Your cookie preferences

We use cookies and similar technologies. You can use the settings below to accept all cookies (which we recommend to give you the best experience) or to enable specific categories of cookies as explained below. Find out more by reading our Cookie Policy.

Select cookie preferences

Skip to main content

Mortgage terminology

Whether you’re considering taking out your first mortgage, or it’s been a while since you last did, the jargon used to describe the home buying process can be confusing. In this article we’ve listed an explanation for the main mortgage terms you'll need to understand when you're looking to buy a home, remortgage or move home.

Share this guide
An olive-skinned man with black hair and beard and a grey sweater stands in front of a blank grey wall with his right arm raised behind his head and a look of deep confusion

Mortgage terminology explained

You can click on any of the bold mortgage terms to go directly to an article that provides a more detailed explanation.

Mortgage product terminology

When you take out a mortgage, there will always be a mortgage type, a repayment type, a product type, and an interest rate type.

For example: You could take out a residential offset mortgage with a fixed-rate and a capital repayment method.

These three aspects of mortgage terminology are often used interchangeably and/or in isolation, which can be confusing. 

Mortgage types explained

We can think about the mortgage type in terms of the purpose of the mortgage, so what it’s used for. This could be: 

Residential mortgage - used to buy a private residential property that the buyer intends to live in themselves.

Buy-to-let mortgage - this is a mortgage used by landlords to buy residential property that they intend to let out to make a profit, but will not live in themselves.

Commercial mortgage - a commercial mortgage is used to buy any type of commercial property, either for private business use, or to rent out to other businesses for profit.

Semi-commercial mortgage - this is used to purchase mixed use property, such as a shop with a flat above.

Remortgage - this is a term that can be used to describe any of the above mortgage types when the property owner is switching from an existing mortgage. So for example, if you already have a commercial property and want to switch mortgage products you would need a commercial remortgage. 

You can remortgage onto another product with the same lender (which is known as a product transfer) or with another lender.

Equity release mortgage - whilst often referred to as a mortgage, this product is not intended for the purchase of property and is only open to older applicants (55 or 65+ depending on type). They can be used to raise money for any purpose which is secured against your residential home. 

Repayment types

The repayment type describes the type of monthly payment you'll make to repay your loan.

Capital repayment mortgage - a capital repayment mortgage is where each month you repay some of the capital (the loan that you’ve borrowed) and some interest. With this repayment type, the mortgage will be fully repaid by the end of the term, assuming you don’t miss any payments. This is the most popular mortgage type for residential buyers. 

Interest-only mortgage - with this repayment type you only pay the interest each month for the full length of the mortgage. However, at the end of the mortgage term, you'll need to repay the entire loan in one lump sum. This is far more commonly used for buy-to-let and commercial mortgages than residential mortgages.

Part and part mortgage - a part and part mortgage, is where you opt to mix the other two repayment types together, so you'll have a part capital repayment, part interest-only mortgage.

Compare mortgages with Uswitch

Find the mortgage that's right for you

Mortgage product or deal type

The product or deal type usually refers to the features of the mortgage and will determine the terms and conditions. They are typically catered to either the buyer’s personal circumstances, and/or the specific type of property that they want to buy.

Flexible mortgage - A flexible mortgage gives you more options around when and how you can make your mortgage repayments. Each has different terms and conditions and often multiple flexible features are found in the same product.

Offset mortgage- this is a type of flexible mortgage but often referred to by name instead. It's useful for buyers with substantial savings, as they can link their savings account to their mortgage account in order to reduce the amount of interest they will pay.

Guarantor mortgage - aimed at people who have trouble getting onto the property ladder due to low income or a poor credit score. Family assist mortgages and JBSP (Joint borrower sole proprietor) mortgages also fall under the category of guarantor mortgages but are more modern, flexible products.

Affordable ownership schemes - there are a number of affordable ownership scheme mortgages, including the shared ownership scheme, the first homes scheme, the right to buy scheme and the right to acquire scheme. These mortgage products are provided alongside government schemes, which can be helpful for those without access to a guarantor.

Self-build mortgage - exactly as it sounds, this type of mortgage is for people who want to build their own home, rather than buy a pre-built one. 

Islamic mortgage - whilst not actually a mortgage, it’s used for the same purpose, so is referred to as such. This product is a sharia compliant form of finance that allows Muslims to purchase a home whilst respecting the laws of their religion.

Interest rate terminology

All mortgages charge interest, but the buyer can choose which type of interest-rate they would prefer. All interest-rate types fall under two headings:

Fixed rate mortgage

A fixed interest rate will not change for the length of the deal, so you can be certain of the interest charges for however long you choose to fix your mortgage for. Fixed-rate mortgages are available for two, three, five or ten years. 

Some even offer fixed rates for the full length of the mortgage term, so 25-40 years, although it’s not very common to fix for this long, as there can be disadvantages to this. 

Variable rate mortgage

A variable rate mortgage is any with an interest-rate that is not fixed, and therefore can change during the mortgage deal period. There are three types of variable rate mortgage:

Standard variable rate (SVR) - all lenders have a standard variable rate, this is their default interest rate which they set themselves. It's not a fixed length product, so if you’re on one, you can leave at any time without paying fees. It’s usually, but not always, the most expensive type of variable rate.

