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Mortgage
A mortgage is a loan used to purchase a property and which is secured against the property. The loan is paid back to the mortgage lender by an agreed method which normally involves monthly repayments.
Re-mortgage
A re-mortgage is a mortgage loan that is taken out to repay another mortgage loan using the same property as security. The consumer can decide to re-mortgage, or ‘switch’ lenders, in search of a better mortgage deal. This activity is on the increase as more and more consumers have a desire to save money, without moving house, and achieve the best deal they can. The loan amount involved may be the same or different. Some people take out a larger loan to release equity from their house, perhaps for home improvements, or change other aspects such as the repayment period. Consumers should be careful when changing features of their mortgage, see Consumer Beware
First Time Buyer
A First Time Buyer is someone who is taking out a mortgage for the first time. First Time Buyers have the luxury of not having a property to sell so are attractive to a seller of a property because there will be no selling chain. Additionally mortgage lenders often provide special deals for First Time Buyers to help them onto the property ladder. Many First Time Buyers have little in the way of deposit and require a high Loan to Value. This can increase the cost of the mortgage.
Buy-to-Let
A Buy-to-Let is the purchase of a property with the intention of letting it out on a commercial basis; whether it is for holidays, students or general rental. Many people do this as an investment, however the buyer should beware of the impact of a downturn in house prices and oversupply in the market. In other words, the rental income is not guaranteed, because you may fail to let the property for the entire time.
Lenders tend to charge different rates for Buy-to-Let mortgages, and they will not offer a Residential Mortgage, for a Buy-to-Let. Therefore, it is important that you select Buy-to-Let if you intend to rent out the property.
Buy-to-Let mortgages are not regulated by the Financial Services Authority.
There are many different mortgage types, all designed for customers with different needs. Just because one type is a good choice for one person doesn’t mean that it is the best option for you. Getting the right mortgage could save you thousands of pounds. That is why we tailor all our searches to your individual needs.
Fixed Rate Mortgages
A Fixed Rate Mortgage is one where the interest rate is fixed for a certain period of time. Typically this can be for either 2, 3 or 5 years, although some lenders are now offering 10 year fixed rates or longer. Once the fixed period is over, the mortgage usually reverts to the lender’s Standard Variable Rate which can be higher than the fixed rate. The advantage of a fixed rate mortgage is that, if interest rates go up, your monthly payments will remain fixed at the rate you have chosen. This gives you certainty over the size of your payments during this fixed rate period. The disadvantage is that, if interest rates go down, you will not benefit from a fall in your monthly outgoings. Products with longer fixed periods may be best suited to times when interest rate rises are being forecast in the foreseeable future.
Important conditions to be aware of with fixed rate deals include Early Repayment Charges, and in some cases Overhangs. See our Consumer Beware section for more information. Many people choose to re-mortgage at the end of their fixed term, so that they can get another fixed rate deal, and avoid the usual increase in cost when reverting to the lender’s Standard Variable Rate. See our What do you want from your mortgage section for more information.
Tracker Mortgages
Tracker mortgages follow the fluctuations in interest rates at a certain percentage above the Bank of England Base Rate, (or an equivalent rate such as LIBOR). They can go up or down as the tracked rate changes meaning that your monthly repayments can alter. This can be beneficial (if they go down) however, if there is a severe increase in interest rates, your payments will also increase severely. If you can afford some fluctuations in your monthly repayments then you may wish to consider a Tracker mortgage, usually because the rates themselves can be very low. If you can’t afford much of a rise in your mortgage repayment then a fixed rate will offer a more secure alternative.
After the initial period is over, usually 2, 3 or 5 years, the mortgage may revert to the lender’s Standard Variable Rate. As with the Fixed Rate deals there may be Early Repayment Charges or an Overhang if you choose to pay off your mortgage early.
Variable Rate Mortgages
This is the simplest type of mortgage. Instead of having two or more rates at different times during your mortgage, here you only have one. Like a Tracker Mortgage, a Variable Rate Mortgage does fluctuate with interest rate changes, but the rate it is set entirely by the individual lender. A major advantage of a Variable Rate Mortgage is that they usually have no Overhangs or Early Repayment Charges, meaning you are completely free to pay off your mortgage at any time. This may be useful if you are looking to develop the property and then sell it on quickly, for example.
