LTV, tracker rates, variable rates, what does it all mean?
Mortgage terms such as LTV, tracker rate, variable rate and base rate describe how much you’re borrowing, how your mortgage interest works and what could cause your monthly repayments to change. Understanding these terms can help you compare mortgage deals, understand the costs involved and make more informed decisions when buying a home or remortgaging.
Here’s a simple explanation of some of the most common mortgage terms you’ll encounter.
What is a variable-rate mortgage?
A variable-rate mortgage has an interest rate that can change during the mortgage term. Tracker mortgages are one type of variable-rate mortgage, but other examples include standard variable rate (SVR) mortgages and discounted variable-rate mortgages.
Unlike a tracker, an SVR is set by the lender and doesn’t necessarily move by the same amount or at the same time as the Bank of England base rate. This means your monthly repayments could increase or decrease over time.
What is the Bank of England base rate?
The Bank of England base rate, officially called Bank Rate, is the interest rate set by the Bank of England’s Monetary Policy Committee. It influences borrowing and savings rates across the UK, including many mortgage interest rates.
When the base rate changes, tracker mortgage rates linked to it will normally change in accordance with their terms. Fixed-rate mortgages don’t usually change during their fixed-rate period, although new fixed-rate deals can be affected by wider market expectations.
What is a fixed-rate mortgage?
A fixed-rate mortgage keeps your interest rate unchanged for an agreed period, commonly two or five years. This means your contractual monthly mortgage repayments normally remain the same during that period, provided the mortgage terms don’t otherwise change.
Fixed rates can make budgeting easier because you’re protected from interest rate increases during the fixed period. However, you generally won’t benefit from falling interest rates until your fixed deal ends, unless you switch products, which could involve charges.
What does SVR mean on a mortgage?
SVR stands for Standard Variable Rate.
This is the interest rate set by your mortgage lender, which you may move onto when an introductory fixed, tracker or discounted mortgage deal ends. SVRs are often higher than the rates available on new mortgage deals, although this isn’t always the case.
Because the lender can change its SVR in accordance with the mortgage terms, your monthly repayments could rise or fall.
What does APRC mean on a mortgage?
APRC stands for Annual Percentage Rate of Charge.
It represents the overall annual cost of a mortgage, including interest and certain fees, calculated using prescribed assumptions over the mortgage term. APRC can help compare the overall cost of different mortgage products. However, it assumes certain things about how long you keep the mortgage and how interest rates change, so it shouldn’t be the only factor you consider.
What is an early repayment charge?
An Early Repayment Charge (ERC) is a fee some mortgage lenders charge if you repay or switch your mortgage during a specified period. For example, leaving a fixed-rate mortgage before the deal ends could trigger an ERC.
The amount depends on your mortgage agreement and may reduce as you approach the end of your deal. It’s important to check whether an ERC applies before remortgaging or making substantial overpayments.
What is a mortgage Agreement in Principle?
An Agreement in Principle (AIP) is an indication from a mortgage lender of how much it may be willing to lend, based on the information provided and its initial checks.
It’s sometimes called a Decision in Principle (DIP). An AIP isn’t a guaranteed mortgage offer. A full application, affordability assessment, credit checks and property valuation may still be required.
Why is understanding mortgage terminology important?
Understanding mortgage terminology can help you compare interest rates, identify potential fees and recognise the risks associated with different mortgage products. For example, a low initial interest rate doesn’t necessarily mean a mortgage will be the cheapest overall, particularly when arrangement fees, early repayment charges and future rate changes are considered.
A qualified mortgage adviser can explain these terms in relation to your circumstances and help you understand the options available. At GHL Direct, our advisers compare mortgage products from more than 50 UK lenders and can help you understand the differences between fixed-rate, tracker and other mortgage arrangements.
Confused by mortgage terminology? Speak to a GHL Direct mortgage adviser for clear, straightforward advice about your mortgage options.
YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
