Posted on 16th June 2020
MG Legal’s property lawyers have put together a short guide to help you get to grips with the important terminology you might need to know when buying a new home or remortgaging your current property.
What does Mortgage Interest Rate mean?
This is the annual cost you will pay to borrow money from your mortgage lender, the rate is expressed as a percentage of your total loan balance. You will property see the letters APR or APRC on your mortgage offer.
APR is the Annual Percentage Rate whereas APRC means the Annual Percentage Rate of Charge. APR is most commonly used to compare mortgages but it will only compare the cost of the initial fixed period whereas APRC is the overall cost of the mortgage if you were to pay for the entire term (all lot of people remortgage after the initial term) nevertheless APRC is useful in giving an idea of the full cost of the mortgage.
What types of Mortgage can I get?
Capital repayment, interest only or offset mortgage are just some off the mortgages our Clients may use to purchase property.
Interest only mortgage
This refers to a form of repayment plan involving only paying back the interest portion of the mortgage. Generally the monthly repayments on an interest only mortgage are much smaller meaning that your monthly repayments will be easier to manage, BUT, at the end of the mortgage term you will need to be able to repay all of the capital owed on the property. These types of mortgages are not very common.
Capital repayment mortgage
The most common type of mortgage we see. Here, you will be paying both the capital and the interest off each month until you have repaid the entire mortgage.
Again, referring to the repayment plan on the mortgage, which uses a savings account linked to your repayments. So, any interest accumulated on your savings will go towards paying off your mortgage which can be useful when saving rates aren’t very good.
These mortgages are aimed at people who have poor credit score or those who do not have a big enough deposit to secure a standard mortgage. Often a family member or friend will be nominated as a guarantor for the mortgage application and the guarantor will be required to pay the mortgage if you fail to keep up the repayments.
What does Fixed Rate mean?
During the initial period of the mortgage you will probably be offered a fixed rate, this usually lasts two or five years, and it means that your rate of repayment will not change during this period. So even if the Bank of England base rate changes you will still be charged the same.
What does Variable Rate mean?
This means that the interest rate of your mortgage is subject to change although some lenders offer a discounted variable rate for the initial period on your mortgage which will usually last for two or five years. It is important that you are aware that all mortgages after the initial period change to a variable rate.
What does Tracker Rate mean?
This refers to another kind of variable interest rate directly linked to the Bank of England base rate. Mortgage Lenders will usually have their own base rate charge, and this is added to the Bank of England’s base rate and when the base rate goes up or down so will the mortgage’s tracker rate.
What is the Bank of England base rate?
The charge placed on banks for lending or saving is set by the Bank of England. The Bank of England will consider the economy, jobs and the housing market when deciding what to set the base rate at. If the base rate goes up, the Standard Variable Rate will go up and if the base rate goes down so will the Standard Variable Rate.
In order to get a mortgage, you will need to put down some money towards the property value. Most lenders will ask you to contribute up to 20% of the property value.
Loan to Value (LTV)
This is the ratio of what the loan covers against the value of the property. For example, if you are buying a £200,000.00 property with a deposit of £50,000.00 the LTV ratio is 75%.
Once you receive your formal mortgage offer, you may find it useful to read our blog https://www.mglegal.co.uk/what-does-my-mortgage-offer-tell-me/ which will help explain what you should expect to find in your mortgage offer.
If you want a local property law Solicitor to act for your purchase or remortgage, contact MG Legal via firstname.lastname@example.org or call 01995 602 129.
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