Remortgage Glossary

When you begin the remortgage process, you will hear many terms floating around that you may be unfamiliar with. To help you understand remortgages from start to finish, we have included many of the terms you may come in contact with and what they mean in regards to remortgaging.

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Adverse Credit

This term is used for customers who have a less than stellar credit rating. You may have adverse credit due to late payments, county court judgments or IVAs. Adverse credit affects the type of remortgage product you qualify for and the interest rate you will have to pay.

APR 

Also known as the annual percentage rate, the APR offers a more accurate depiction of what you will pay in interest over the life of the loan. When you compare mortgage rates, make sure you are comparing apples to apples by looking at the APR.

Arrangement Fees

These are charges assessed by the bank or building society to set up your new mortgage product. Arrangement fees can be rather steep, so it is wise to shop around for the best deals on these charges.

Bank of England Base Rate

The Bank of England is the central bank of the UK. The base rate is the rate set by the Monetary Policy Committee and instituted by the Bank of England. Many mortgage products are tied to this base rate, particularly those that offer a variable interest rate.

Capped Rate Remortgages

A capped rate mortgage is one that is variable but cannot go above a particular ceiling that is set in the loan terms. This means that even if the Bank of England base rate goes higher than your ceiling, you cannot be charged a higher interest rate. The disadvantage of many capped rate remortgages is that the terms are limited and there may be penalties assessed for remortgaging during the term.

Cash Back Remortgages

These remortgages offer cash back to the loan applicant, based on the amount of equity in the home.

Default

Defaulting on your mortgage payment means the balance due is more than 30 days late. Default payments go on your credit rating, and they may result in adverse credit that negatively affects your ability to remortgage in the future.

Discounted Rate Remortgage

A discounted rate mortgage is usually a variable rate product with a discounted interest rate for the early part of the loan term. When the discounted term has ended, the mortgage will revert back to the standard variable rate explained in the loan terms.

Early Redemption Fee

When you pay off your mortgage early, or switch your mortgage to another lender, you will probably be charged an early redemption fee. This is a charge assessed by lenders to help them recoup some of their losses when their borrowers don't remain with them for the full term of the loan. Early redemption fees can be high and affect whether a remortgage is a good option at any given time.

Early Repayment Charge

This is similar to an early redemption fee, and it specifically refers to paying off your mortgage loan ahead of the date listed in your loan terms.

Equity

The equity in your home is calculated based on what you owe on your mortgage and the current valuation of your home. The equity is a determining factor of the type of remortgage product you qualify for and the rate you can expect to receive.

Equity Release Remortgage

This is similar to a cash back mortgage in that the borrower receives additional funds from the remortgage based on the amount of equity in the home. Additional funds can be used for debt consolidation, higher education costs or home improvements.

Financial Services Authority

The Financial Services Authority, also known as the FSA, is the authorizing and regulating agency for many business sectors in the UK, including the financial industry. It is important to make sure loan companies and brokers you work with are authorized and regulated by the FSA for your own protection.

Fixed Rate Remortgage

This type of loan product offers a fixed interest rate and consistent monthly payments over the life of the loan. It is a good option for those who want predictability and consistency for budgeting purposes.

Flexible Remortgage

This loan product offers more options in mortgage repayments, including overpayments, underpayments and payment holidays.

Higher Lending Fee

This charge is sometimes assessed by lenders when the borrower has a smaller loan to value ratio. The purpose is to protect the lender in the event the borrower defaults on the loan and the property must be sold for less than the outstanding mortgage debt. It is primarily beneficial to the lender, and can be avoided in many situations.

Interest-Only Remortgages

These loan products require payments of interest only for a certain period of time. At the end of the term, the full amount of principal on the property comes due. This is not the best mortgage choice for most homeowners, since the terms are much riskier and the sticker shock at the end of the term much higher than that of repayment loans.

LTV

Also known as loan-to-value ratio, this number tells the mortgage lender how much equity the property owner possesses. It is calculated by the current valuation of the property, minus the amount of money you owe on the mortgage. Unlike equity, this number is written in a percentage to show the ratio between the loan amount and the property value. The LTV will dictate the type of mortgage product you qualify for and the rate you can expect to receive.

Negative Equity

When you have negative equity in your property, it means you currently owe more on your mortgage than the property is worth.

Offset Remortgages

This loan product uses the balance in your savings account to offset the mortgage balance and reduce the amount of interest you must pay on the loan overall.

Remortgage

A remortgage is simply the process of moving your mortgage loan from one lender to another to get a more competitive rate or a more attractive loan product.

Remortgage Term

The term refers to the amount of time it takes to pay back the mortgage in full. Lending institutions offer a variety of remortgage terms from a short two-year term to as long as 50 years on long-term remortgages.

Repayment Remortgage

This type of mortgage loan requires regular payments that include both interest and principal. A repayment mortgage loan allows you to continue paying down the loan balance and increasing the equity in the property. This is the most common type of remortgage loan available.

Stamp Duty

Stamp duty is a government tax that must be paid when you purchase any property with a value of £100,000 or more. Stamp duty is generally included in the loan amount and is paid by the solicitor responsible for the processing of the loan and the appropriate distribution of funds after the loan is closed.

Tracker Remortgages

A tracker remortgage is a variable rate mortgage that is directly tied to the Bank of England base rate. It is one of the more popular types of remortgage products today.

Valuation Report

This report provides information about the total value of your property and must be secured before a remortgage loan is issued on the property.

Variable Rate Mortgage

A variable rate product offers a fluctuating rate of interest that goes up and down in accordance with market trends. It may or may not be tied to another rate, such as the Bank of England base rate.



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