The Mortgage Advent Jargon-Buster: 25 Key Terms You Need to Know

Buying a home or reviewing your mortgage can feel overwhelming, especially when there are so many new or unfamiliar terms being banded about!

In the spirit of the Jargon Ban we have at MHC Mortgages, here are 25 key mortgage terms explained in plain English to help you navigate the process with confidence.

Think of it as an advent calendar of mortgage knowledge—except instead of chocolate, you’re unwrapping clarity and unlike most advent calendars you get a 25th one for Christmas Day!

1. Loan-to-Value (LTV)

The size of your mortgage as a percentage of your property’s value. For example, a ￡150,000 mortgage on a ￡200,000 house means a 75% LTV.

2. Stress Testing

Lenders must be prudent and assess whether you could still afford mortgage payments if interest rates were to rise. We’ve seen this play out over the past few years, with millions of people coming off low rates of 1-2% and onto 5-6% rates, so it really justifies why lenders have to stress test!

3. Fixed Rate

Your interest rate stays constant for a set period such as 2, 3 or 5 years, giving you fixed monthly payments to help you manage your monthly budget.

4. Tracker Rate

A type of variable rate that “tracks” the Bank of England base rate, usually at a set margin above it. For example, 0.5% above the base rate (of 4.75%) would mean you have a rate of 5.25% until the base rate changes.

5. Standard Variable Rate (SVR)

Think of it as the default rate your mortgage reverts to after your initial deal ends. It’s usually higher than your expiring rate and worth avoiding.

6. Arrangement Fee

Lenders usually offer products either with or without an arrangement fee. Lenders typically offer their lowest rates with fees built in, whereas their higher rates may have no fee. You can often add the fee to the mortgage to avoid paying upfront, however, if you do - ?you’ll pay interest on this fee for the duration of the mortgage.

7. Product Transfer (also referred to as a Product Switch)

Switching to a new mortgage deal with your existing lender, typically easier than remortgaging and doesn’t usually require a new assessment of your income, outgoings or affordability. Your mortgage broker can usually help with this, or you could opt to organise directly with your lender.

8. Remortgage

The process of switching your current mortgage to a new lender, whether you’re increasing your borrowing, keeping the same amount or even reducing your balance. It’s most common to do this when your existing rate (such as a fixed rate) expires and is advisable to start the process up to 6 months before your rate expires.

9. Early Repayment Charge (ERC)

A fee (or penalty) for paying off your mortgage early or making overpayments beyond the lender’s allowance. The majority of fixed rates have ERCs for early redemption, so you should always check this (or get your mortgage broker to) before you proceed.

10. Porting

Take your existing mortgage rate to a new property. Two main benefits can be: (i) to avoid paying early repayment charges (see above) if you move home midway through your current rate, (ii) If your existing rate is lower than new rates currently available, it could save you money on your monthly payments. Be aware that whilst you’re transferring your existing rate to your new home, your lender would need to perform a new assessment of your income, outgoings and affordability to determine it’s affordable and within their current lending policy. ?

11. Mortgage Term

The length of time you agree to repay your mortgage, which can range between 5 and 40 years. This is something I’d recommend reviewing regularly to ensure if suits your needs and evolving situation and you go through your mortgage life.

12. Overpayments

Extra payments you make towards your mortgage, reducing the overall balance and potentially saving interest. Most lenders give you the option of making lump sum overpayments, regular overpayments or a combination of both and tend to give you an annual overpayment limit, such as 10% of your balance each year. Always check this before making overpayments!!

13. Equity

The portion of your property’s value that you own outright—calculated as the property value minus your mortgage balance. For example, if you own a property worth ￡400,000 and have a mortgage of ￡250,000, you have ￡150,000 of equity in the property.

14. Deposit

The upfront amount you pay when buying a property, typically at least 5% of the purchase price.

15. Repayment Mortgage (Also known as a Capital & Interest Mortgage)

This is the most common type of mortgage, whereby your monthly payments pay both capital and interest over the term. Crucially, as long as you’re up-to-date with payments, your mortgage will be fully repaid at the end of the term.

