Mortgages explained

Help with understanding mortgages and mortgage terminology

Ever get the feeling when you’re looking for a mortgage that there’s a lot of jargon you don’t understand? Let us help you understand the mortgage definition of terms such as fixed rate, offset, remortgages, loan to value, SVR and APRC. Take a moment to read through our mortgages explained guide and arm yourself with the knowledge you need to make a more informed decision.

Additional Features

To help you with the cost of moving home or remortgaging some of our mortgage deals come with additional features such as cashback, free standard legal service or free standard valuation. These are detailed on the individual pages and factsheets for our mortgage deals.

Approval in Principle (AIP)

Sometimes also referred to an ‘Agreement in Principle’, this is an assessment by a mortgage provider of your basic income details and expenditure. It tells you whether or not they would be able to lend to you and how much they would be able to lend.

You can find out more about how this works and what’s involved by viewing our Get a lending decision page.

APRC (Annual rate percentage of charge)

The APRC is designed to show the total yearly cost of a mortgage, stated as a percentage of the loan. It is calculated by taking into account the mortgage interest rate and the term of your mortgage, plus any fees.

Arrears

Understanding mortgages is vital when it comes to repayments. If you miss a repayment on your mortgage, this means you have gone into arrears or ‘defaulted’ on your mortgage. This can potentially lead to issues with your credit worthiness in the future. If you continue to miss repayments this could result in the repossession of your property. We have help and advice on what to do if you are having trouble paying your mortgage.

Base Rate

This is the interest rate set by the Bank of England. Some mortgages, like Tracker or Standard Variable Rate follow this rate of interest which means that your mortgage interest rate and mortgage repayments could be affected by changes in the Base Rate.

Capital

A mortgage has two parts. Capital - the money you borrow. Interest - the charge made by the lender on the amount you owe.

Capital Repayment

A capital repayment reduces the balance of your mortgage which would mean that the amount you owe would be less and so you would pay less interest. This would result in lower monthly repayments. Instead of paying a lower monthly payment, you could keep paying the same amount each month. This means you will pay off your mortgage in a shorter period of time and so reduce the overall term of your mortgage. You would need to contact us to arrange this.

Collar

A mortgage collar, commonly referred to as a mortgage floor, is the minimum interest rate a variable or tracker rate could fall to.

Conveyancing

This is the legal process of buying or selling property. In order to buy or sell a property you must have a legal representative acting on your behalf – usually a solicitor or licenced conveyancer.

Find out more about Conveyancing and the legal process

Deposit

This is the amount that borrowers put towards the purchase of a property. The amount of deposit required depends on the mortgage you require and the minimum amount is usually 5% (depending on the provider). Usually the bigger the deposit, the cheaper the mortgage repayments would be.

Early Repayment Charge

The fee which we will charge you if you make a repayment of capital, switch to a new mortgage deal or repay your mortgage entirely within the Early Repayment Charge Period, which is detailed in the mortgage deal factsheet and your mortgage offer. See Capital Repayment.

End date

The date at which your mortgage deal ends and the interest rate is no longer applicable. Unless you pick a new mortgage deal you will be transferred to a reversionary rate which in most cases will be the Standard Variable Rate (SVR).

You should know that although mortgages refer to a '2 year fixed rate' for example, the rate of interest may last slightly more or slightly less than 2 years depending on the date your mortgage completes.

Equity

This is the value of your ownership of a particular property – usually calculated by taking the current market value of a property and subtracting the remaining mortgage repayments. This value is built up over time as the market value of the property changes and you pay off more of your mortgage.

See also negative equity

Equivalent savings rate

If you have an Offset savings account linked to an Offset mortgage, you do not earn interest on any of your Offset savings. However, by linking your savings to your mortgage, you will only pay interest on the difference between your Offset mortgage balance and Offset savings balance(s). The money in your Offset savings account(s) therefore benefits from the equivalent of the interest rate charged on your Offset mortgage.

The equivalent savings rates differ between individual Offset mortgage deals depending on interest rates and details are provided on the individual pages and factsheets for our mortgage deals. The equivalent savings rate will also depend on your individual tax status.

