Mortgage Jargon Buster

Bank is prepared in principle to lend the money for the mortgage (house purchase) subject to a credit check and verification of income documentation submitted.

Traditional style mortgage where customer pays back capital and interest each month over a specified period. In the initial years of the mortgage it is mostly interest which is paid back together with a small amount of capital. As the mortgage progresses, the amount of capital being paid back increases and the amount of interest reduces.

This term is used to reflect the fact that the value of a property has increased.

This is an abbreviation for Annual Percentage Rate and reflects the true cost of borrowing money from the various financial institutions. It is the best method for comparing the cost of loan repayments between the various banks and must be included in all their advertising.

The repayments on a mortgage are normally due to be paid monthly. If you miss a monthly repayment, your mortgage is deemed to be in arrears and will affect your credit rating.

Property is sold in public. There will be a reserve price on the property and when this is reached, house will normally be put "on the market", i.e. that is it will be sold.

A temporary loan used to provide finance when you are purchasing a house and the sale of your home is yet to complete.

An independent agent who will advise you on the best mortgages available and help you to put one in place. Mortgage brokers offer these services free of charge to the customer.

A survey carried out on a property outlining in detail the physical condition of the property. It is recommended that anyone thinking of purchasing a home should get a building survey carried out as defects which would not normally be detected by a purchaser will be detected by the building survey.

An insurance policy taken out to cover a property against the normal perils of fire, storm, and flood for example. Banks will insist on a policy being taken out to protect their interest in the property as they have given the customer a mortgage to purchase the property.

A house which is purchased with the specific intention of letting it out to tenants, for which owner will receive a monthly rent.

Capital gains tax is tax placed on any increase on the value of an asset from the time you bought until you sold it. If the house has been occupied by the individual as his main residence during the period of ownership, then a gain on the disposal is exempt.

The monthly repayment on your mortgage contains an element of capital and interest in it. The capital element reduces the loan by that amount each month, ultimately paying off the mortgage by the end of the specified term.

This is where the rate of interest charged by the bank is capped at a particular level and cannot exceed this level for duration of the agreement.

This is where a potential purchaser of property is relying on the sale of their own home before they can buy a new one.

When somebody takes out a mortgage, the interest on the mortgage can be charged to the account on a daily basis, monthly basis or annual basis. The most beneficial for the customer is having the interest charged on a daily basis as the customer gets immediate credit for the repayment when it is made.

The solicitor for the purchaser and the vendor meet up and complete the legal formalities. The property ownership is legally transferred to the purchaser when the solicitor hands over the money to the vendors’ solicitor.

When a bank gives a mortgage to a client to purchase a property, they take a legal charge over the property as security for the loan. In other words the property is being held as collateral for the mortgage.

This is when all legal transactions have taken place and the ownership of the property is legally passed on to the property.

A person may have a few different short term loans and decide to bring them all together and consolidate them into separate loan on their property. The benefit is that rate of interest will be much lower when the loan is secured against a property.

Insurance that covers the loss of or damage to your possessions within the property.

A legal agreement between a seller and buyer of a property.

This is the name given to the legal process of transferring ownership of a property from the vendor or seller of the property to the purchaser of the property.

This is the cost per month for every thousand Euro borrowed to purchase a property. Assume interest rate is 4.5% and you are borrowing €250,000 over 25 years. Your monthly repayments will be €1,389.58, or another way to express it is the monthly cost for every €1,000 borrowed is €5.56.

This is a life assurance policy where the sum assured reduces each month over the life of the policy. It is usually taken out in conjunction with an annuity mortgage and is commonly referred to as a mortgage protection policy also.

If you miss monthly repayments on your mortgage when they are due, you are considered to be in default of your loan agreement. This can have the effect of the bank applying surcharges or extra interest on your loan. This can also have a serious impact on your credit rating and will be recorded against your profile with the Irish Credit Bureau. It can ultimately lead to you loosing your home.

A sum of money (usually 10% of the property value) paid by the buyer on exchange of contracts.

Expenses paid by the solicitor on behalf of the purchaser.

The bank or building society will offer you a discount off their normal rate for the first year or two of your loan. Whilst this is of short term benefit to you, it is generally considered to be gimmicky and the most important consideration should be what rate are you going to be charged over the remaining term of the loan.

This happens when the bank/building society issues the loan cheque to the purchasers solicitor to facilitate the purchase of the property. The funds are then considered to be "drawn down".