Because the rate is discounted, most lenders will include Early Repayment Charges and possibly an Overhang.
Discounted Variable Mortgages
Discounted Variable Mortgages offer two rates. An initial discounted variable rate, a certain percentage below the lender’s Standard Variable Rate, followed then by the SVR in the normal way. The difference between this and a Tracker mortgage is that the discounted variable is tied to the lender’s own SVR, whereas the Tracker is tied to the Bank of England Base Rate or some other general rate. Because the rate is discounted, most lenders will include Early Repayment Charges and possibly an Overhang.
Capped Variable Rate Mortgages
A Capped Variable Mortgage has the great advantage of having a maximum rate above which your repayments cannot rise. If interest rates rise beyond this point, your monthly repayments will not. Unlike the Fixed rate, if interest rates go down, you can benefit from lower payments. Therefore, a Capped Variable Mortgage is somewhere in between a Variable and a Fixed rate. Most Capped Rates tend to be higher than Fixed Rate deals, however, so you may consider one of these mortgages if you believe interest rates to be unstable (i.e. they could go up or down). If you don’t think rates will go down, a Fixed Rate deal may be more appropriate.
Offset Mortgages
By combining your mortgage with your bank or savings account you are able to offset the amount you owe with the amount of capital in that account. The amount of the mortgage that you pay interest on is the difference between the total amount borrowed and the balance of the account. You will not pay tax on the savings in that account, nor will you receive interest.
Offset Mortgages are among the most flexible available. The one major risk is that, if you do not pay money into the account, the amount you owe will continue to grow. Due to the risk associated with these mortgages the rates tend to be higher than fixed or tracker deals.
It is generally accepted that Offset Mortgages are best suited to people with a high level of savings, or for people with variable incomes. They may be less suited to the First Time Buyer with a small deposit, who may not have the capital to secure against the mortgage, meaning they cannot benefit from reduced interest payments.
Current Account Mortgages (CAM)
With CAM's you conduct your finances through a single current account. This can include your mortgage, current account, savings and personal loans. Typically you have to pay your salary into the CAM and you need to be disciplined with your finances, however you can potentially save thousands of pounds and pay off your mortgage early. As with Offset Mortgages the rates for CAM's tend to be higher than fixed or tracker deals.
Repayment or Capital Interest
With a repayment mortgage, the money you pay each month covers both the interest on the loan and the loan amount itself. This means that the debt gradually reduces throughout the term of the mortgage and is fully repaid by the end of its term. Because of the nature of Compound Interest which is used to calculate the total amount of money you pay back, every year the amount of the loan will be lower, meaning that you pay less interest and more of the loan amount as the years go on. In your first few years, the majority of your monthly repayments will be repaying the interest, with only a very small amount paying off the loan. If you chose to make Overpayments during this period, the amount of the loan paid off would be higher, meaning that the interest would be lower too, allowing you to pay off more of the actual loan in the next few years, and so on. Making Overpayments at the start of a mortgage could save you thousands of pounds in interest in the long term, and you could end up paying off your mortgage years earlier.
Interest Only
With an interest only mortgage your monthly mortgage payment will cover just the interest on the loan, but won't pay off any of the actual loan amount. You will be required to pay the loan amount in full at the end of the term, so you will need to consider how to raise that money. Most people will use ISA’s or other investments to pay off this part of the loan. However, the longer you take to raise the money (i.e. the longer the term of the mortgage that you choose), the more interest you will have to pay.
Part Repayment / Part Interest Mortgage
If you have arrangements in place to raise the capital to pay part of your mortgage off in a lump sum, you may wish to take a part interest-part repayment mortgage. When we search for the deals, we will need to know how much of the mortgage is to be repaid in full at the end of the term, and how much will be paid off during the term of the mortgage.
One of the major problems we encounter when we present deals to people is that they do not understand fully how their own circumstances affect the deals available to them. We regularly receive replies from people saying, ‘I’ve seen better rates than that’ when they would not be eligible for that particular deal. So we have created this next section to explain a bit more about it.
