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Mortgage Jargon

 

Acceptance Fee The fee charged by some mortgage lenders to process a mortgage. It is usually a very small percentage of the value of the loan (e.g. 0.5%). 

 

Advance
Amount of the mortgage loan to be issued by the lender.

 

Annualised Percentage Rate (APR)
The total cost of credit to the consumer, expressed as an annual percentage of the amount of credit granted. This takes into account all costs involved, such as set up charges, the term of the loan and the interest rate.

 

Annuity (or Repayment) Mortgage
Also referred to as a capital and interest mortgage. The most common type of mortgage, the monthly repayment consists of the interest payment, plus the capital (original loan amount) repayment. 

 

Appreciation
The amount a property has increased in value.

 

Broker
A mortgage advisor offering advice on the range of mortgage deals available from various lenders. Once a lender has been selected the broker will put the potential borrower in contact with the lender. Brokers charge a fee or receive commission from financial institutions for providing their services.

 

Buy-to-Let / Investment mortgage
A mortgage for property that will be let by the borrower to tenants as a source of income and investment - the buyer will not live in the actual property. This mortgage may have different conditions than those applicable to owner occupier loans.

 

Capped Rate
A combination of a fixed rate and a variable rate. The interest rate is guaranteed not to rise above a set level (the ‘cap’) within the capped rate period, but if the variable mortgage rate is below the capped rate then the variable rate is charged.

 

Collateral
The security for a loan is described as collateral. In the case of a mortgage, property is considered the collateral for the loan – and in the event of default by the borrower, the lender can realise their security by obtaining a possession order for the mortgaged property.

 

Credit Rating
The rating that lenders put on borrowers based on their credit worthiness - usually based on the borrower’s credit history.

 

Deposit
Paid on exchange of the contract - usually 10% of the purchase value of the house, though this can vary.

 

Depreciation
Any decrease in the value of a property.

 

Discount Rate Mortgage
An initial discount is offered, typically for a period of one or two years. In most cases discounted rate loans will be valid for a specific period of time rather than for the entire life of the loan.

 

Endowment Mortgage
During the term of this mortgage only the interest on the mortgage is paid to the lender. A monthly payment is also made into an endowment policy (a separate investment policy) - the proceeds of which are designed to repay the mortgage debt and also have surplus funds when the policy expires.

 

Equity
The difference between what a home is valued at and the amount owed on the mortgage.

 

European Central Bank (ECB)
The European Central Bank (ECB) is the central bank for Europe's single currency, the euro. Mortgage interest rates can be affected by changes in the ECB rate; particularly Tracker Rates linked to ECB. 

 

First Charge
A mortgage lender takes a First Legal Charge which means that if a borrower defaults on mortgage repayments and the property is sold to repay debts etc., the mortgage lender ranks in priority over any other interests in the property.

 

Fixed Rate Mortgage
A mortgage that is charged at a fixed rate for a set period. The rate payable does not change during the set period - regardless of changes in the lender's standard variable rate.

 

Guarantor
A guarantor is a person other than the borrower who guarantees the mortgage repayments. Guarantors can help a borrower who has insufficient income to qualify for a mortgage. 

 

Indemnity Bond
A fee required by some lenders where the amount of the loan exceeds 75% of the value or purchase price of the property – whichever is lower. The lender then purchases insurance covering them in the event of the borrower defaulting on the mortgage and the lender making a loss on possession and resale of the property.

 

Interest Only Mortgages
With an Interest Only Mortgage, the mortgage loan is not paid off during the mortgage term, but instead just the interest is paid to the lender and the original amount borrowed is paid in full at the due date of the loan term. An Interest Only facility can also be arranged for a given term e.g. one year. In this case, the borrower only pays the interest for the first year and the full mortgage balance will still be outstanding after the interest only period. Generally, after the interest only period, repayments will increase to include capital and interest so that the loan is repaid within the overall term of the mortgage.

 

Letter of Loan Offer
Once a mortgage application is approved, a formal Letter of  Loan Offer is sent to the borrower setting out the conditions of the loan. The borrower’s solicitor will also receive a copy with a request to proceed with the legal formalities.

