Mortgage Terms Explained: The Words on Every Offer
Mortgage documents are written in a vocabulary that is precise, unfamiliar and almost never explained at the point of use. That combination is expensive: most people comparing two offers are comparing the only number they recognise, which is the headline rate, and the headline rate is not what they will pay.
This is the list of words that change the answer, grouped by where you meet them.
The rate words#
| Term | What it means | Why it matters |
|---|---|---|
| Nominal rate | The interest rate itself, before fees | The number in the advertisement |
| APR / APRC | Rate including compulsory fees over the whole term | The only figure that compares two offers fairly |
| Fixed period | How long the rate is guaranteed | Often much shorter than the term |
| Variable / tracker | Rate that moves with a reference rate | Lower start, unknown middle |
| Reversion rate | What you move to when the fixed period ends | Usually much higher — the trap in a cheap two-year fix |
| Reference rate | Euribor, base rate, external benchmark | What a variable rate is pinned to |
The reversion rate is the term most often skipped and most often expensive. A very cheap short fix followed by an expensive reversion is a marketing structure, not a bargain.
The amount words#
| Term | What it means |
|---|---|
| Principal | The amount borrowed, still outstanding |
| Deposit | Your own money put into the purchase |
| LTV | Loan to value: loan as a percentage of property value |
| Equity | The share of the property value that is yours |
| Negative equity | When the loan exceeds the property value |
| Amortisation | The process of repaying the principal over the term |
LTV is the number to optimise. Rates are priced in bands — commonly at 90, 80, 75 and 60 per cent — and moving from just above a band to just below it can save more than any negotiation.
The affordability words#
- DTI — debt to income. Total debt payments as a share of gross income. Several markets cap this by regulation.
- Income multiple. The loan expressed as a multiple of annual income; a rough cap used alongside DTI.
- Stress test. Whether the payments still work at a rate materially above the one offered.
- Affordability assessment. The lender’s full view: income, commitments, dependants, essential spending.
- Self-certification. Borrowing on stated rather than evidenced income — banned or heavily restricted in most regulated markets since 2008.
DTI and the stress test are the two that surprise people. A perfectly affordable payment can be refused because the same payment at a hypothetically higher rate would not be.
The fee and exit words#
| Term | What it means | Typical size |
|---|---|---|
| Arrangement / product fee | Lender fee for the specific product | A flat sum or a share of the loan |
| Valuation fee | Lender’s assessment of the property | Small, sometimes waived |
| Early repayment charge | Penalty for repaying or leaving during a fixed period | Often a percentage of the balance, falling each year |
| Overpayment allowance | How much you may repay early without penalty | Commonly around a tenth of the balance per year |
| Porting | Moving your existing product to a new property | Avoids the exit charge if the lender allows it |
| Exit / deeds release fee | Administrative fee at the end | Small but real |
The early repayment charge and the overpayment allowance are the pair that decide whether a product suits someone who might move, inherit or receive a bonus.
The words specific to one market#
Several terms exist in one country and nowhere else, which is why translated mortgage advice is so often wrong. A few of the common ones, so that you recognise them if you meet them.
- Points (United States) — paying a fee up front to buy a lower rate.
- Stamp duty (United Kingdom and others) — a purchase tax scaled by price band.
- Notaire / Notar fees (France, Germany and others) — statutory transaction costs, not negotiable.
- Amortisation requirement (Sweden) — mandatory minimum capital repayment set by LTV.
- Mortgage interest relief (Netherlands and others) — tax treatment that lowers the net cost of interest.
- Guarantee (France) — a substitute for a registered charge, with its own fee.
When comparing across countries, compare the total cost of credit over the same horizon rather than the rate. The rate is the part least likely to mean the same thing on both sides.
Frequently asked questions
What is the difference between the interest rate and the APR?
The nominal interest rate is the cost of borrowing the money alone. The APR — APRC in much of Europe — includes the compulsory fees as well, spread over the term and expressed as an annual percentage. Two offers with the same headline rate can have quite different APRs if one carries a large arrangement fee or compulsory insurance, which is exactly why the figure exists and why it is the only fair way to compare two offers.
What does LTV mean and why does it matter?
Loan to value: the loan expressed as a percentage of the property value. It matters because rates are priced in bands rather than continuously — commonly at 90, 80, 75 and 60 per cent — so a small change in deposit that moves you across a band can lower the rate for the whole term. It also decides whether mortgage insurance is required in markets that use it, and it is the number that determines whether you are in negative equity if prices fall.
What is an early repayment charge?
A penalty for repaying some or all of the loan, or leaving the lender, during a fixed-rate period. It is typically a percentage of the balance repaid, often falling each year of the fix. Most products allow a certain amount of overpayment each year without penalty — commonly around ten per cent of the balance. If there is any chance you will move, sell or receive a lump sum during the fixed period, that allowance and the charge are more important to compare than a small difference in rate.
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