Mortgage terms explained

Your property could be repossessed if you don't keep up your mortgage repayments.


Additional borrowing

Also known as a Further Advance (FA). Additional borrowing lets homeowners borrow more money against their property. This money is often used to make repairs or improvements to the property. You'll have to prove you can afford the additional borrowing, and it will increase your mortgage amount.

Annual interest (also known as annual rest)

This is where interest for the next year is calculated on the last day of the current year, based on the outstanding balance at that point. Payments must be made monthly, which will repay this interest as well as the balance.

Annual percentage rate of charge (APRC)

This is the yearly cost of your mortgage and includes interest, certain fees associated with the mortgage plus any other costs. The APRC can be used to compare the cost of different mortgages.

Annual review scheme

If your mortgage operates on the annual review scheme, your monthly mortgage payments are reviewed once a year, with any changes usually coming into effect from March. We look at your balance at the end of the current year, along with any interest rate changes over the previous 12 months, to work out your payments for the coming year. We’ll tell you about your new payments when we send you your annual mortgage statement, usually in February.

Application fee

This is a one-off fee that’s charged when you apply for a mortgage. It's not normally refundable, even if the mortgage doesn’t complete.


This refers to any outstanding payments on the mortgage account, such as where a payment has been missed or underpaid.

Back to the top


Bank base rate (BBR)

This is the interest rate set by the Bank of England (BoE).

Benefit period

This is the length of time that a discounted, fixed, tracker or capped rate applies to a mortgage. For example, a mortgage with a two-year fixed rate would have a benefit period of two years.


A mortgage broker is an intermediary who helps you find and apply for a mortgage.

Buildings insurance

Buildings insurance must be taken out as a requirement of a mortgage. It should cover the full cost of rebuilding the property.

Buy to Let

A type of mortgage used to buy a property for the sole use of renting to a third party.

Back to the top



Any sum of money lent to you by a lender, usually to purchase or remortgage a property.

Capital and interest

A type of repayment method where you make regular payments of both interest and capital over a fixed term. This should ensure the full balance is repaid over this term.

Capped rate

This type of mortgage sets an upper limit on how much the interest rate can rise during a selected period.


The final stage of the conveyancing process after exchange of contracts. This is when keys change hands (on a sale or purchase), and your mortgage is set up. It’s also when the funds will be paid to the seller.


Conveyancing is the legal process necessary wherever property or land is bought or sold. This is most often carried out by solicitors or licensed conveyancers on behalf of buyers and sellers.

Back to the top


Daily interest (also known as daily rest)

This is where interest is calculated based on the amount owed on your mortgage at the end of each day. The interest is charged to your account daily, increasing the balance by the amount of interest. Payments must be made monthly, reducing the balance on which interest is charged from the day each payment is received.

Debt consolidation

If you repay debt by borrowing on your mortgage, it may mean that you pay more interest in the long term, depending on the length of your mortgage and rate of interest of the mortgage.

Decision in Principle

With a Decision in Principle(DIP), you can find out if we may be able to lend to you and how much that would be. It's free and there’s no obligation to take out a mortgage with us afterwards. It’s also known as an Approval in Principle, Agreement in Principle or Mortgage Promise.

Using your income and outgoings, it gives you a good idea of the type of property you may be able to afford. It's also something estate agents sometimes ask for to show you're serious about buying.

Discounted rate

If you have a discounted rate mortgage, for a set period you’ll be charged an interest rate that’s lower than the Standard Variable Rate (SVR), but will rise or fall in line with it. Once the discount period ends, you’ll often be charged the SVR.

Back to the top


Early repayment charge (ERC)

Many products are offered with incentives at the start of a mortgage term. These products can only be offered on the assumption that you keep your mortgage for a set period. Therefore, an early repayment charge may be incurred if you repay (or in some cases, partly repay) the mortgage within the early repayment period.


An endowment policy is a savings plan you can take out to repay your mortgage if you have an interest only (or part and part) mortgage.


This is the difference between the current market value of your property and your outstanding mortgage balance held against that property. For example, if your home was valued at £200,000 and your mortgage balance was at £150,000, your equity would be £50,000.

Exchange of contracts

This is the process where parties legally agree to the sale and purchase of a property, and set a completion date. Normally this is arranged through a solicitor or licensed conveyancer.

Back to the top


First time buyer

Someone who’s buying a property for the first time. There are sometimes special deals available for first time buyers.

Fixed rate

This type of mortgage fixes the interest rate on a mortgage for a set amount of time. This is typically between two and ten years.


This is when you own the property and the land it’s on.

Back to the top



This is someone who makes an official agreement to be responsible for money that someone else owes. For example, a parent could act as a guarantor for their child buying a home.

Back to the top


Homebuyer's report/survey

A report on the condition of the property, helping you to make an informed decision on whether to purchase a house or not. This survey will highlight any problems that are visible to the surveyor.

Back to the top



This refers to personalised product information that helps you to compare, and make an informed decision about, different mortgage products.


If a local search of the property and nearby area hasn’t taken place (this is often the case when remortgaging), an insurance policy called indemnity can be put in place to cover against any of the risks that the search may have revealed.

Initial interest payment

Any payment due for the period from the day the mortgage starts until the first full monthly payment.


