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Mortgage jargon buster

Mortgage words, in plain English.

Mortgages come with a lot of jargon. This is our A-Z of the terms you will actually come across, explained simply by our advisers. Search for a word or jump to a letter.

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The main types of mortgage

Before the A-Z, here are the big ideas most people ask about first.

Fixed rate

Your interest rate is locked for a set period, usually 2, 3, 5, 7 or 10 years, so your payments stay the same during that time.

Variable rate

Your rate can move over time. It covers Standard Variable Rate, Discounted Variable Rate, Tracker Rate and Capped & Collared rates.

Base rate (BOEBR / BBR)

The Bank of England base rate. Most people ask why they cannot get this exact rate, but lenders borrow at SONIA (previously LIBOR) rather than the base rate, which can be higher or lower.

Offset

Links your savings and current accounts to your mortgage in one pot, so your balances reduce the interest you pay and can shorten your term. A good fit if you hold cash earning little elsewhere.

A quick word on SONIA, SOFR and LIBOR

LIBOR (London Interbank Offered Rate) was the old benchmark banks used for short-term lending. After a series of scandals it was phased out in 2023.

SONIA (Sterling Overnight Index Average) is the Bank of England's recommended replacement for sterling. It is a risk-free rate based on actual overnight transactions in the sterling market, reset daily. It is why lenders do not simply lend at the Bank of England base rate.

SOFR (Secured Overnight Financing Rate) is the US equivalent, based on overnight borrowing secured against US Treasury securities and published by the Federal Reserve Bank of New York. In short, SONIA is for sterling and SOFR is for the US dollar.

