Mortgage Jargon Made Simple: 10 Terms You Need to Know Before You Apply

Applying for a mortgage can feel like learning a new language. Between “LTVs,” “fixed rates,” and “arrangement fees,” it’s easy to get lost. Understanding the basics before you apply will make the process smoother, help you compare deals, and prevent costly mistakes.

Here are 10 essential mortgage terms explained in plain English.

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1. Loan-to-Value (LTV)

• What it is: The percentage of the property price you’re borrowing.
• Why it matters: Lower LTV usually means better interest rates. For example, a 90% LTV loan is riskier for lenders than a 60% LTV, so the rate is often higher.

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2. Fixed-Rate Mortgage

• What it is: Your interest rate stays the same for a set period (e.g., 2, 5, or 10 years).
• Why it matters: Provides stability — your monthly payments won’t change, even if interest rates rise.

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3. Tracker Mortgage

• What it is: Your rate moves up or down with the Bank of England base rate.
• Why it matters: Could save money when rates fall but may increase your payments if rates rise.

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4. Standard Variable Rate (SVR)

• What it is: The default rate your lender will put you on once a fixed or tracker deal ends.
• Why it matters: SVRs are usually higher than deal rates, so it’s wise to plan your next move before your fixed term ends.

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5. Arrangement Fee

• What it is: A fee charged by the lender to set up your mortgage.
• Why it matters: Can sometimes be added to your mortgage, but doing so increases interest costs over time.

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6. Early Repayment Charge (ERC)

• What it is: A penalty for paying off your mortgage or overpaying during the deal period.
• Why it matters: Check the terms carefully if you plan to move or pay extra.

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7. Overpayment

• What it is: Paying more than your required monthly mortgage.
• Why it matters: Reduces your debt faster and saves interest — but watch for ERCs.

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8. Equity

• What it is: The portion of your property you truly own — the market value minus any mortgage.
• Why it matters: More equity can give you better remortgage options or the ability to borrow against your home.

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9. Mortgage Term

• What it is: The length of time you have to repay your mortgage (usually 25–35 years).
• Why it matters: Shorter terms mean higher monthly payments but less interest overall; longer terms reduce monthly payments but increase total interest.

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10. Deposit

• What it is: The upfront cash you put down toward the property price.
• Why it matters: A bigger deposit often means a lower interest rate and a smaller mortgage to repay.

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How to use this knowledge

• Compare deals confidently — Knowing these terms helps you understand rates, fees, and the fine print.
• Plan for your budget — Understanding monthly payments, overpayments, and term lengths ensures long-term affordability.
• Avoid surprises — Early repayment charges and SVRs can catch first-time buyers off guard.

Book a free mortgage review today and get expert guidance on choosing the right deal for your budget — jargon-free.