What is an advance?
An advance is an additional loan on an existing mortgage. It is also known as a further advance, as it means you are seeking to add borrowing to your current mortgage.
Things to note when considering an advance on your mortgage
If you did opt to add more onto your existing home loan like this, it would be with your current lender. Therefore, you cannot compare deals or go with any other lender’s interest rates.
Opting for an advance is an alternative to changing your loan to another lender. There could be various reasons why you may not want to do this. If your existing lender offers a competitive rate, seeking an advance might be preferable – and more affordable – to switching to someone else, for example.
An advance might be worth thinking about if you want to improve your home in some way, such as by adding a conservatory or extension, or renovating the existing building. You could also think about an advance to release cash to fund another property purchase.
A word about mortgage rates
You should note that your existing mortgage rate won’t apply to any advance you might be able to get. You would typically pay for anything you borrow on top of your main loan at a different interest rate. Hence why it is a good idea to look around to see if a change of mortgage might be a better option. An advance is merely one way to release additional cash if your property has increased in value and there is equity to draw on.
What does APRC mean?
Annual percentage rate of charge, or APRC, is a term you are going to regularly encounter when you start looking at various mortgages offered by various lenders. Put simply, the APRC reflects the total cost of a loan, including interest charges and all product fees. This is shown as a percentage rate rather than as a sum of money.
The annual percentage rate is an industry standard calculation. This means all lenders use it. You can therefore look at the APRC for each loan you are reviewing and use it to compare different mortgages more accurately against each other.
This would be almost impossible to do if you were using other information, such as the basic interest rate and the fees and charges connected with each deal. Cashback would also muddy the waters when trying to work out whether one deal is better than another. APRC takes the hard work out of comparing different loans, as you can be certain of which ones are preferential to others.
Things to note about the APRC of a mortgage product
The most important thing to remember is that the APRC is calculated on the assumption that you maintain the loan for its full term. So, if you take out a 25-year loan offering an APRC of 3.5%, that APRC is worked out over the 25 years. If you changed mortgages at some stage during the term, the original APRC would no longer be valid.
However, you should still use this calculation to compare different products from different lenders if you’re looking for your first home loan or looking to swap from one to another.
What is an architect’s certificate?
An architect’s certificate is a document provided by an architect, confirming their role in overseeing the construction of a building. It is a vital document for a homebuyer to have if they intend to purchase a new-build house with the help of a mortgage.
The certificate should be issued either by a chartered architect or by a qualified surveyor. It typically lasts for six years, although it is possible to purchase an extended form of cover that would last longer than the normal six-year period.
Why is a certificate necessary?
A newly built property has no track record. As such, the bank or building society being asked to lend on that property wants to know it is fit for purpose and worth the amount it is being sold for. They are unlikely to lend if you cannot produce an architect’s certificate to prove this.
Upon seeing the certificate, the lender knows that the property you are seeking a mortgage for has been built to current standards. It is essentially a form of security – it tells the lender that yes, the property is fit for sale and has been constructed to a reputable quality.
Is there an alternative to getting an architect’s certificate?
Yes, an alternative would be an NHBC warranty or equivalent recognised document. NHBC stands for the National House Building Council. The warranty they produce is known as the Buildmark warranty, and it gives homebuyers protection against faults in the building for 10 years. As such, the document would also provide confirmation to the lender of the build quality of the new home.
What is an arrangement fee?
This is a fee charged to you by a lender when you secure a mortgage with them. The lender applies a cost to take out that product for you. It is essentially an administration charge for handling the process required to complete the loan.
You may also see it referred to by other names, such as a completion fee. It is only payable once you agree your mortgage with the lender and go through the process of taking it out.
When does the arrangement fee need to be paid?
It must be paid prior to the mortgage start date. However, some lenders do allow the mortgage holder to add the fee to their loan. Be very careful if you do this though, since it means you end up paying more.
If your loan is for £250,000 and you pay your £1,000 fee prior to beginning your monthly payments on the loan, interest is calculated on the £250,000 mortgage alone. However, if you decide to save some cash and add the fee to your loan, you would end up paying interest on £251,000 instead. It may not sound like a huge difference, but it can add up over a 25-year term.
For example, an interest rate of 3% over 25 years on a loan of £250,000 would produce monthly payments of £1,186. If you were to add the fee on top, those monthly payments would increase by £4. Over the lifetime of the mortgage, the total repaid (assuming all else remains equal) would increase by £1,423. That means you’d end up paying almost 50% more for your arrangement fee.
Of course, it could be more important for you to retain the cash, but it is worth knowing the difference it can make to your payments.
How is the fee calculated?
This can be done in one of two ways:
It is often given as a flat fee, i.e. a specific amount of money It could be expressed as a percentage of the loan
Either way, you should know ahead of agreeing to the loan how much the arrangement fee is for.
The word ‘assignment’ relates to the transfer of ownership of an insurance policy or lease. It may relate to a life insurance policy held by a homeowner if that policy needs to be transferred to someone else, for instance. To give another example, it may also relate to the transfer of ownership of a lease on a property.
For example, if you are a landlord and you own a property you rent out to tenants, you will experience changes in tenants from time to time. When this occurs, you will need to transfer the lease held by the outgoing tenant to the incoming tenant. Your consent as the landlord is required for this to occur.
In all cases, regardless of the scenario, the person exiting the lease or policy is referred to as the assignor. The person taking over the lease or policy is known as the assignee. These terms are also likely to appear when you are in another scenario whereby an assignment or transfer is required to happen, as with the insurance policy example.
If an insurance policy is transferred from one party to another, this process is also called an assignment. In some instances, there may be reason for a part assignment to occur. This would happen if the policy is shared by two or more people, and part of the policy is to be transferred. It is more common for an entire insurance policy to have its ownership transferred, however, in which case the original assignment terminology stands as the relevant term.
If you are unsure about any terminology in an official document, you should always ask for clarification.