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A
Agreement in Principle (AIP)
Also called a Decision in Principle (DIP) or Mortgage in Principle (MIP). It is a written statement from a lender indicating how much they are likely to lend you after a preliminary look at your financial circumstances.
Annual Percentage Rate of Charge (APRC)
The average annual rate charged for borrowing, shown as a percentage across the full term of the loan. It includes any fees and additional costs, so you can compare different mortgage offers on a like-for-like basis.
B
Base Rate
Commonly referred to as BOEBR (Bank of England Base Rate). This is the interest rate set by the Bank of England that acts as a benchmark for other rates, including mortgages. Lenders often price their products as a percentage above or below the base rate.
Buy to Let (BTL)
A mortgage for property you intend to rent out rather than live in. Key points to keep in mind: lenders usually want a larger deposit (often 20 to 30 percent); interest rates tend to be higher than residential mortgages; the expected rental income normally needs to cover 125 to 145 percent of the mortgage payments; and owning rental property brings extra responsibilities and possible tax consequences, including whether to buy through a limited company (SPV) structure.
C
Completion
The final stage of the home-buying process, when the purchase is finalised and ownership transfers to the buyer. This is also when the mortgage funds are released to the seller or their solicitor.
Capital Growth
The increase in the value of an asset over time. For property it is the rise in market value, driven by things like a stronger local economy, infrastructure, favourable market conditions or improvements to the property itself.
D
Deposit
The money a buyer puts down when purchasing a property, usually shown as a percentage of the price. A larger deposit means a lower loan-to-value (LTV) ratio, which generally leads to lower interest rates and more manageable monthly payments.
Default
When a borrower fails to meet the legal obligations of a loan, typically by missing payments.
E
EPC Rating
An Energy Performance Certificate rating measures how energy-efficient a property is, on a scale from A (most efficient) to G (least). An EPC is usually required when a property is built, sold or rented, and it gives an idea of running costs plus recommendations for improvement.
Equity
The difference between a property's current value and the outstanding mortgage balance. For example, a property worth 200,000 pounds with 160,000 pounds owed has 40,000 pounds of equity, or 20 percent.
F
First Time Buyer
Someone who has never owned, inherited or received a residential property or land, in the UK or overseas, regardless of value. On a joint application both applicants must meet this test, otherwise both are treated as home movers even if one has never owned before.
Fixed Rate Mortgage
A mortgage where the interest rate stays the same for a set period, usually 2, 3, 5, 7 or 10 years. Your monthly payment stays consistent during that period, unaffected by changes in the base rate or the lender's own rates.
G
Green Mortgages
Products designed to reward energy efficiency. They may offer incentives such as lower rates or cashback for buying an energy-efficient home or making eco-friendly upgrades, with the aim of reducing a property's carbon footprint.
Gazumping
When a seller accepts your offer but later accepts a higher offer from someone else, sometimes even after you have started your mortgage application. It can be frustrating and often means losing the property you hoped to buy.
H
Help to Buy
A government scheme aimed at helping first-time buyers. Options have included equity loans and shared ownership. With an equity loan the government lends a percentage of the price, typically up to 20 percent (or 40 percent in London), so you can buy with a smaller deposit.
Home Mover
Someone relocating from one home to another, often selling their current property while buying a new one. Assessing the equity in your current home is important, as it shapes your budget and mortgage options, and both transactions need careful coordination.
I
Interest Rate
The percentage a lender charges a borrower for the use of borrowed money. It is a key factor in your monthly payments.
Interest-Only Mortgage
A loan where you pay only the interest each month and the capital balance stays the same. At the end of the term you must repay the full amount borrowed, which can be a substantial lump sum, so you need a credible plan to repay it.
Index Valuation
A benchmark lenders use to track how property values change over time. It can be influenced by location, economic conditions and market trends, and is calculated using HM Land Registry data. Lenders use it to help set loan-to-value thresholds and the products you may qualify for.
J
Joint Mortgage
A mortgage taken out by two or more borrowers. Combining incomes can increase how much you can borrow, making a more expensive property achievable. Everyone named is jointly and severally liable for the repayments, and missed payments affect each person's credit score, so it is important to agree upfront how payments will be managed.
Joint Tenancy
One of the two main ways to own property jointly. With joint tenancy each owner holds an equal share. With tenancy in common the shares can be unequal, for example 60/40. The choice has significant implications if the property is sold or if one party wants to leave the mortgage.
JBSP (Joint Borrower Sole Proprietor)
An arrangement where only the primary borrower is the legal owner and appears on the deeds, but all borrowers are jointly responsible for the repayments. It can help parents support a child onto the ladder without becoming joint owners, which can also avoid certain stamp duty liabilities. Understand the terms fully first, including the effect on everyone's credit.
K
Key Facts Illustration (KFI)
Also known as a Mortgage Illustration or ESIS. This document sets out all the important features and costs of a mortgage product, including the interest rate, fees, estimated monthly payments and the total amount payable over the life of the mortgage.
L
Loan-to-Value (LTV) Ratio
The proportion of a property's value that is funded by the mortgage. Borrow 160,000 pounds against a 200,000 pound property and the LTV is 80 percent. Lower LTVs are seen as lower risk and usually attract better rates.
Loan-to-Income (LTI) Ratio
Also known as the income multiple. It sets the maximum borrowing available from lenders based on your income.
Let to Buy
A buy-to-let arrangement for homeowners who want to rent out their current home while buying a new one. It lets you use the equity in your existing property towards the new purchase. Lenders assess affordability across both properties, and the expected rent usually needs to cover at least 125 percent of the payments on the let property. Remember to account for any Stamp Duty Land Tax or, in Wales, Land Transaction Tax.
M
Mortgage
A loan used to buy property, secured against the property itself.
Mortgagee
The lender or financial institution that provides the mortgage loan.
Mortgagor
The borrower who takes out the mortgage loan to buy the property.
Mortgage Rate
The interest rate charged on a mortgage loan, which can be fixed or variable.
N
Negative Equity
When the outstanding mortgage is greater than the property's current market value. It can happen if values fall or if you borrowed at a high LTV, and it can make selling or remortgaging difficult.
O
Overpayment
Paying more than your normal monthly instalment. Overpaying can shorten your term and reduce the interest you pay overall, though some lenders cap how much you can overpay, so check your terms first.
Offer Letter
A formal document from a lender setting out the terms on which they will lend, including the amount, interest rate and any conditions. Receiving it is a significant milestone in the buying journey.
P
Principal Amount
The original sum of money borrowed, not including interest or fees.
Porting
Moving your existing mortgage to a new property when you relocate. If your deal allows porting you may be able to carry over your rate and terms without early repayment charges, though the lender still needs to approve it and it is not always possible.
Q
Qualifying Criteria
The requirements you need to meet to be eligible for a mortgage. These often include the LTI (Loan to Income) ratio, which combines with your gross annual income to set the maximum loan, and the DTI (Debt to Income) ratio, which measures how much of your monthly income already goes on debt. Lenders usually prefer a DTI below around 40 to 50 percent.
R
Remortgaging
Moving your existing mortgage to a new deal, either with your current lender or a different one. People remortgage to get a lower rate, release equity or change their terms. Weigh up the costs, including any early repayment charges and fees.
Repayment Mortgage
A capital and interest mortgage where each monthly payment covers both the interest and part of the balance, so the loan is fully repaid by the end of the term.
Redemption
Fully paying off a mortgage, which releases you from the debt. It usually happens at the end of the term, when you sell, or when you refinance with a different lender.
S
Standard Variable Rate (SVR)
The rate your mortgage moves to once an initial fixed or discounted period ends. It is set by the lender and can change over time, and it is often higher than the rate you paid during the initial period.
T
Title Deed
The legal document that proves ownership of a property. It sets out the owner's rights and obligations and is essential when ownership is transferred.
Term
How long you have to repay the mortgage, up to a maximum of around 40 years. Most lenders allow a term that runs to about age 70 for the oldest borrower. A longer term lowers monthly payments but usually means paying more interest overall.
U
Underwriting
The stage where the lender assesses the risk of lending to you. They review your credit history, income and wider finances to check you meet their criteria for approval.
V
Valuation
A professional assessment of a property's market value, used by lenders to confirm the property is worth the price and to decide how much to lend. There are generally three levels: Level 1 Mortgage Valuation, Level 2 Home Buyers Report and Level 3 Full Structural Survey.
Variable Rate Mortgage
A mortgage where the interest rate can change over time, depending on the lender's SVR, the Bank of England base rate or other factors. It offers flexibility, but your monthly payments can go up as well as down.
Vendor
The seller of a property in a transaction.
W
Walk-Through
A final inspection of the property by the buyer, usually just before completion, to check the home is in the agreed condition and that any required repairs and obligations have been met.
Warranty Deed
A document that guarantees the property title is free from claims and encumbrances, giving the buyer assurance of clean ownership. Review it carefully, ideally with a legal professional.
Y
Yield
A term used with buy-to-let that shows the potential return on a property, expressed as a percentage of its value. It compares expected rental income against costs. A higher yield suggests a potentially better return.
Z
Zero Deposit Mortgage
Also called a 100 percent mortgage, this lets you buy without a deposit. Common before 2008, these largely disappeared after the financial crisis, though a 100 percent product returned in September 2023 to help renters onto the ladder. They can carry higher rates, so weigh up your options and take advice.

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