A fee associated with the early termination of a mortgage.

The European Central Bank sets the rates of interest which determine the interest rates that pertain within the E.U. The most commonly known rate is the ECB repo rate which is presently 4.00% and if this rate moves, the mortgage rates will also move in a similar direction.

This is a mortgage linked to an investment policy with an insurance company. The borrower pays interest on the mortgage to the financial institution and a premium to the insurance company for the policy. They are generally considered to have waned in popularity in more recent years, partially due to the fact that tax relief was abolished on life assurance premia some years ago, and also due to changes in the investment markets.

If you own a house valued at 300K and you have a mortgage of 200K outstanding on it, you are considered to have an equity of 100K on the property. That is the difference between the value of the property and the loan outstanding on it.

Also known as an auctioneer, he acts on behalf of the vendor or person who is selling the property, and is duty bound to obtain the best possible price for the property on behalf of the client. An estate agent can also be employed by someone looking to purchase a property and he/she will research the market to find a suitable property.

If you agree to purchase a property, you pay a booking deposit initially. Thereafter, a contract for sale is drawn up by the vendors’ solicitor and sent to your solicitor, who will inspect same on your behalf. When they are happy that the contract is in order your solicitor will get you to sign same and return together with a deposit equivalent to 10% of the purchase price generally. At this stage, contracts are deemed to be exchanged, countersigned by the vendor and you are now legally committed to purchasing the property.

This is the person charged with responsibility for regulating all the financial institutions. He is the chief executive of I.F.S.R.A., The Irish Financial Services Regulatory Authority, the body that oversees the regulation and protects the interest of the consumer. They have a designated website, www.ifsra.ie

A person who has not purchased a property before.

The rate of interest on your mortgage is fixed for a specified period, and is guaranteed not to vary within that period. However, beware if you wish to get out of it before the end of the specified term as you will incur interest penalties.

If you purchase a property freehold, not only do you own the house, you also own outright the actual site this house is built on. Therefore, you are not liable to pay any ground rent to an absentee landlord.

This refers to a first time buyer, someone who has not purchased a property before either at home or abroad. It has a particular significance in relation to rates of stamp duty applicable in that a first time buyer is exempt from stamp duty on the purchase price of a second hand property up to €317,500.

If you agree to purchase a house at say €350,000 and pay a booking deposit, the vendor still retains the right to accept a higher bid on the property if he/she so wishes. In this event you have been gazumped. Not a very pleasant experience. This cannot happen once the contract for sale has been signed.

If you were to sign a letter of guarantee for someone taking out a mortgage, you are then liable for the repayments on the loan in the event of the borrower failing to make the repayments. So it is a very serious commitment and one where you should seek independent legal advice.

A scheme set up by The Construction Industry Federation (CIF) in the late 1970’s designed to protect purchasers of new houses against structural defects for 10 years. Has been revamped in recent years.

Normally banks and building societies are prepared to lend between 75% and 80% of the purchase price subject to normal criteria. In certain cases they will lend up to 90% but if they do they arrange an indemnity bond with an insurance company for any loan amount in excess of 80% of the purchase price. Historically customers had to pay for the cost of the bond but competition has forced the practice to cease, and the banks now cover the cost of the bond.

Lending institutions require building insurance to protect their interest. This covers any structural damage to the property. Contents insurance covers any loss or damage to the owners’ contents.

A recent phenomenon on the Irish market, this is where you only pay the interest on the mortgage. This is a facility which can be availed of for a specific period, say 5 years, or in exceptional cases for the duration of the mortgage. The important point to remember is you will have to pay the capital back at some stage, either by regular monthly repayments or in a lump sum. We recommend you take independent financial advice before taking out an interest only mortgage.

It was founded in the late 1800’s for the purpose of registering transactions in relation to land and property within the State. Its principle office is located in Chancery Street, Dublin 7 at the rear of the Four Courts.

Sometimes a property is purchased on a leasehold basis which basically means you are purchasing the property but not the site on which it is located and you may have to pay a nominal rent known as ground rent. However, in recent years there is a facility to purchase the leasehold interest by buying out the ground rent for a nominal amount.