Number of Borrowers
Usually, mortgage applications are either single or joint, meaning they rely on one or two combined salaries. Lenders will often lend different amounts to you depending on the number of borrowers in the application. See the affordability section to make sure you can afford the mortgage you want.
With ever increasing house prices, there is a growing trend for up to four people (which is the maximum allowed in England and Wales), either family or friends, to combine their incomes on a single mortgage. There is an obvious limiting factor to this in that all parties must decide to sell together, otherwise your investment could be tied up in a property which you no longer want, but can’t sell. Lenders are offering more and more specific products for these groups.
There are also mortgages available for parents wishing to buy their children a property (or vice versa) where the income of both can be combined. If you would like to know more about these specialist mortgages, please contact us, and we will send you some examples.
Employment Status
Your employment status can have a large bearing on both the amount you can borrow and the quality of the deal that is available to you. See our Glossary of Terms for a definition of each type.
The most attractive status to lenders is Employed full time. This is because it tends to guarantee a certain annual income. Being Self-Employed can limit your options a little but provided you can prove your income through business accounts for at least two years then most mainstream mortgages will still be available to you. However, you may need to apply for a Self-Certified mortgage in the following cases.
- If you do not have the necessary paperwork for the last two years.
- If a major part of your income is through bonuses that cannot be guaranteed.
- If you wish income from a second job to be considered in your application.
Because of the increased risks to the lender, interest rates and required deposits tend to be higher with Self-Certified mortgages. The amount you can borrow is often lowered too. Therefore, if you do not need to be Self-Certified, having a standard ‘proven income’ mortgage should offer better value for money, and more options.
Most lenders will lend up to 3.5 times a single applicant’s annual salary. If the application is joint, they will lend up to 3.5 times the first income plus 1 times the second, or 2.5 times the joint income, whichever is higher. This calculation is known as the Income Multiplier. Provided you fall within these boundaries you will not be penalised with higher rates, even if you are borrowing an amount towards the top of the Income Multiplier. As with most areas of the mortgage business, some lenders will offer higher multipliers (meaning you can borrow more money) at a higher cost in terms of rates, deposits and upfront fees, to cover the increased risk to them.
Increasingly lenders are looking at affordability by reviewing the household income against the household expenditure. This is done in various ways but primarily checks income against general monthly outgoings for debt repayment, household bills, council tax, etc to create a debt to income ratio.
You must make sure that when you are arranging your mortgage that you can afford the repayments and understand the impact of a rise in interest rates or a change in your personal circumstances.
Credit History
Your Credit History affects how a lender will view your application and changes the products that are available to you. For people with a ‘clean’ or ‘unmarked’ credit history lenders offer what is often referred to as their ‘prime’ range of products. For those customers who have ‘marks’ such as CCJ’s or default payments against their name and address, lenders offer a wide range of products based on various criteria. Indeed some lenders work specifically in this market.
frontstep welcomes all types of customers. On the Find My Mortgage page, we ask an initial question regarding your Credit History. If you answer ‘yes’ to our credit history question we will need to take further information from you. We then use our market experience to search a number of lenders, including some specialists, to find the offers most applicable to you. There are huge numbers of deals available and this is where the expertise of the team at frontstep can save you time and money. After we have presented the deals available, you can review these offers and choose the one that is right for you. Often time is critical so we will ensure that no time is wasted in finding the right deal for you and we will keep you informed every step of the way.
Loan Size/Loan to Value
The amount you borrow against the value of your home has a large impact on the price of the deals available to you. The lenders calculate what is known as the Loan-to-Value (LTV) ratio. If you calculate the loan as a percentage of the property value - (Loan Amount/Property Value)*100 - this will give your LTV. LTVs are bracketed together into bands. Lenders may offer different rates depending on which band your LTV falls into, but essentially, the lower the LTV, the better the deal. The LTV may also impact the amount you are able to borrow.
The upshot of this is that, even if you are just in the next bracket up, you may be missing out on much better deals. Therefore, it is worth checking your LTV to see where you fit in the scale. Most lenders will explain their LTV brackets on their websites. If you would like help with this, please contact us and we can research it for you. If you are just the wrong side of a bracket, try seeing if you can raise the extra deposit, to gain access to better deals. Conversely, if you are well inside a bracket, but are scraping everything together to get the largest possible deposit, consider whether you might be equally well off to drop your deposit slightly and have access to some of that money for furniture, for example.
