*This post was written in collaboration with Flagstone
Mortgage Terms Explained
Whether you are a first-time buyer or someone who has been through the home buying process before, certain mortgage terms can be confusing. It can seem like UK mortgage brokers just want to confuse you with jargon, but to be honest any good one should sit down and go through them with you. Even so, there are still points during the process when you will be left alone reading documents that are a little bit hard to make sense of.
The mortgage term is how long the mortgage lasts for. This is usually 25 years as a standard. Usually the longer the mortgage term, the lower the repayments, just like a loan. This is a bit of a “swings and roundabouts” situation as you might end up paying more. Any good mortgage broker should be able to help you get the best deal to suit your needs, so using one will really help if you are a bit newer to the process.
Bank of England base rate
I know you are probably thinking “what has the Bank of England got to do with my mortgage?”. Well actually, the bank of England set the interest rate they use to lend to financial institutions. This has a knock-on effect to their interest rates, and can also affect things like bonds and shares and the exchange rate.
A bridging loan can be taken out when short-term cash is needed. If someone needs to buy the house they want before they sell their old one, this is a situation that might lead to them taking out a bridging loan.
Mortgage indemnity guarantee
This is a one-off payment the lender might require to protect themselves if you default on your loan. The premium varies by lender and is paid by the borrower the majority of the time.
Stamp duty is a charge enforced by the government on houses over a certain value. It is paid on any property over £125,000. The percentage of stamp duty to be paid goes up in stages depending on the value of the property, so this is something that is worth looking into when you figure out your budget.
Early redemption penalty
Anyone who has had a lengthy gym contract will be aware of an early redemption penalty. If you wish to change mortgage or pay it off early, you may need to pay an ERP. This is something that you should definitely try and discuss with your mortgage broker beforehand, as you may be able to negotiate a smaller ERP.
Key facts document
A key facts or key messages document is something that will be provided to your during the process that will outline all of the details of the mortgages that are being offered to you. This can include things like monthly payments, mortgages lengths and any expected fees. You should always receive this before you get a formal mortgage offer.