When purchasing a property you must employ a solicitor to handle the legal aspects on your behalf, more commonly referred to as the conveyance, in effect the transfer of title to the property from the vendor to the purchaser. The typical fee as recommended by the law society is 1% of the purchase price plus VAT at 21%. In addition other legal charges will apply such as cost of registering title in the land registry and stamp duty on the mortgage deed.You can basically allow up to €650 for registration of title and 0.1% of the mortgage amount, if the mortgage exceeds €254,000. You will also have to cover typical outlay for postage, fax, search fees and other incidentals.

Normally required by financial institutions when customer is availing of an interest only facility on their mortgage, as the capital will remain constant during this period. The sum assured under the policy must remain constant also.

A policy whereby you insure your life against death and in the event of a claim, the insurance company will pay your next of kin a lump sum, under the terms of the contract. Usually associated with mortgages but people also avail of it with family protection in mind.

A building that has specific architectural or historic interest generally has a lot stricter planning criteria for alterations than non listed buildings.

A letter from a financial institution offering you a loan to purchase a property, subject to certain terms and conditions which must be met before the loan cheque can issue.

Meaning loan to value. If you own a house worth 500K and there is a mortgage of 300K on it, the property has an L.T.V. of 60%. i.e. the loan amount outstanding is 60% of the value.

If you take out a loan to assist you purchase a property, it is more commonly referred to as a mortgage. In effect, you are mortgaging the property to whatever financial institution is lending you the money, basically transferring part ownership of the property to the financial institution for the duration of the loan.

A legal document that details the lender’s interest in the property, the deed also contains the terms of the mortgage.

Basically a life policy where the sum assured reduces each month in line with the loan balance outstanding on the property, designed to pay off the balance outstanding on the loan in the event of death. Also commonly referred to as life cover.

The rate of interest charged to you by a financial institution on a mortgage, in other words, the cost to you of borrowing the money to purchase your house. Nowadays, it is inextricably linked in to ECB rate and moves in line with ECB rates generally.

The number of years over which the mortgage must be paid is the mortgage term.

If you own a property valued at 400K and have borrowings secured against it for 420K, then you have a negative equity on the property, as the loan amount is greater than the property value. May come into play if house prices were to fall rapidly as part of a property crash.

The amount of money offered from a buyer for a property.

Someone who owns a property and lives in that property.

In recent years, financial institutions offer their clients a payment break of 1 or 2 months during the year. The ideal solution is to increase your repayments over the other 10 or 11 months to make up for the holiday as all you are doing otherwise is just increasing the cost of the borrowing for yourself.

Similar to the concept of an endowment mortgage, you borrow from the financial institution and just pay interest on the mortgage. Simultaneously you pay a premium to a pension plan, in effect the capital element of your repayment and the pension plan is designed to have a sufficient tax free cash lump available at maturity to pay off the capital balance outstanding on the mortgage. It is particularly suited to self employed people and is very tax efficient.

Any new development of housing requires the builder/developer to apply to the Local Authority for planning permission to build the houses. If and when the Local Authority grants the permission, this can then be appealed to An Bord Pleanala. If you are building an extension to your property, you require planning permission only if the original floor area of the house is increased by more than 40 square metres in the case of a detached property and 12 square metres in the case of a semi-detached/terraced property.

If you have an insurance policy, you will normally pay a monthly premium to the insurance company by way of direct debit from your bank account. It is the price you pay for the insurance.

The amount of mortgage you wish to borrow.

If you are selling your house by private treaty, this means you are selling it either yourself or more commonly through an auctioneer privately, as opposed to putting it up for public auction. In effect you are prepared to negotiate privately with a purchaser.

Private Residential Tenancies Board (PRTB) is a statutory body set up to regulate the residential rental market. Tenants or landlords who have grievances with each other can contact the PRTB who will then undertake to settle the dispute.

This involves moving your mortgage to a different financial institution whilst still staying in the same house. Your house does not have to be put up for sale to re-mortgage it. There is intense competition in this area at present.

If you win the National Lottery you might decide to pay off your mortgage in full. You ask your financial institution for a redemption figure which they will supply as at a particular date and that will reflect the total amount required to pay off your loan in full as of that date.

This scheme was introduced in 2001 and is designed to encourage people to rent a room in their principle private residence to a tenant and thereby earn an income up to €7,620 tax free per annum. This also enables the tenant to claim tax relief on the rent paid. The scheme was introduced as a result of a shortage in supply of rented accommodation being available at the time.

The mortgage lender takes possession of a property when the borrower defaults on payment.