Estimated Monthly Repayment

An estimated monthly repayment gives you an idea of how much you would pay back each month on a given mortgage deal for a repayment mortgage, using the property value, deposit and loan term details you have provided. The repayment includes money to repay the amount you’ve borrowed (the capital), as well as the interest on this sum.

Please note that the figures provided are for illustration purposes only.

Existing Borrower Transfer (EBT)

The process by which a customer transfers to a new mortgage deal with the same provider. This differs to a remortgage which is taking out a new mortgage on a current property with a new provider.

View our guide to Changing your mortgage deal for more details

Fees

Mortgage fee

Sometimes called a 'redemption fee' this is a fixed amount payable on the redemption of your mortgage loan. Our Mortgage Fee is £90.

Product fee

The Product fee is a fee we charge on selected mortgage deals. The fee is payable in full and the funds must be cleared before we can issue your mortgage offer. Alternatively you can ask for the fee to be added to your loan, which will increase both the amount you borrow and your monthly repayments.

Higher lending charge

The Higher lending charge is a fee sometimes payable by the borrower to the lender, to cover the higher risk on lending a higher proportion of the value of a property. This fee provides some protection to a lender against the risk of the borrower defaulting under the mortgage, and the lender being unable to sell the property for enough to cover the amount owed.

This fee does not, however, remove or reduce your responsibility as a borrower for repayment of the full mortgage balance.

More information about fees, costs and other charges.

Fixed rate

A Fixed rate mortgage offers the stability of a fixed rate of interest until an agreed date, with the interest rate remaining the same throughout the term of the mortgage deal. This is different to other types of mortgage where the interest rate may vary during the term of the mortgage deal.

Explore our Fixed rate mortgages

Higher Lending Charge (HLC)

The Higher Lending Charge is a fee sometimes payable by the borrower to the lender to cover the higher risk on lending a higher proportion of the value of a property. This fee provides some protection to a lender against the risk of the borrower defaulting under the mortgage, and the lender being unable to sell the property for enough to cover the amount owed.

This fee does not, however, remove or reduce your responsibility as a borrower for repayment of the full mortgage balance.

Initial period

The initial period is how long your mortgage deal will run for before switching to a reversionary rate, usually our SVR (Standard Variable Rate).

Insurance

You will need to have buildings insurance in place when you obtain a mortgage. We currently offer You Choose Home Insurance for buildings and contents through Royal & Sun Alliance – you can add home insurance and life cover as an extra option when applying for a mortgage with Yorkshire Building Society.

Interest Only mortgage

This is a type of mortgage where your monthly repayments go towards paying the interest of your mortgage only, and not towards repayment of the capital. With an Interest Only mortgage you have to repay the total cost of the mortgage loan at the end of the term via alternative methods, called ‘repayment strategies’. These can be pension endowments, dividends from investments or other sources of income.

Lending decision

Before you can apply for a mortgage, your first step is to get an approved lending decision. This is also known as Approval in Principle, or AIP. It gives you what you need to move to the next step - Full Mortgage Application.

Loan to Value

In simple terms this is the size of your mortgage as a percentage of the value of the property you wish to purchase (or your own property if you are remortgaging).

For example:

Purchase price of £200,000, mortgage of £180,000 + deposit of £20,000

= Loan to Value of 90%.

You may sometimes find that mortgage deals with a lower LTV have a lower interest rate, although this varies from provider to provider.

To determine what your current LTV is, we use the latest valuation of your property or the property you wish to purchase that we hold on our records combined with any House Price Index (HPI) changes.

If you believe that the valuation of your property, and therefore the LTV of your mortgage, is incorrect, we can arrange for a new revaluation to take place for a cost of £75. However, please note that this will delay your application and you will not be able to select products with a lower LTV limit until that valuation has been received, and your application will be subject to that valuation figure.

Loan size

Minimum loan amount

The minimum amount we will lend to a customer. This depends on the specific mortgage deal you choose. Details of these are displayed on factsheets and individual online mortgage deal pages.