Some lenders will refer to a Higher Lending Charge, meaning that if you put less deposit down, you will be charged an extra amount in the form of a higher interest rate.
When deciding which deal you want, you need to consider both the value for money of the mortgage, and the amount of flexibility that it offers. The best way to do this is to understand what you want from your mortgage. For standard residential mortgages, borrowers tend to fit into three categories:
- Those who want to re-mortgage after the initial deal is up
- Those who want to keep a single mortgage for the whole term
- Those who don’t really know what they want
The majority of people are in the last category! One of our aims is to help people to understand what they need, because getting the wrong deal could cost you thousands of pounds, sometimes tens of thousands. frontstep does not provide advice but we can assist you.
The problem for people who don’t know what they want is that they will tend to go on headline rate (which can be a good idea, see below), without considering what will happen to their payments once that deal is up. They then end up paying a very high Standard Variable Rate, and losing all the benefits of that initial rate. Below are a list of advantages and disadvantages of keeping the mortgage for the whole term or re-mortgaging every few years.
Re-mortgaging at the end of the initial deal
Advantages
- Deals with low initial rates are available. This can represent a massive saving.
- Continually re-mortgaging means you can end up paying far less interest.
- You can end up paying off your mortgage years earlier than if you remained with a single deal.
Disadvantages
- There may be heavy fees both at the start of each new mortgage you take out, and (increasingly) large Redemption Fees when you transfer to another lender.
- There is the continual hassle of re-mortgaging every few years; this can be a costly process in both time and money.
- If you forget to re-mortgage at the end of the initial deal, (or if you don’t have time), you may end up paying an extremely high Standard Variable Rate.
- With the very lowest rates there is often a large Overhang charge meaning that you are essentially tied into a mortgage for a number of years after the initial deal is up, costing you far more than you saved from the headline rate. See our Consumer Beware section to understand Overhangs.
What to look for
- What charges do you have to pay to move mortgages?
- The size of the fees added – if you keep re-mortgaging to deals with very low rates but very high fees you may be costing yourself more money than you are saving.
- The effect of Overhang charges and Early Repayment Charges on the cost of the deal. Will it still be cheaper to wait until the end of an overhang before re-mortgaging, rather than choosing a higher rate without the overhang?
- Possible interest rate changes – if you think rates are going to go up, try re-mortgaging to a longer fixed term with a slightly higher rate, for more security.
Keeping a single mortgage for the entire term
Advantages
- Hassle free, since you do not need to keep re-mortgaging.
- You do not have to pay any extra charges for a re-mortgage.
- There are still some excellent deals available so you do not necessarily have to pay a lot more than those who do re-mortgage.
- Overhangs and Early Repayment Charges are irrelevant, giving you more options.
Disadvantages
- Tends to be more expensive in the long run than re-mortgaging regularly.
- You are tied to a mortgage lender’s Standard Variable Rate for the remainder of the mortgage and rates do not always change in line with the Bank of England Base Rate. See Consumer Beware.
What to look for
- The lender’s Standard Variable Rate is far more important than their headline rate because, in most cases, it will be the rate you pay for the vast majority of the mortgage, so do not get fooled into looking at the initial rate only.
- The length of your mortgage term: The longer you have the mortgage for at the higher rate the more it will cost you. Consider the Total Cost of your Mortgage, section 5 of the Key Facts Illustration (KFI), when comparing deals.
- Flexibility: Does the deal offer the chance to make overpayments or underpayments, depending on interest rates, and your own circumstances?
One of frontstep’s most important features is the choice that we give you regarding how you want your deals presented. In today’s market place, different lenders will use many different calculation methods to show that their deal is the best deal. In actual fact the best way to look at deals is entirely dependent on your own mortgage needs. At frontstep we give you a choice of up to six ways of calculating the deals. Below is a brief explanation of all of the calculation methods, and a guide as to which might be most suitable for your own needs.
By cheapest initial monthly repayment
This is one of the simplest ways to look at mortgages because you can see immediately if you can afford the repayments or not. Because this shows the initial repayments only, once that initial deal period is up, these payments could rise significantly. This method is, therefore, best suited to those who intend to re-mortgage at the end of that initial term. However, you should also pay close to attention to the size of the fees.
