occur within a set period in the case of a fatal accident. Individuals who work in dangerous conditions may want to consider purchasing it as a rider to their life insurance policy. The coverage typically ends once the insured reaches 70 years of age. Alternatively, you can purchase accidental death & dismemberment (AD&D) policies separately.

Some Insurance providers provide Accidental Death Benefit whilst your application for life insurance is being processed.

Critical illness cover

Either as an add-on to a term life insurance, or as a standalone insurance.

Critical illness cover offers you and your dependants protection by paying out a lump sum should you be diagnosed with a specified critical illness during the term of the policy. AscentiaUK can advise on the most suitable policy for your circumstances.

Convertible term assurance

This is a type of life assurance that provides the policyholder the benefit of converting a normal, level term insurance to include a whole life, investment or endowment insurance element.

This effectively provides a form of savings or investment that matures when the policy comes to term. AscentiaUk does not advise on these types of policies.

Death in service benefit

A death in service policy is a benefit often offered by employers. The policy will usually pay out a multiple of your salary to your chosen beneficiary if you pass away while employed by the company.

Decreasing term assurance

Over the course of the insurance term, the guaranteed sum assured steadily decreases. This type of insurance is traditionally used to cover the declining balance of outstanding repayments on a mortgage loan.

Most lenders will insist that some form of life assurance is in place to protect their lending in the event of the borrower’s death. AscentiaUK can advise on the most suitable policy for your circumstances.

Family income benefit

These insurance policies pay a regular – and tax free – fixed monthly or annual income to your family in the event of your death within the agreed term of the insurance.

They are especially attractive to policy holders with young families and can be arranged as an add-on to a term life insurance or as a standalone insurance.

Guaranteed and reviewable premiums

The cost of premiums can either be guaranteed throughout the term of the policy (and are sometimes called level premium policies) or they can vary based on claims experience and changing market trends – these are referred to as reviewable premiums. AscentiaUK will only recommend Guaranteed premiums.

Income protection (PHI)

This type of insurance covers payment of a proportion of your salary for a given time if you are temporarily unable to work because of sickness or injury.

The length of time payments are receivable depends on the policy term – commonly two years, or up to age 60 or 65. AscentiaUK can advise on the most suitable Income Protection policy for your circumstances.

Increasing term assurance

This is a convenient way to compensate for the adverse effects of inflation over the term of the insurance by providing for an increasing value in the sum assured.

Indexation

Index-linking allows both premiums and the sum assured to be increased in line with the Retail Price Index (RPI).

Level term assurance

This is the simplest, most straight forward, no-frills life insurance.

You pay the agreed premium and the insurer in return agrees to pay a fixed, guaranteed lump sum if at any time you should die during the term of the insurance. AscentiaUK can advise on the most suitable insurance policy for your circumstances.

Life assurance

Interchangeable with life insurance. Life cover that provides a guarantee or promise of cover in the case of certain event that will happen – typically death.

Life insurance

Interchangeable with life assurance. Life cover that provides guarantee or promise of cover in the case of certain event that might happen during the term of the policy – typically death.

Mortgage protection assurance

This is a form of life assurance intended to ensure that your mortgage is fully paid off in the event that you died before you had had the opportunity to pay it off. AscentiaUK can advise on the most suitable insurance policy for your circumstances.

Premium

The premium is the amount you pay your insurer for your policy, usually broken down as a monthly payment. It’s possible to get life insurance cover for a premium as low as £5 per month. Premiums will be confirmed at outset and the amount you pay is dependent on factors such as age, smoking status, policy term, medical history etc..

Renewable term assurance

This arrangement gives the policy holder an option to renew the insurance at its expiry date and continue without having to provide a medical report.

Sum insured

The sum insured determines how much your cover will pay out to your beneficiary if you die within the policy term. You decide how much to cover yourself for — you may choose an amount that will ensure your family can pay the mortgage in the event of your death, and you may want to take into account their living expenses and any luxuries. AscentiaUK can advise on what a suitable level of cover may be for you.

Term

When you take out life insurance, you will be asked to decide on a term — how long you want the policy to cover you for. You can choose for your cover to last for anything from a few years, to the rest of your life (in the case of whole of life cover).

Term assurance life insurance

1. Level term

Level term insurance covers you for a set amount of time, for example 10 or 20 years. Most people choose their term based on how long they have left to pay off their mortgage or how long until their children reach a financially responsible age. With a level term insurance policy, the lump sum payment remains the same for the whole term.

2. Decreasing term (see also mortgage protection insurance)

Decreasing term insurance is typically taken out to cover a large debt such as a mortgage, and the sum insured decreases as the debt is paid off. This level of cover tends to be cheaper than level term insurance, as the lump sum payment becomes smaller as time goes on.

AscentiaUK can advise on the most suitable policy for your circumstances.

Terminal illness benefit

As the name suggests, payment is made in the event that the policy holder is diagnosed with a terminal illness within the term of the insurance (insurers usually limit this benefit to the last 12 to 18 months of the policy).

Terminal illness cover

This type of cover also pays out if you are diagnosed with a terminal illness (terminal illness benefit does not typically apply in the last 18 months of the policy, and life expectancy must typically be less than 12 months).

Total and permanent disability

Similarly, total and permanent disability cover offers protection in the form of a lump sum (or occasionally regular monthly) payment if the policy holder suffers a total and permanent disability during the term of the insurance.

Trust

A trust is a way of putting something valuable (in this case your life insurance policy) aside to ensure the money goes to the people you want it to when you die.

If the policy isn’t owned under trust it automatically becomes part of your estate, thus increasing its exposure to inheritance tax. Putting the policy in the name of a trust can help to avoid inheritance tax.

Waiver of premium

This can be offered as an optional policy cover that provides continued life insurance coverage without further premium payments if the policy holder becomes unable to meet their premiums due to injury, sickness or unemployment.

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The guidance and information contained within this website is subject to the U.K. regulatory regime and is therefore primarily targeted at customers in the U.K.
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AscentiaUK is a trading style of Ascentia Mortgage Solutions Limited. Ascentia Mortgage Solutions Limited is an Appointed Representative of Stonebridge Mortgage Solutions Limited which is authorised and regulated by the Financial Conduct Authority Under Number 5601592 Registered Office: Ascentia Mortgage Solutions Limited, 2 Northside Wells Road, Chilcompton, Radstock, England BA3 4ET
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