Jargon Buster
Early redemption penalties
Charges paid to the lender in compensation for lost interest
if you redeem your mortgage ahead of schedule. During
a discount period you will be severely penalised if you
try to switch to another product or mortgage provider.
Penalties can be stepped just like discounts, and can
be particularly severe within the first year. This is
to ensure that the costs that the lender endures in setting
up the mortgage are always covered. Penalties can be a
fixed sum of money, though are often proportion of the
loan. With cashback mortgages, you often have to repay
the amount of money you received as cashback.
Early repayment period
A period of time that applies to certain types of loan
during which a charge will be made if the loan is repaid
in full or in part or its terms are varied at the borrower's
request.
Effective age
The age of a structure estimated by its condition
rather than its actual age.
Effective gross income
Additional income that a lender considers when assessing
the loan application of a potential borrower.
Eligibility criteria
These are criteria which you must satisfy before an account
or service application can be progressed.
Employment status
A term used by lenders to describe potential borrowers'
working arrangements. Self-employed applicants are sometimes
seen as a greater risk than employees. Many specialist
lenders and mortgages have emerged in recent years designed
specially for different types of employment status.
Encumbrance
A problem with the title to a property that does not affect
the transfer of ownership.
Endowment mortgages
Endowments are unusual products that combine a savings/investment
product with an element of life assurance. Their use goes
beyond mortgages and they are quite complicated. As with
other interest-only mortgages, you pay interest on the
full amount of the capital for the entire duration of
the loan term. The remainder of your monthly payment goes
towards a premium for an endowment policy. A portion of
this premium is invested and used to pay off the capital
at the end of the mortgage term. There is not usually
any absolute guarantee that your repayments will actually
be enough to reach the level of your loan.
Equity
Your equity in the new home is the amount of your deposit.
The bigger your deposit, the lower the proportion of the
loan in comparison to the property value. The less that
a lender has to contribute to a property the greater their
security and willingness to lend you the money will be.
A bigger deposit could also be seen as a stronger commitment
to the purchase. Over time, a proportion of your repayments
will go towards reducing the capital that you owe to the
lender, so assuming the value of the property is unchanged,
the amount of equity you own will have risen.
Equity linked mortgage
The lender takes ownership of a stake in the equity of
the property. This means that they lend you less than
the full amount that is required to buy the home. Interest
is only charged on the amount that they lend you and not
on the full value of the property. When you sell the property,
the lender receives payment in proportion to the amount
of equity that they own, and therefore benefits from any
increase in the price of the property.
Equity release
Equity release or home income schemes allow you to generate
either a lump some or a regular income in return for allowing
the lender to take ownership of a portion of your home.
These are often used by people in later stages of life
who have paid of all or most of their mortgage and who
are looking to raise funds without borrowing money.
Escrow account
An account a lender or mortgage servicer establishes to
hold funds for the payment of expenses such as homeowners
insurance and property taxes. Also known as an impound
account.
Essential repairs
Work that needs to be carried out on the property before
the mortgage completes.
Estimated valuation
The amount a surveyor believes a property to be worth.
Euro mortgage
A mortgage taken out by those paid in Euros to avoid the
need to exchange currency.
Examination of title
An inspection by a title company of public records and
other documents to determine the chain of ownership of
a property.
Excess
Applies to an insurance claim and is simply the first
part of any claim that must be covered by yourself. This
can range from £50 to £1000 or higher. Increasing your
excess can significantly reduce your premium. On the other
hand, a waiver can sometimes be paid to eliminate any
excess at all. Always check the excess in your policy.
Exclusions
These are events, instances or possessions which are not
covered by your household or other insurance policy. This
can be confusing as the main policy may seem to imply
that such events, instances or possessions are covered
only to excluded in the small print of the policy. Moral:
Read the small print.
Executor
A person appointed to carry out the instructions in a
will. If there is no will, a probate court will appoint
anexecutor.
Existing liabilities
Expenses taken into account by a mortgage lender when
assessing an applicant’s ability to repay the loan. These
include loan repayments, maintenance payments etc.
Extended redemption penalty
This is where the redemption penalty continues beyond
a fixed or capped rate period, effectively tying you in
to the much higher variable rate for a period of time
after the fixed or capped period. As a result you get
stuck paying an uncompetitive rate that eats into the
gains you may have made from having the fixed rate or
capped ratein the first place.