Maximum loan amount

The maximum amount we will lend to a customer. The maximum loan amount depends on the specific mortgage deal you choose. Details of these are displayed on factsheets and individual online mortgage deal pages

Monthly Repayment

How much you would pay back each month on a given mortgage deal for a repayment mortgage, using the property, deposit and term details you have provided. The payment includes money paid back towards what you've borrowed, as well as the interest on this sum.

On our mortgage listings pages you will sometimes see Estimated Monthly Repayment shown – this provides an illustration of how much your repayments would be on a specific mortgage deal, depending on the amount borrowed, property and mortgage term.

Mortgage fee

Sometimes called a 'redemption fee' this is a fixed amount payable on the redemption of your mortgage loan. Our Mortgage Fee is £90.

Mortgage part(s)

Sometimes your mortgage may be made up of different ‘parts’ – these are separate mortgage deals that combine to make up your total mortgage.

If you are an existing customer and would like to switch to a new mortgage deal, you will need to check which parts of your mortgage are eligible for an Existing Borrower Transfer (EBT). You can find out which parts of your mortgage are eligible for an EBT through the Call Centre or in branch, or by logging in to your online account.

Mortgage term

The length of time you take a mortgage out for, usually 20, 25 or 30 years (although this can vary depending on your borrowing requirements). This shouldn’t be confused with a fixed rate period or the initial period, which is usually a shorter time period. If you are an existing mortgage customer, your remaining term is the total length of time before your mortgage is repaid in full.

Mortgage type

Fixed rate mortgage

A Fixed rate mortgage offers the stability of a fixed rate of interest until an agreed date. This means that the interest rate remains the same throughout the term of the mortgage deal, as opposed to other types of mortgage (outlined below) where the interest rate may vary.

Explore our Fixed rate mortgages

Tracker mortgage

With a Tracker mortgage, the interest rate is set at a percentage above or below the Bank of England (BoE) base rate. The interest rate payable will rise and fall in line with changes to the BoE base rate. Tracker mortgages include a ''collar'' which is the minimum rate that the interest rate of a tracker mortgage could fall to and a ‘cap’ which is the maximum rate your interest can rise to if there is an increase in the Base Rate.

Offset mortgage

Offset mortgages provide you with the opportunity to use your savings to reduce the cost of your mortgage, meaning that instead of earning interest on your savings you can reduce the amount of interest you pay on your mortgage. This can help to reduce the length of time it takes to repay your mortgage or to lower your monthly payments now or in the future while still letting you retain access to your savings.

Find out more about Offset

Discounted Standard Variable Rate (SVR) mortgage

A Discounted SVR mortgage is a type of variable rate mortgage that follows our Standard Variable Rate (SVR) at a specified ‘Discount’ for a specific period of time (typically 2 years).

For example, if we offer a mortgage deal with a discount of 3%, the interest rate you would pay would be 1.74% (our SVR, which is currently 4.74% minus the 3% discount).

Our SVR (which is set by us and is independent of the Bank of England Base Rate) can be increased or decreased at any time, which may affect the interest rate of your mortgage and either increase or decrease your monthly repayments. Any changes to our SVR will not necessarily be linked to any change in the Bank of England Base Rate.

Find out more about Discounted Standard Variable Rate mortgages

Negative equity

Negative equity occurs when the market value of a property falls below the amount owed on the customer’s mortgage. This is usually due to falling house prices.

Offset mortgage

Offset mortgages provide you with the opportunity to use your savings to reduce the cost of your mortgage, meaning that instead of earning interest on your savings you can reduce the amount of interest you pay on your mortgage. This can help to reduce the length of time it takes to repay your mortgage or to lower your monthly payments now or in the future while still letting you retain access to your savings.

Find out more about Offset

Outstanding balance

The total amount of the mortgage that is currently outstanding, inclusive of any repayable interest. As you continue to make repayments, your mortgage balance will get smaller and, as long as you keep up these repayments, your mortgage will be repaid at the end of the term.

Please note, if you wish to redeem your mortgage in full, the repayment required may differ from this so you should contact us and we will send you a redemption statement with an exact figure.

