JARGON BUSTER "E"
An early repayment charge is applied to some mortgages if the borrower decides to repay the entire loan sooner than the date originally agreed with the lender. However, the term during which an early repayment charge would be applied does not run for the whole loan period. It typically lasts for the length of time a deal is fixed for between the lender and the person accepting the loan.
For example, if you opted for a two-year fixed rate mortgage that would then switch to the standard variable rate for that lender, you would likely need to pay an early repayment charge if you wanted to repay the loan within that two-year period. However, loans do vary, so it is important to make sure you read the small print and to ask about any charge that may be applied should you decide to repay the loan in full.
This charge may also be in force if you pay more than the required monthly amount during a specified period. Again, the mortgage paperwork would indicate if this is the case and highlight what the charge would be.
It is possible to avoid such charges in two ways. Firstly, some loans do not have these charges attached, so you could search for a deal with a ‘no ERC’ rule attached. Secondly, you could simply plan to pay off part or all your mortgage after the specified period has ended. The charge will always apply to the agreed term of the deal you are on. It would not usually be applied if you have finished the deal and the lender’s standard variable rate is now in force for your mortgage.
This term describes any rights an individual may have over a property that is not their own. Typically, this refers to rights held over a neighbouring property. For example, it may be necessary for a property owner to gain access to their neighbour’s land for reasons specified in the easements. This may cover any repairs they must carry out to their own property. They may need to place a ladder or erect scaffolding to be able to safely carry out these repairs. Their rights to do so on their neighbour’s land should be included in the easements.
Another example of an easement on a piece of land concerns the use of a shared driveway. It may be that the property line runs down the middle of the driveway. This means one half would be owned by one property owner and the other half would be owned by the person next door. However, the easement on that driveway would allow both parties to use the driveway to reach their garages or park their cars, as per the terms stated.
There are other cases where easements are given to other people regarding a specific piece of land. A good example would include rights of way. For example, there may be a footpath or route that cuts across part of the land owned by the specified landowner. Easements can cover both public and private rights of way, depending on the situation. A private right of way may run along the rear of a section of back gardens, allowing neighbours to cut through for easier access. A public right of way might involve a footpath that links with an area accessible to the general public.
Equity is the name given to the part of a property you own. Upon buying a property with a 10% deposit, for example, you would own 10% of it with a mortgage in place to pay for the rest. Over time, you should gradually gain more equity in your property as house prices rise and you pay off your mortgage.
In the early years of a home loan, the amount owed is unlikely to change very much. However, you can still gain a greater amount of equity in the property if house prices rise.
For example, let’s say you buy a property worth £300,000 with a 10% deposit of £30,000 in place. Your loan is for £270,000. At that stage, you would have equity of £30,000 in the property. Over the early years, the value of the property rises to £350,000. Your mortgage amount remains much the same, but your equity would rise to £80,000 thanks to the rise in property prices.
As such, it is possible for the equity held in a property to fall in certain circumstances. If property prices fall, the equity will fall too. Some homeowners also borrow against the equity to release cash from the property. This can be done for a variety of reasons. Examples include releasing cash for home improvements that could increase the value of the property when selling it. Other examples include unlocking cash to help children with a deposit on their own property, or perhaps to go on a holiday of a lifetime.
The exchange of contracts occurs when the buyer and seller of a property are ready to sign their respective copies of the contract relating to the sale. Before this stage is reached, the buyer and/or the seller can back out of the sale. Hence why many people focus on the exchange of contracts as a key part of the buying and selling process.
There is one contract covering the sale, and a copy of this is sent to the legal representative working on behalf of the buyer and the seller. Many people assume the contract is binding from the second the papers are signed, but this is not the case. The binding moment comes when the solicitors exchange the paperwork with each other. When the point of exchanging contracts occurs, it is very unlikely either party would withdraw from the sale. To do so would incur steep financial penalties, hence why most sales go through without issue from this point.
Since the buyer is formally and legally agreeing to buy the property at this stage, it is vital to make sure everything has been done before signing. All surveys and searches should be complete and satisfactory, any mortgage required has been offered in writing, and the deposit is ready to be paid. The deposit is usually required once the contracts have been exchanged by both parties. The completion date is then agreed and is usually the day when the buyer can finally move into the property they have just purchased.