To help you with your mortgage
Ever wondered what your mortgage adviser is talking about then they mention LTV’s and SVR’s? Don’t worry, you are not alone. Some terminology used in the finance world can be confusing, and most terms have an acronym that supersedes the use of the term in full. Here we summarise key mortgage terms you should know.
This does not constitute advice and advice should be sought in all instances before acting on it.
Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
Loan to Value – also known as LTV
The Loan to Value (LTV) represents how much of your property you own. It calculates the mortgage in relation to the value of your property, giving a percentage ratio.
This term is commonly used in mortgage discussions as certain lenders will only lend money with a specific LTV.
For example, if your mortgage is £150,000 and the property is valued at £200,000, the LTV is 75 percent. Many lenders won’t look at lending money where say the LTV is 95 percent, as it shows a higher risk for them.
Standard Variable Rate – also known as SVR
A Standard Variable Rate (SVR) mortgage is the rate set by the lender as their default option. Typically, homeowners find themselves on an SVR when their fixed-rate, discount, or tracker-rate mortgage comes to an end.
SVR’s are often the consequence of bad mortgage planning, as rates are, on average, between 2 percent and 5 percent higher than the Bank of England (BoE) base rate.
Lenders have full control over their SVR’s so whilst they offer an element of flexible borrowing, more so than say a fixed-rate mortgage, they can change at any time. Sometimes the change may be lower, sometimes higher.
Early Repayment Charge – also known as ERC
When a homeowner opts for a fixed-rate mortgage, terms and conditions apply. There is a set period of time to which the borrower is committed to the lender, and the chosen mortgage product.
Of course, from time to time, life changes course, and not always can the terms of the contract be honoured.
However, if the mortgage needs to be switched, or cancelled for any reason, the lender will most likely apply Early Repayment Charges (ERC).
Many lenders do allow a certain amount of overpayments to the mortgage each year, for those homeowners that are just trying to clear their debt faster.
It is always important to know the terms of your mortgage before signing up. A mortgage adviser can help you to achieve this and always be planning ahead so you minimise fees.
Higher Lending Charge – also known as HLC
For mortgages, particularly where the LTV is high, lenders may apply a Higher Lending Charge (HLC) to protect themselves in case you default on your monthly payments.
By high LTV, the general limit would be 90%, although it does vary per lender.
A mortgage lender may avoid charging HLC’s and instead just conduct differential pricing, where customers can only access lower rates if their LTV is low.
Agreement in Principle – also known as AIP
An Agreement in Principle is a valuable tool when negotiating a property price.
It is effectively a document that shows the commitment “in principle” from a lender to give you a mortgage, based on certain basic information.
An AIP doesn’t necessary mean you will get the mortgage. However, they can be considered fairly reliable and can be presented to an estate agent if you are making an offer.
Get a mortgage review with Chris
If you would like us to undertake a review of your current mortgage deal or you are thinking of purchasing in the near future and require funding, please contact Chris for a free, no obligation appraisal.
Tel: 01403 780 770