Overall cost for comparison/representative example

The overall cost of comparison is designed to show the total yearly cost of a mortgage, stated as a percentage of the loan. The information shown in a representative example includes rate information and costs like the interest rate payable at the start of the mortgage and after the initial rate period has ended, the product fee, valuation fee and the mortgage fee. It is the overall cost for a mortgage and allows customers to fairly compare different mortgage deals.

Overpayment allowance

The overpayment allowance is the amount you are allowed to overpay (that is, pay off from your mortgage) in each 12 month period without incurring any Early Repayment Charges. This varies between different mortgage deals so you should check the individual details of our mortgage deals to find out what the allowance is.

Porting

The process by which you can move your mortgage deal from one property to another – i.e. if you wish to move to a new property but would prefer to keep your existing mortgage deal. Sometimes it’s possible to change the amount you’re borrowing when moving home – either borrowing more if you think you may need funds for some home improvements, or borrowing a bit less if you are downsizing.

Read more about Moving Home and taking your mortgage with you

Product fee

The product fee, or arrangement fee, is the fee we charge you for your selected mortgage deal. The fee is payable in full and the funds must be cleared before we can issue your mortgage Offer. Alternatively you can ask for the fee to be added to your loan, which will increase both the amount you borrow and your monthly repayments.

Redemption

Mortgage redemption refers to the repayment of a mortgage loan in full, usually when the mortgage term ends and all scheduled repayments have been made. If you wish to repay your mortgage early, for instance by making a lump sum payment, you can obtain a redemption statement from your mortgage provider that provides you with a settlement figure.

Remortgage or remortgaging

The process by which you switch your mortgage to a new one with a different provider, either within the period of your existing deal or when your existing deal ends. This is not the same as an existing borrower transfer which refers to switching to a new mortgage deal with the same provider.

How to apply for a remortgage

Repayment mortgage

With a repayment mortgage (sometimes called a ‘Capital & Interest’ mortgage), you will make monthly repayments for an agreed period of time (known as the term) until you’ve paid back both the original capital amount you borrowed and all the interest you were charged.

If you already hold a mortgage with us, it may be the case that part of your mortgage is on an interest-only basis. If this is the case we don’t currently offer the transfer of interest-only mortgage parts online. To discuss repaying your interest-only mortgage or transferring to a repayment mortgage, please contact us.

Stamp duty

Stamp duty is a tax imposed when a property or piece of land is purchased in England, Wales and Northern Ireland. Currently the threshold for payment of stamp duty is £125,000 for residential properties and £150,000 for non-residential land and properties.

In Scotland the rules are slightly different – there is no stamp duty to pay but instead there is a Land and Buildings Transaction tax which works in a very similar way.

You can find out more about stamp duty on the Gov.uk website and information on the Land and Buildings Transaction Tax on the Revenue.scot website.

Standard Variable Rate (SVR)

The Standard Variable Rate (SVR) is the rate your mortgage will be transferred to when your deals comes to an end (until you select a new deal). As the name suggests the SVR is a variable rate set by the lender, and can therefore be higher or lower than a mortgage deal rate - so it's worth exploring your options when the end date on a mortgage deal is approaching.

Title deeds

Title deeds are paper documents showing the ownership of a particular property or land. Most title deeds are now stored only as digital copies at the Land Registry but you may be able to request scanned paper versions from the Land Registry.

Tracker mortgage

With a Tracker mortgage, the interest rate is set at a percentage above or below the Bank of England (BoE) base rate. The interest rate payable will rise and fall in line with changes to the BoE base rate. Tracker mortgages include a collar which is the minimum rate that the interest rate of a tracker mortgage could fall to and a ‘cap’ which is the maximum rate your interest will rise to if there is an increase in the Base Rate.

Find out more about Tracker mortgages

Transfer of equity

A transfer of equity occurs when someone is either added to, or removed from, the title deeds of a property. This can sometimes occur when joint holders of a mortgage are separating or when there has been a bereavement.

Variable rate mortgage

A type of mortgage where the interest rate goes up and down according to your provider’s standard variable rate. This is opposite to a fixed rate mortgage, where the rate is the same throughout a set period.

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