The A to Z of Mortgage Terms for the First Time Buyer

Thursday, August 28, 2008

As a first time buyer who is new to the mortgages market, you may easily find yourself somewhat overwhelmed by the amount of jargon and mortgage-specific terms that is thrown around. The general assumption is that people prepare before deciding to get their mortgage, so it’s definitely worthwhile knowing some of the key terms, as they’re not always self-explanatory.

The APR, or Annual Percentage Rate, is the cost of your loan or mortgage – it gives you the total amount of interest you will have to pay bearing in mind factors like the term of your mortgage, interest rates and additional costs.

A Capped Mortgage is a mortgage in which, over a set term, your interest rate may fluctuate but will not go above a specified maximum. This is only one of the forms of mortgage available: most banks like Alliance & Leicester and NatWest offer different spins on traditional mortgage types which cater to specific groups, i.e. graduates or first time buyers.

The deposit is the amount of money you are putting towards your home at the start of your mortgage. This is not included in the money you are borrowing, and will differ depending on who you take out your mortgage with. Deposits can be expensive, so it is worth putting some money aside in a good savings account before getting your mortgage so you don’t find yourself uncomfortably short of money.

The early repayment charge is always worth bearing in mind, as it means that you will be charged an extra fee if you pay your mortgage back earlier than stated in your original agreement. If you think you may be able to pay your mortgage back early and don’t want to have to worry about this, most banks offer Flexible Mortgages that often allow you to overpay or underpay, depending on your financial situation.

An Interest-Only Mortgage is a mortgage in which you only repay the cost of the interest, and are then expected to find some other way to pay off the capital later on, such as a pension or some form of long term investment plan.

A Repayment Mortgage is another common form of mortgage in which you repay both the interest and the loan itself at the same time, so that by the end of your repayments you will have fully repaid your mortgage.

The Stamp Duty is a tax that you have to pay on any property you wish to buy that exceeds a certain amount in value set by the government.

A Tracker Mortgage generally has interest rates that fluctuate and reflect any changes made to the Bank of England base rate. This means that if the base rate goes up you will have higher repayments, but your repayments could also equally fall with the base rate.

Ultimately, as long as you know enough about the key terms used in the mortgage market then you should be able to make an informed decision about where to get the best deal for you.

Rates and products quoted are correct at the time of writing (18.06.08) and may be changed at the discretion of the provider.