By cheapest overall cost on the length of initial deal (e.g. for a fixed 3 year initial deal, the calculation will be over 3 years)
This shows you the amount you must pay back over the period of the initial deal. The benefit of this calculation method is that you can compare both the actual monthly payments of the initial period, and the total fees, giving you a better reflection of the actual cost to you. The illustration given assumes all fees are paid upfront so, depending on the lender, the amount you have to pay back may be slightly more if you decide to add some or all of the fees to the mortgage. Adding fees to your loan, as opposed to paying them upfront, will result in a higher loan amount and, therefore, more interest to be paid in the long run. If you select this option you also need to be aware whether you are tied into the deal for longer than the initial deal offered. You have control of this with frontstep by selecting whether you would like deals with or without Overhangs.
By lowest total fees
Mortgage fees come in many shapes and sizes (see our Fees and Costs section for detailed information), but usually they are either paid upfront (with the fully signed application form) and/or are added to the mortgage. Adding fees to the mortgage means that the total amount borrowed (and, therefore, the amount you pay interest on) is increased to reflect the added fees, which you then pay off over the whole term of the mortgage. If you are hoping to develop the property and sell it on quickly, you probably won’t want to pay large upfront costs, so it may be worth checking this method. This is also a useful calculation for first time buyers who may need the money for furniture etc, or for any borrower who is using all their available money to increase the deposit on the property. One word of caution, selecting this option will simply present the deals with the lowest fees, it does not say anything about the actual value of the deal overall.
By lowest initial rate
This is the method most commonly found in adverts by lenders, from brokers and from other websites. Sometimes known as the Headline Rate, the initial rate does not include any fees and gives no indication of the total cost of the deal. Nevertheless, the lowest initial rate is a useful calculation for those who are intending to re-mortgage regularly. It is quite likely that the best deals presented by this option will include high Early Repayment Charges, and Overhangs. See our Consumer Beware section. If you would like to include deals with Overhangs, please tick the box at the bottom of the Find My Mortgage page.
By lowest APR
This is the only method that all lenders are required by law to show to consumers. The APR, or Annual Percentage Rate, calculates the true equivalent interest rate over the total term of the deal. This includes both initial rates and the Standard Variable Rate, along with all fees and calculates a true interest rate for the whole mortgage. This is still one of the best methods to use if you are intending to keep the mortgage for the whole term. It is also the most widespread method of comparing mortgage deals throughout the marketplace. The downside to this method is that most mortgages have an average lifetime of 4-5 years so it does not truly reflect the best deal over that sort of time period.
By lowest total amount payable
Similar to the APR, in that it is best suited to borrowers intending to keep the mortgage for the whole term, it does not create a comparative interest rate, but simply adds all the costs of the mortgage together, to give you a total amount you must pay back over the full term. By subtracting your loan amount from this figure, you will be able to see the total amount of interest you will have to pay.
Include deals with Overhangs
Please read our Consumer Beware section to understand Overhangs. Tick this box if you would like us to include deals with Overhangs in your calculation choices.
There are many fees and extra costs attached to mortgages. Some are more obvious than others. Please read the following guide to make sure you know what to look for.
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Email Address
Please ensure that your email address is current, and correct. We will not be able to send you the results of our search if you enter an incorrect email address.
Telephone Number
Please provide a number where we can contact you for additional information.
Mobile Number
The mobile number of the first named applicant.
Preferred Contact Time
The best time of the day for frontstep to contact you if we need to do so.
Contact at a future date
If you do not need to re-mortgage at present, because you still have at least three months left on your current deal, please enter when your deal expires and we will contact you at the correct time to start searching for a replacement deal.
Number of borrowers
Provides for 1-4 borrowers.
For each borrower:
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Title - if you wish to have an alternative title, we will capture that information at a later date
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First Name – use the first name on your identification, e.g. drivers licence or passport
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Last Name – use the name that is on your identification, e.g. drivers licence or passport
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Date of Birth – in the format dd/mm/yyyy
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Employment status – see also Employment Status
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• Employed
• Self Certified • Self Employed • Contractor • Unwaged • Other |
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Annual Income - Provide your gross annual income
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Credit Question - see Credit History
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Loan size
The amount of mortgage loan required.
