Getting to Grips with Mortgage Jargon: A Beginner’s Guide for New Homebuyers
In this Beginner's guide, we will translate complex mortgage jargon into simple English and distil convoluted concepts into digestible info-nuggets. After spending some time with this guide, you won't just understand the language behind your new home's purchase. You will be speaking it like a pro, confident and ready to embark on one of the most exciting journeys of life – becoming a homeowner.
A mortgage, at its core, is a loan taken to buy property or land. It's paid back over a fixed term, typically around 25 years. However, the term can be shorter or longer depending on your financial circumstance and lender's terms.
Taking Time - The Mortgage Term
The mortgage term is the duration you and your lender agree upon for paying back the loan. Long-term loans come with smaller monthly instalments, but a larger amount paid over time. Short-term loans may have higher monthly payments, but you're free of debt sooner.
The deposit is essentially your personal stake in your new home – the hard-earned money that you dedicate towards buying your property. Typically, the larger your deposit, the smaller the loan you need and the better mortgage rates you may be offered.
Then comes interest. This is the price you pay for the privilege of borrowing money. There are two main types of interest rates - fixed and variable. A fixed-rate mortgage means your repayments stay the same for a set period while on a variable rate, it can change depending on the rates set by your lender or the Bank of England.
Loan-to-Value Ratio (LTV)
Loan-to-Value Ratio is a term that measures your loan amount against the market value of the property you're buying. The lower the LTV, the better, as lenders perceive lower-risk borrowers who put down larger deposits favourably.
The Mortgage Offer & Early Repayment Charge
A mortgage offer is when a lender agrees to lend you the amount needed, after carefully considering your circumstances. These offers come with conditions, including possible 'early repayment charges.' This is a fee that may apply if you decide to pay off your mortgage earlier than the agreed term.
Navigating Stamp Duty & Conveyancing
Buying a home in the UK requires you to pay a government tax, in England this is called Stamp Duty Land Tax (SDLT). In Wales it’s Land Transaction Tax (LTT) and Buildings Transaction Tax (LBTT) in Scotland. As a new buyer, you're exempt if your home costs below £300,000 in England, £175,000 in Scotland or For Wales LTT, every purchaser benefits from the exemption if the property cost is under £225,000. Conveyancing, on the other hand, refers to all the legal work involved during a home buy. This is typically handled by a solicitor and ensures that the property is legally transferred to you.
The Agreement in Principle (AIP)
The agreement in principle is a document from a lender, issued after an initial assessment, agreeing, in principle, to lend a certain amount. This can give you a clear budget for house hunting and demonstrate to estate agents and sellers that you're a serious contender.
Remember, it's always okay to ask for clarification if you need it. After all - every accomplished homebuyer started where you stand now, at the beginning, learning the lingo. By absorbing the knowledge in this guide, you've started down an excellent path towards becoming a savvy, self-assured homebuyer. Welcome to the journey.
Also, to stay tuned with real-time updates, homebuying tips and tricks, and to partake in our vibrant community of homeowners, make sure to follow us on Instagram @dandarahomes. Connect, engage, learn, and share your stories as we navigate this journey together.