Discount rate - a discount rate deal is set at a certain percentage below the SVR. The percentage value is fixed for the length of the deal, which is usually two or five years. However, the actual interest rate you pay is still variable, as if the SVR changes, so will your interest rate.

Tracker rate - this is the only rate that is determined by an external financial indicator, rather than the lender. This is usually the Bank of England base rate, so your monthly repayments rise and fall in line with it.

Initial rate - sometimes referred to as the initial period, and is used to describe the length of time that either the fixed-rate, tracker-rate or discount rate is set for. During this period you usually need to pay early repayment charges to leave the deal. Once the period has passed, you’re usually free to remortgage without penalty. 

The Bank of England base rate - the base rate is the charge placed on banks for lending and savings and is set by the Bank of England. This is important to variable-rate customers, as it can either influence, or in the case of a tracker rate, directly impact your mortgage interest. It does also influence fixed-rates, but not directly.

APR and APRC - Often used for the same purpose, the APR (Annual percentage rate) and the APRC (Annual percentage rate of charge) must be shown by each lender. They exist to help a customer to see a true comparison of mortgages, taking into consideration both interest and fees. 

However, they don't consider that you may remortgage to a new deal once the initial deal has ended, making it impossible to predict future interest ahead of time.

Capped rate A capped interest rate can sometimes be found on variable rate products and guarantees that your interest rate won’t go beyond a certain level, no matter how much the base rate rises. Collar Rate The opposite to a capped rate, a collar rate ensures your interest rate can never fall below a certain level. This is much less appealing as it minimises how much you can save when interest rates fall, but more common than a capped rate.

Conveyancing - this is the legal process carried out by a solicitor who specialises in property transactions (a conveyancer). They take part in transferring funds and deeds between buyers and sellers.

Deposit - this is the down payment that you need to provide when you take out a mortgage. The size of deposit you need will depend on a range of factors, including the type of mortgage and property, as well as your circumstances, but typically ranges between 5% and 40% of the property value. 

Loan to Value (LTV) - the loan to value, usually referred to as LTV, is the amount you are borrowing compared to the full cost of the property. All lenders have a maximum LTV and this will determine the size of deposit you need.

Affordability criteria - this is the lenders terminology for the level of income you will need in order to afford the loan repayments. They use affordability criteria to assess your mortgage application. 

Credit score - your credit score or credit file is a record of your financial behaviour held by credit reference agencies. It will be looked at by the lender when assessing whether they will give you a mortgage, and how much they are willing to lend. Your actual score will vary from one agency to another, but generally they are looking to check that you don’t have bad credit and are a responsible borrower. 

Agreement in principle - an agreement in principle (also known as a mortgage in principle and a decision in principle) is an initial offer from the lender stating how much they would be willing to lend you, if your full application is accepted - so it’s not a guarantee. This is very useful in the homebuying process as it can help you to budget and make you appear a more serious buyer.

Survey - a survey will be carried out of the property you want to buy to ensure that it’s worth the value that you[‘re offering to pay for it. Most lenders will only insist on a valuation survey, but you can also ask a surveyor to do a more thorough structural assessment for your own peace of mind. This has an additional cost and will need to be arranged separately from the mortgage. 

Porting your mortgage - porting is where you take your mortgage with you when you move house. Not all lenders allow this, but many modern mortgages are portable.

Mortgage term - this refers to the length of the entire mortgage (how long the loan is taken over) and is sometimes called the repayment period. You might have a 25 year mortgage, with a 5 year fixed rate - the mortgage term refers to the 25 year period, not the 5 year period, which is known as the deal term, fixed term or initial rate term. 

Mortgage lenders - The term mortgage lender (or sometimes just lender) can be used for any type of institution that provides mortgages, this includes:

  • High street banks

  • Building societies

  • Specialist lenders

  • Private banks

  • Credit unions

Exchange of Contracts This is the point in the property buying journey where the buyer and seller both become legally bound by the contract to continue with the purchase/sale.

Mortgage broker/advisor Often used interchangeably, both of these terms refer to someone who is qualified to give mortgage advice. There are different types of mortgage broker and the level of help they can provide, but they all help buyers through the mortgage application process.

Redemption Statement A redemption statement is what you would request to pay your mortgage off in full or when you want to remortgage to another lender, who will essentially do the same thing - except you'll owe them instead of your previous lender. It outlines the total to pay, including all fees and interest, as well as your remaining balance.

Debt to income ratio (DTI) The DTI is what the lender looks at to determine how much debt you have in relation to your income. This helps them decide how much you can afford to repay on a mortgage.

Title deeds This is the physical paper documents that detail the of ownership of a property. They are now usually in digital format, but are used to register a property ownership with Land Registry.

Mortgage fees - There are a wide range of fees involved with buying and selling property, and many of the terms are used interchangeably by different lenders, which can be confusing. The linked article above explains each of these fees, what they are charged for and roughly how much they will set you back.

Equity Equity is the portion of property you own compared to it's current value. This can change both as you repay your mortgage, increasing ownership and when the market value goes up or down.

Negative Equity Negative equity is where you owe more than the current cost of your property.Market value This refers to the industry opinion on how much your property could be bought or sold for by any potential buyer or seller.