In order to fully understand all the documents you receive and sign your mortgage application you really need to understand terminology which is used by brokers and banks.
Below you will find mine little jargon-buster. I like to keep things simple and hope my explanations are easy to follow.
Annual Percentage Rate – it’s the only metric allowing you to compare different mortgages. It takes into consideration upfront fees, closing costs, mortgage rate and other costs. It gives you a full picture of mortgage costs.
APR shouldn’t be confused with an interest rate. Your mortgage may have the interest rate of 5% but APR will be actually higher. This is because APR takes into account full term of your loan. If you loan is for a standard 25 years APR is calculated based on 25 years old with the inclusion of closing costs.
In short – mortgage deposit is the amount of money a home buyer pays in cash for a home.
What you need to know about the deposits is that the higher deposit you have the lower will be the cost of your mortgage. First of all, banks will usually set higher rates on loans with the low deposit being paid upfront (it’s a significantly higher risk for a bank). Secondly, the bigger the loan the higher cost of repayments.
With the help of schemes such as Help to Buy it is possible to buy property with as little as 5% deposit.
It’s usually a percentage figure which displays the relation between your loan and property value. For example, if the property you want to purchase is worth £200’000 and you have £20’000 deposit, your LTV will be 90% (your mortgage in this example is £180’000).
The higher the LTV the higher the interest rate and lower chance of having the mortgage approved.
SVR (Standard Variable Rate)
SVR is the rate at which banks lend money. Usually, it starts when the fixed mortgage period comes to end. SVR is different for each lender. The differences can be significant.
Don’t confuse SVR with the rate set by Bank of England. None of the lenders in real life follows BOE rates. However, BOE rates usually impact SVR – most lenders will hike up they rates following the increase in rates made by Bank of England.
It is crucial you remortgage your house when the fixed period comes to end – that way you can fix your rate for another few years.