 

Life Assurance
The Consumer Credit Act requires lenders to ensure that adequate life cover is put in place sufficient to cover the capital and clear the principal amount outstanding.
Lenders require confirmation that the life assurance policy is in place before drawdown of the mortgage. Life Assurance provides the funds for the mortgage loan to be paid off in the event of the borrower’s death.

 

Loan to Value (LTV)
LTV’s are shown as percentages and represent the relationship between the size of the mortgage and the value of the property. For example a mortgage of €90,000 on a property valued at €100,000 would be shown as 90% LTV.

 

Lock-in Clause
Relates to fixed, discounted or capped mortgages, and the penalties associated with breaking the lock-in clause. Usually attached to special deals and rates and may contain a clause that stipulates the borrower cannot repay a loan prior to a specified date.

 

Mortgage
A long-term loan secured against the borrower’s property to finance the purchase of a property.

 

Mortgage Term
The agreed length of time taken to make the full repayment of the mortgage. Mortgage terms can range from 5 to 40 years.

 

Mortgagee
The lender providing the mortgage.

 

Mortgagor
The buyer who takes out the mortgage i.e. the borrower.

 

Negative Equity
When the value of the property has fallen below the outstanding mortgage debt.

 

Pension Mortgage
During the term of this mortgage only the interest is paid monthly to the lender, with the principal due in full at the end of the mortgage term. Contributions are concurrently being paid into a pension scheme. At retirement the tax-free sum can be taken from the scheme to pay off the mortgage.

 

Pre-approval
When a lender gives approval in principle for a mortgage loan amount. The approval is based on income and other details from the applicant, and is subject to certain conditions.

 

Principal
The sum of money borrowed from the lender - generally what is owed, not including the interest.

 

Redemption
When a mortgage is paid in full - including interest to date and all charges. This usually occurs when moving to another property or when the end of the mortgage term is reached.

 

Redemption Penalty
An additional charge made by the lender if the mortgage is fully repaid within a pre-agreed period of time. For example, if the mortgage is at a fixed interest rate, and is paid off in total before the end of the mortgage term.

 

Remortgage
A process in which the mortgage on a property is moved from one lender to another.

 

Repayment Holidays
Repayment Holidays allow you to spread your monthly repayments over a shorter number of months, for example, 10 months instead of 12, or postpone repayments for a time, for example 3 months. If you arrange to pay your mortgage over 10 months, your repayments will be higher to cover the cost of the skipped months.

 

Split Rate Mortgage
A proportion of the mortgage is set at a fixed rate, and the remainder at a variable rate. If interest rates decrease, repayments on the variable portion of the mortgage decrease as well. If interest rates increase, only the variable payment is affected.

 

Standard Variable Rate (SVR)
A standard variable rate generally rises and falls in line with changes in interest rates. When the ECB rate rises or falls, the mortgage lender can increase or decrease the variable rate passing on some or all of the rate movement.

 

Tax Relief at Source (TRS)
Tax relief for home mortgage interest is now provided at source by the lender. The lender either reduces the mortgage repayment by the amount of the tax relief, or a credit is lodged into the account from which the repayments are made.

 

Term
The agreed length of time taken to make the full repayment of the mortgage. Mortgage terms can range from 5 to 40 years.

 

Title Deeds
Legal documents that provide evidence of the owner’s entitlement to a property.

 

Top ups
An additional loan given by the lender to an existing borrower on the same mortgage security.

The loan ‘tops up’ an existing mortgage to a higher level.

 

Tracker Rate Mortgage
A Tracker Rate is a set percentage (margin) above the ECB rate and so it 'tracks' changes in that rate. This margin is guaranteed for the full term of the loan unless there is a material change in the terms of the loan. There is no relationship between the Standard Variable Rate and the Tracker Rate. A Tracker Rate may be higher or lower than the bank's Standard Variable Rate.

This interest rate option suits those who wish to avail of a variable rate of interest but want a guarantee on the margin that will be charged for the life of the mortgage. The agreed margin as set out in the customers loan documentation will not change, even if the Bank subsequently introduces a different Tracker Mortgage offering, at a margin which may be either higher or lower than agreed as per the loan contract.

 

Valuation Survey
A survey that can be requested by lenders so as to provide an independent professional valuation of the property.

 

Legal Notice

The information provided in this guide does not constitute tax, legal, investment or any other advice. Any figures quoted are correct as of publish date shown above and are subject to change.