16. Interest-Only Mortgage

You pay only the interest each month, with the intention to repay the loan in full at the end of the term. This is more common with buy to let properties and lender rules can be quite restrictive on residential properties unless you can demonstrate considerable assets, capable of repaying the loan by the end of the term.

17. Consent to Let (also known as permission to let)

If you own a property with a residential mortgage, but your circumstances change and you start letting your property to tenants, you’re required to ask your lender for Consent to Let. They all have different rules around this, and some may increase your interest rate temporarily whilst it’s let. Always check with your lender.

18. Agreement in Principle (AIP) – ?Decision in Principle (DIP) or Mortgage Promise

A lender’s indication of how much they may be willing to lend, based on an initial assessment of your finances. They will have taken info about your income and outgoings, deposit, address history and checked your credit file, but won’t generally have reviewed your documents at this stage to verify the income figures provided.

19. Valuation

As part of the mortgage application process, a lender will conduct their own due diligence on the property through a valuation. Essentially, they need to satisfy themselves that the property represents a suitable risk to them to offer the mortgage required. Two main questions to answer: (i) Is it worth the purchase price (or suggested valuation figure on a remortgage)? (ii) Is is in reasonable condition.

20. Automated Valuation (AVM)

Lenders may conduct a remote valuation if there is sufficient equity in the property (for example – mortgages below 75% ltv are lower risk than above 75%) and their data of recently sold local properties of a similar size and structure supports the valuation figure.

21. Survey

A survey is your own due diligence of the property you’re buying and whilst isn’t required by the lenders, is advisable to at least consider one (a Level 2 or Level 3 Survey) to help you understand the condition of the property, particularly if the property is older or there may be areas you wany to get checked out.

22. Mortgage Offer

This isn’t to be confused with an Agreement in Principle, despite it’s similar terminology!

A lender will issue the Mortgage Offer once they’ve reviewed and approved a mortgage application. They will have completed their due diligence on you – i.e. the information about you in the application along with your documents (payslips, bank statements etc) and the property (through a valuation). This is a significant milestone and Mortgage Offers are usually valid for 6 months!

23. Conveyancing (also referred to as Legal Work/ Solicitor Work)

The legal process of transferring property ownership, handled by a solicitor or conveyancer. This is the most complex and detailed part of the house buying process as is usually the part that determines how long it takes before you’re ready to pick up your keys to your new home!

24. Searches

Think of it as Due Diligence. They are Legal checks carried out by your Conveyancer to identify issues like planning permissions or flood risks. There can be a number of checks required, which your conveyancer will request from the relevant agencies. These can take weeks (sometimes longer) to arrive and play a part in the length of the conveyancing process.

25. Stamp Duty Land Tax (SDLT)

A tax you pay when buying property in England or Northern Ireland. First-time buyers often get relief up to a certain value meaning you’ll pay less (or possibly nothing). If you own more than one property, it’s possible you may have to pay the additional rate of stamp duty. It’s always advisable to understand these costs upfront, because they can be often be ￡000s. As a mortgage broker, I’ll always include a review of these costs within your buying costs at the very outset when we’re putting your plan together – you really don’t want a nasty surprise!!

Why These Terms Matter

From my experience, a lot of the stress and anxiety people feel around the mortgage and moving process is caused by uncertainty, lack of understanding and information overload!

A mortgage broker can help alleviate a lot of these negative feelings and hold your hand throughout, guiding you through the process and enabling you to enjoy what should be a really exciting time!

If you do choose to navigate by yourself, understanding these mortgage terms will help you ask the right questions, compare deals confidently, and make informed decisions. Whether you’re buying your first home, upsizing, or reviewing your mortgage, knowledge is power.

Your home may be repossessed if you don't keep up with your mortgage payments.

This article doesn’t constitute advice - your situation and requirements are unique and therefore you should seek expert advice based on your own individual circumstances.

?About Me

I'm Mark Humphrey, founder and Advisor at MHC Mortgage & Protection Ltd, a mortgage broker firm based in Whitstable and helping people buy their homes across the UK.

I've worked in Mortgages for over 20 years and am passionate about making the mortgage and moving process as simple and stress-free as possible.

Buying your home is a BIG DEAL and with a bit more understanding and help along the way - it really can be such a positive experience and not the stressful and anxious time that so many people dread!