As well as paying back the amount you borrow, you’ll also have to pay interest on the mortgage. This may be calculated on a daily or annual basis, depending on the specific terms and conditions of the mortgage.

Interest Only

A type of repayment method where you only make regular payments towards the interest on the mortgage and not the capital. You’ll owe the full balance of the money you borrowed when the mortgage ends.


An adviser who helps you choose the mortgage that's right for you and make your application.

Back to the top


Joint mortgage

This is a mortgage you take out with another person, such as your spouse, partner or friend.

Back to the top



This means you own the property but someone else owns the land it’s on. This is usually the case with flats, but it may occur with other types of properties. There’s usually a ground rent to be paid to the freeholder, and there may also be other charges such as service charge and insurance.

Legal fees

These are charged by a solicitor or another qualified individual to carry out the legal work associated with buying or selling a property.

Loan to value (LTV)

The LTV is a percentage figure used to show the loan amount as a proportion of the property's value. For example, if a property is valued at £100,000 and you have a deposit of £10,000, you’ll need to borrow £90,000, resulting in an LTV of 90%. Different mortgage products can have different maximum LTVs, meaning the minimum deposit or equity required can vary.

Local search

This is a request for a variety of information from the local authority, including information on planning matters and the maintenance of roads near the property. Local searches are usually carried out by your legal representative.

Back to the top


Mortgage adviser

This is a mortgage specialist who’ll help you arrange your mortgage.

Mortgage exit fee

If you pay off your mortgage before the end of the term, you may be charged a fee. This may be in addition to other charges, depending on the product terms and conditions, such as an early repayment charge.

Back to the top


Negative equity

If the market value of your home is less than your mortgage, you’ll be in negative equity. For example, if your mortgage is £75,000 but your home is only worth £65,000 you’ll have negative equity of £10,000.

New build

This describes a property that was first occupied less than six months ago.

NHBC guarantee

A 10-year guarantee, provided by the National House Building Council, that the builder will correct any serious defects on a newly built property.

Non annual review

If your mortgage doesn’t operate on the annual review scheme, your monthly payment will be immediately amended when interest rates change (unless stated otherwise in the product terms and conditions).

Non-standard construction property

A home that doesn't have brick or stone walls, or doesn't have a roof made of tile or slate.

Back to the top



Any additional payment made to your mortgage account above your required monthly mortgage repayment.

Back to the top


Part and part

A type of repayment method that is a mixture of interest only and capital and interest. You’ll pay off some capital through your monthly payments (alongside paying for the interest), but a sum will still be owed when the mortgage ends.


This means you can transfer your current mortgage to another property.

Product fee

This is the fee charged for providing a mortgage product. This usually applies to loans where a special interest rate applies, such as fixed, discounted and tracker, and should be paid by completion. It may be refundable if the mortgage doesn’t complete.

Product transfer

A product transfer is when you move onto a new mortgage product with your current lender when your deal is ending or has already ended. We often refer to this as 'switching to a new deal' or a 'rate switch'.

Back to the top


Rate shock

If your fixed rate product ends, the available rates may be higher. This might mean you need to make a higher monthly mortgage payment.


This is when you repay your mortgage in full, including interest and costs. A redemption statement shows the amount you still need to pay to redeem your mortgage.


We’ll need to check these before making a formal mortgage offer. The checks may include confirming your income with your employer and contacting credit reference agencies.


This is the process of changing from one mortgage to another, possibly with a new lender.

Back to the top


Shared ownership

You purchase part of the property initially and pay rent to a housing association or landlord for the share you don’t own yet. Then, you can purchase more shares when you can afford to. You need to make sure you’ve accounted for fees such as rent and maintenance.

Stamp duty

A tax that you may need to pay if you buy a property. It’s charged as a percentage of the purchase price. The percentage can also vary based on the purchase price.

Standard variable rate (SVR)

SVR is our base lending rate and is the interest rate you’ll usually be charged once your initial period on a fixed or tracker rate comes to an end (unless otherwise stated in the product terms and conditions). On SVR, mortgage payments are subject to change and payments may go up or down depending on the rate.

Static payment

This is a fixed amount that you choose to pay each month and must be more than your normal monthly payment

Back to the top


Telegraphic transfer

Completion funds can be sent by telegraphic transfer, which is a way of quickly transferring money on completion. The funds should be received the same day, and a fee may be charged for this service.


This is the length of time you wish to repay your mortgage over, for example 25 years.


This is a type of mortgage where the interest rate charged will be set at a fixed percentage above, below or at the BBR. If the BBR increases or decreases, the interest rate for a tracker mortgage will change in accordance with the mortgage terms and conditions.

Transfer of equity

This is when a person is added or removed from the property ownership. This may be requested due to a change in personal circumstances. A transfer of equity is the legal process required to make this change.

Back to the top



Before agreeing to provide a mortgage, we’ll instruct a valuer to establish a property’s worth and its suitability for mortgage purposes. A valuation isn’t the same as a survey, which gives you a more detailed evaluation of the property.


This is how much your property is worth in the current housing market, which may not be the same as the amount you initially bought it for.

Variable rate

If you have a variable rate mortgage, your payments will go up and down alongside any changes to specified interest rates.

Back to the top

Previous Page