Navigating the mortgage world can feel like learning a new language. At We Do Mortgages, we aim to keep things simple. Below is a clear, easy-to-understand glossary of common mortgage terms—so you can feel confident at every stage of your homebuying journey.
Agreement in Principle (AIP)
Also known as a Decision in Principle, this is a lender's early confirmation of how much they may be willing to lend. It's helpful when viewing properties, as estate agents and sellers see it as a sign you're financially ready to proceed.
An agreement in principle isn’t a mortgage offer or an official confirmation that you have a mortgage—you’ll still need to complete the full application to get approved
Arrangement Fee
A charge by the lender for setting up your mortgage. It can usually be paid upfront or added to your mortgage (though this means you’ll pay interest on it). Fees typically range from £500 to over £2,000, depending on the deal.
Buy-to-Let Mortgage
A mortgage for purchasing a rental property. These usually require a larger deposit—often 25% or more—and are assessed based on rental income potential, not just your salary.
You can read more: Buy-to-Let Explained – What Landlords Need to Know
Capital & Interest Repayment
A capital and interest mortgage (often called a repayment mortgage) is where you pay both the capital (the original amount you borrow, excluding interest) and interest over an agreed period of time known as the ‘term’ of the mortgage. As long as you keep up all your repayments you will be guaranteed to have repaid your mortgage at the end of the mortgage term.
Deposit
The initial lump sum you contribute toward the property's price. Most UK lenders require at least a 5–10% deposit. The higher your deposit, the better your loan-to-value (LTV) ratio—and the better your chances of accessing competitive rates.
Early Repayment Charge (ERC)
A fee for paying off your mortgage early, or making overpayments above your allowed threshold. This may apply to all types of mortgages, with charges ranging from 1–5% of the outstanding balance. Repaying your mortgage early or paying over your overpayment allowance are some of the most common reasons an Early Repayment Charge (ERC) may apply. You'll find details of any ERC payable in your latest mortgage offer.
Equity
The value of the part of the home you own outright. For example, if your home is worth £300,000 and your mortgage is £200,000, you have £100,000 equity. You can release equity through remortgaging if needed.
Fixed-Rate Mortgage
A mortgage with a fixed interest rate for a set term (usually 2, 5, or 10 years), offering predictable monthly payments and protection from interest rate hikes.
Find the most suitable mortgage for your circumstances.
Guarantor Mortgage
A mortgage supported by a family member who agrees to make repayments if you cannot. This option is often used by first-time buyers with smaller deposits or lower incomes.
Loan-to-Value (LTV)
The ratio between your mortgage loan and the property’s value, expressed as a percentage. A lower LTV (e.g. 60%) means you're borrowing less and may benefit from lower interest rates.
To calculate your LTV, follow this formula: (Loan Amount ÷ Property Value) × 100.
Example:
You want to buy a house priced at £250,000.
You have a deposit of £25,000.
This means you’ll need to borrow £225,000 from a lender.
LTV = (£225,000 ÷ £250,000) × 100 = 90%
Mortgage Term
The length of time over which you'll repay your mortgage. In the UK, this typically ranges from 25 to 35 years. Longer terms reduce monthly payments but increase the total interest paid over the loan's life.
Mortgage Broker
A mortgage advisor who searches the comprehensive range of lenders across the market for deals that suit your circumstances. We Do Mortgages offer access to broker-exclusive products you may not get if you go directly to the lenders.
Offset Mortgage
A mortgage that links to your savings account. Instead of earning interest on your savings, you reduce the amount of mortgage interest charged by offsetting the balance. It's ideal if you have significant savings and want to reduce interest payments or mortgage term.
Remortgage
Switching your current mortgage to a new deal—either with your existing lender or a new one—usually to save money or release equity.
Remortgage with We Do Mortgages
Stamp Duty
A Tax if you buy a property over a certain price in England and Northern Ireland.
As of 2025:
First-time buyers pay no Stamp Duty on homes up to £300,000.
Other buyers pay from £125,000 upwards, starting at 2%.
Read more on our blog: 2025 Stamp Duty Changes, or calculate your stamp duty now with our Stamp Duty Calculator.
Tracker Mortgage
A variable-rate mortgage that follows the Bank of England base rate plus a fixed percentage. For instance, if the base rate is 5.25% and your tracker adds 1%, you’ll pay 6.25%.
Current base rate – Bank of England *
*On clicking the above (Current base rate – Bank of England) link you will leave the regulated site of We Do Mortgages Ltd. Neither We Do Mortgages Ltd, nor Sesame Ltd, is responsible for the accuracy of the information contained within the linked site
Valuation
A basic survey carried out by the lender to confirm the property’s market value before approving the loan. This ensures the property is worth what you’ve agreed to pay.
Variable Rate Mortgage
A mortgage with an interest rate that can change at the lender’s discretion—usually in line with their Standard Variable Rate (SVR). These can be riskier than fixed rates but may be suitable for flexible repayment strategies.
Still Have Questions?
Whether you're buying your first home, remortgaging, or investing in buy-to-let, we’re here to help you navigate the UK mortgage market.
Speak to our experts or start your mortgage journey here.
Important
Your property may be repossessed if you do not keep up repayments on your mortgage.
The FCA does not regulate some forms of buy to let mortgages.