When the seller agrees to accept an offer from a bidder and a booking deposit is paid.

When you are purchasing a property a legal search is carried out by your solicitor to establish if the property has any mortgage charge or judgement registered against it, or if there are any particular planning conditions pertaining to the property. They form part of the process of ensuring you have a full and marketable title to the property.

If you take out a mortgage, the financial institution giving you the loan will take a charge/mortgage on your house as security for the loan. In the event of you not being able to make the repayments on the loan, the bank will realise its security by selling your house, paying off the mortgage and passing the net sale proceeds to you.

Insurance can be taken out as part of the mortgage protection which will repay the mortgage in the event of a listed serious illness.

The SOS loan provides assistance to those on low incomes who cannot get loan approval for a mortgage from any other financial institution.

A list carried out by a surveyor and purchaser to check all defects which need to be fixed prior to the purchase is complete.

Where one estate agent is responsible for the sale of a property.

There are different levels of stamp duty payable depending on the purchase price of the property and also depending on the status of the purchaser. The tax is levied on the transfer document conferring ownership of the property on you, the purchaser. Exempt from stamp duty are all purchases by first-time buyers and all new homes under 125m² bought by owner occupiers (bigger new homes pay at most a quarter of the full duty). Other property purchased will be liable to Stamp Duty calculated on a progressive scale:
 

Stamp duty on houses and apartments with floor area greater than 125 square metres and a Floor Area Compliance Certificate
Consideration (or Aggregate Consideration) exceeds €127,000	Rate of Duty
First €125,000	Nil
Next €875,000	7%
Excess over €1,000,000	9%

If you are purchasing a second hand property it is deemed prudent to employ an architect/surveyor to carry out a full structural survey on the property to ensure there are no structural defects in the property. You will get a full written report which will cost in the region of €300 to €400, but it is generally regarded as money well spent.

The professional qualified to carry out a survey.

The person who is renting and occupying a property from a landlord.

The period of the mortgage.

The title on your property is normally evidenced by a specific legal document, e.g. an assignment of a lease or a Land Certificate which is generally regarded as a principal document of title. If you are selling your property, the transfer of ownership is completed by a Deed of Conveyance. With a Freehold Title you not only own the property but also the site on which it is built. With a leasehold property, you own the house and pay a nominal ground rent for the site. In more recent years there is now a procedure in place whereby it is possible to buy out the ground rent for a nominal price.

Documents showing ownership of a property.

A recent phenomenon, this is a rate that tracks movements in the base rate of E.C.B. the European Central Bank. The E.C.B. rate is currently at 4.00% (effective from 13 June 2007). When you opt for a tracker rate, it consists of a base rate of 4.00% plus a margin which is determined by your loan to value ratio and is fixed for the duration of the loan. In summary, the base E.C.B. rate is a variable rate, and the margin over this rate is fixed, so your rate of interest will only change when there is a move upward or downward in the base E.C.B. rate.

Land registry document that transfers legal ownership from seller to buyer.

When you purchase a house to live in you are entitled to mortgage interest relief at the standard rate of tax. It is now commonly referred to as tax relief at source. To claim the relief, you can fill out form TRS 1 and your mortgage provider will apply the relief on receipt of appropriate approval from the Revenue Commissioners. If your mortgage repayments are €1,300 per month, and you are entitled to tax relief of €100, the mortgage provider will only debit your account for €1,200. Lo call for info: 1890 463626.

When you submit a mortgage application to a financial institution, it is examined and assessed by an underwriter who will look at it from a affordability perspective. The main issues the underwriter will look at are your net disposable income after tax and PRSI and any other outgoings or commitments you might have. They will also factor in typical household expenditure for you into the equation and will then be in a position to decide how much you can afford to borrow. Typically, they will insist on allowing you use up to a maximum of 40% of your net disposable income to fund your mortgage repayments.

When you take out a mortgage, it is normal for the institution lending you the money to insist on a valuation report being carried out to confirm value of property which will be used as security for the loan. It is primarily a superficial valuation, and it is not to be confused with a surveyors report which would be much more detailed and also costs €300 to €400. The typical cost for a valuation report is €130.

VAT is a consumer tax. It is collected by VAT registered traders on their supplies of goods and services.

This is a mortgage interest rate that can change over the term of the loan depending on the rates of the Central Bank, meaning the monthly repayments can go up or down.

The seller of a property.