Property value
Except in very special circumstances (contact us to know more), this must not be less than the amount you wish to borrow. You will need to estimate the value of your property (re-mortgage) based upon a recent survey from an Estate Agent, from recent sales of similar properties or from other sources of information. It is important that this is as accurate as you can make it as it impacts your Loan to Value.
Total No of Years of Loan
This depends upon your personal circumstances. See Consumer Beware.
Type of Mortgage
The type of mortgage you require.
Type of Product
There are many different product types so you will need to research which best suits your needs.
Length of Initial Deal
This depends upon your personal circumstances. In whole years only.
Repayment Method
Choose one of the different repayment methods
How would you like your deals presented?
There are various ways we can present 'best buys'. Choose the options to suit your needs by checking the understanding our calculations section.
Compulsory Insurance
Some lenders require you to take out compulsory insurance with them, when you accept their mortgage. You should be wary of this because they are often more expensive than ‘stand-alone’ deals from specialist providers. It is important to consider the extra cost of compulsory insurance when deciding which deal to take.
Overhangs
When you get a special interest rate for a period of time, say a fixed rate for two years, you may have to pay an Early Repayment Charge if you redeem your mortgage in the special rate time period. Some deals also have penalties if you redeem your mortgage after the special rate time period is completed. These are called Overhangs and they can be quite severe. Be careful with deals that have low initial rates and high follow on rates with Overhangs as you can be trapped in a high rated deal after the initial rate period is over. In fact, these deals are so prohibitive to consumer freedom that many ‘Consumer Champion’ websites refuse to offer any deals with Overhang charges, regardless of the actual quality of the deal.
Some deals with Overhangs do represent excellent value for money however, and we believe you should be offered the choice to view these deals so you can decide if it is what you want. On the Find My Mortgage page, you will be given a tick box to say whether you want to include these deals in the presentation.
Rate Changes
The Standard Variable Rate, managed by the lender, can be changed in a manner that does not reflect changes in the Bank of England Base Rate,for example the Bank of England may reduce the base rate by 0.25% and a lender may reduce the SVR by 0.2%.
Re-mortgaging and extending the term
Many people choose to re-mortgage and extend their term every time. This helps to reduce monthly payments but may take your Redemption Date well past the date you retire. You should be aware of the impact of extending your mortgage term because you will end up paying far more in interest than if you finish paying the mortgage off after the original term.
Redemption Charges
This is an increasing issue for borrowers. To try to dissuade borrowers from switching lenders and therefore stay beyond the initial period and pay a high Standard Variable Rate, lenders are charging more and more for you to ‘redeem’ or pay off your mortgage completely (which you will do if you re-mortgage). In some cases this figure can be hundreds of pounds. You should make sure that you are comfortable with the Redemption Fees of the mortgage by looking at section 8 of the Key Facts Illustration or KFI, which you will receive before you make a full application.
Another word of warning, the fee stated in the KFI is not in the contract and can change during the mortgage period so the redemption charge stated is only indicative and may vary.
Do I need any special software?
We provide some documents in PDF format. You will need an abode reader for these, which can be downloaded free of charge at www.adobe.com/reader
What is your policy on Privacy?
Our privacy policy statement explains what happens to the information we collect from you, how we protect your data and your rights in regard to this.
What are the Terms and Conditions?
These are very important and set out in detail the responsibilities for both you and frontstep in relation to this service. It is important for anyone who uses this website to look carefully at them.
Do you search the whole of the mortgage market?
We offer mortgages from the whole market.
Do I need protection?
You should think about what would happen if something happened to you and therefore you were no longer able to make repayments. There are a variety of protection products in the market that would cover you in these circumstances and you can get guidance on these on the following site. www.fsa.gov.uk/consumer/05_INSURANCE/index.html.
I don’t know which deal to take, what should I do?
Although frontstep cannot offer you specific advice, we can help you to know what you should be looking for. If you are still unsure after reading our Mortgage Information page, try looking at the links to other help pages for more information. Failing that, we recommend you speak to an Independent Financial Advisor. If you do receive advice to take a certain product from another source, remember that we may be able to arrange this deal for you, to make sure that you get your Cheque2u.
