A-Z mortgage glossary Chapter 1

A-Z mortgage glossary Chapter 1

Accident, Sickness and Unemployment cover

This is a yearly renewable cover that provides payment for a short period of time if accident, sickness or unemployment occurs. Often there is a deferred period after the point of claim (e.g. six weeks), and it is after this point that benefits are then paid. Benefits are normally only paid for periods of up to two years. Be aware that premiums will vary at renewal each year.

Affordability

At the moment it is easy to lull yourself into believing you can afford the mortgage you need – mortgage rates are at all-time lows and feel easily affordable.However, you need to ask yourself if you can afford your mortgage payments if interests rates rise and whether you can repay the capital if house prices fall. Let’s say you manage to find a mortgage with an interest rate of three percent, fixed for three years. That’s a great rate. After three years you find interest rates have gone up and the best deal you can now get is six percent. That’s an increase of three percentage points but, more frighteningly, your interest rate has increased by 100%. Will your net take home pay have increased at the same rate? You should budget on the assumption that interest rates will rise during the term of your loan. So be sure you can afford your mortgage repayments when that happens, not just now.

Annual Percentage Rate of charge (APR)

This is the interest rate that takes into account the total charge for lending you the money each year. It includes the added costs of the loan (such as arrangement fees), as well as factoring in the frequency that interest is charged (e.g. daily, monthly, quarterly or annually). This results in a figure that shows the equivalent rate on an annual basis. While this is a good initial benchmark for comparison, it should not be looked at in isolation as the only way to choose your mortgage.

Builders incentives

New-build ‘off plan’ offers These may be attractive to the price you pay for the property. Be aware that some lenders may restrict the amount they lend in relation to these types of contracts. This helps protect them against market sentiment and may mean you have to invest more of your own deposit.

Buildings insurance

This is insurance that protects the property, fixtures and fittings. It can protect against fire, flood, subsidence and accidental damage. A key point to note is that the amount of cover chosen is to cover the rebuilding cost of the property, which is often different to its market value. The amount you have to pay towards any claim is called an excess, and can vary depending on what is being covered (e.g. subsidence, fire).

Completion

The stage in England and Wales where the property ownership finally changes for a purchase.  Your conveyancer arranges for your deposit and lender monies to be paid to the person selling and  completes the legal documentation.

Contents insurance

This insurance protects items that can easily be removed from a property. Cover can be for risks such as fire, theft or accidental damage. The amount you have to pay towards any claim is called an excess, and can vary depending on the item covered and what it is being insured against (e.g. accidental damage, theft).

 

The content above has been prepared for informational purpose only, and is not intended to provide, and should not be relied on for financial advice.

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