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.