Bank of England Base Rate
The interest rate set by the Bank of England for lending to other banks, also known as the repo rate. This rate can go up or down and is reviewed monthly by the Monetary Policy Committee.
Your share of the fee paid to frontstep by the mortgage lender on completion of your mortgage.
Compound interest
The name given to the cumulative interest calculation on a mortgage. Compound interest is calculated using the outstanding balance together with accumulated interest. This means that early mortgage repayments are mainly interest so any overpayments you make at the start will pay off the actual loan amount, saving you thousands in the long run. See Overpayments, to learn more.
Early Repayment Charges
The charges incurred if you choose to pay off all or a significant part of your mortgage during a Fixed, Discounted or Tracker rate period.
Employment status
Different types of employment status affect your available deals. You are Employed, Self Employed, Self Certified, a Contractor, or Unwaged but with another form of income, see below for definition of each:
Employed
Someone who is employed by a company with a regular salary. You will typically have to prove your income.
Self-Certified
Self-certifying your income involves signing a declaration which states your income sources and amounts. Select this option if you are unable to provide the required proof of income documents for at least two years. See the section on Employment Status to understand how this will affect the deal you can get.
Self-Employed
A self-employed person works for themselves and is not an employee of another company or person. They obtain their income from their business. Due to the potential fluctuations in income, lenders tend to see self-employed people as a greater risk. Typically a self employed person needs to provide accounts and payslips for at least two years prior to the application.
Contractor
A contractor typically has a contract or a number of contracts that provide income for periods of time. Similarly to self-employed, a contractor will typically need to provide accounts and payslips for at least two years prior to the application.
Unwaged
An unwaged person does not have an employment income but does have another form of income (e.g. benefits or dividends).
Higher Lending Charge (HLC)
The name given to the higher rate of interest you have to pay if you have a high Loan to Value.
Key Facts Illustration (KFI)
An essential document that must be given to you by a lender or broker prior to a full application. It details all the rates, fees, charges and conditions of the mortgage deal. You should not apply for a deal if you have not looked at the KFI.
LIBOR London Inter-Bank Offer Rate
The interest rate that the banks charge each other for loans (usually in Eurodollars). The LIBOR is officially fixed once a day by a small group of large London banks, but the rate changes throughout the day.
Overhangs
When you get a special interest rate for a period of time, say a fixed rate for two years, you may have to pay an Early Repayment Charge if you redeem your mortgage in the special rate time period. Some deals also have penalties if you redeem your mortgage after the special rate time period is completed. This is called an overhang and they can be quite severe. Be careful with deals that have low initial rates and high follow on rates with Overhangs as you can be trapped in a high rated deal after the initial rate period is over.
Overpayments
You may choose to pay more than your required monthly repayments in order to pay off your mortgage early, thus saving you money on interest. During Fixed or Tracker rate periods, there is usually a limit on the percentage overpayments you can make per year, without incurring an Early Repayment Charge penalty.
Redemption Fees
The fees you have to pay when you complete the repayments on your mortgage. You also have to pay it if you switch mortgages to another lender during the term.
Redemption Date
The date that you complete your monthly payments to the lender, meaning that you either become the sole owner of the property or you commence a mortgage with a new lender.
Residential Mortgage
The term used to describe a mortgage for non-commercial use, i.e. a standard individual’s mortgage on a main property, as opposed to a Buy-to-Let.
Standard Variable Rate
A variable rate controlled by the lender. It usually changes according to the Bank of England Base Rate, but the lender can change it at any time, and to any amount. See Consumer Beware.
Total Cost of your Mortgage
The total amount you pay back over the complete term of the mortgage. This includes the loan amount, any interest accrued, upfront fees, fees added to the mortgage and any extra charges.
Underpayments
The opposite of Overpayments, enabling you to pay less than your standard monthly repayment for a period of time. This is usually linked into the Overpayments, in that you can only make underpayments for the same period of time that you have made Overpayments for.
WHICH Consumer site www.which.co.uk/reports_and_campaigns/money
Financial Services Authority site www.mortgageslaidbare.info/
Council of Mortgage Lenders site www.cml.org.uk/cml/consumers/guides/homebuy
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