Mortgage Jargon Buster
Annuity/ Repayment mortgage/ capital and interest (all words for the same thing)
This is the most common type of mortgage. Its a mortgage where each monthly payment pays part of the capital and the monthly interest payment, at the end of the term there is no balance left so the house is ‘owned outright’ or ‘unencumbered’.
APR is an acronym for Annual Percentage Rate. This takes into consideration all up front and ongoing costs. By exact definition under the Consumer Credit Act of 1995 it is "being the total cost of credit to the consumer, expressed as an annual percentage of the amount of credit granted".
In Irish residential property there are normally two ways the property is sold, auction or private treaty. Auction as it suggests is where people bid on a house, however, before bidding it is important to have your finance in place and be satisfied with all inspections/surveys of the property because if you win the auction you have to sign the contract on the spot and pay your deposit.
Bridging finance/ bridging loan
This is a temporary loan that allows people to buy a new house before their own is fully sold. This can be a complex area and there are many things to take into consideration. Contact your broker if you are considering this.
An independent intermediary who will give you advice and offer a range products. Mortgage brokers deal with mortgages and are often (but not always) Insurance brokers as well, offering a range of products from different providers in the area of life assurance, pensions and investments. Both are regulated by the Financial Regulator under the banner of ‘Mortgage Intermediary’ and ‘Investment Intermediary’ respectively.
Building Insurance/ House or Home insurance/ (all relate to the same thing)
This is a policy that covers any structural damage to your home. All lenders require it and will want their interest noted on the policy. Often in apartments complexes or managed property the maintenance fee will cover the building insurance in this case its referred to as a ‘block policy’ as one policy covers a block of apartments. This is not the same thing as ‘Contents Insurance’ although it is possible to have contents covered by your building insurance, in the case of apartments you normally need a separate ‘Contents Policy’ as the block policy cannot be added to by separate individuals.
Capital / Advance/ Principle (all refer to the same thing)
The sum borrowed to - buy the home / that you take out as a loan
Charge/ Legal Charge/ Lien (all relate to the same thing)
The security that a lender relies on to grant a mortgage. It is recorded in the land registry or registry of deeds (it depends on the title where the deed is held). Assuming it’s the first lien then if the property sells they have right to the proceeds before anybody else.
The asset (in mortgages this generally refers to a property) used to secure a loan.
When contracts have been exchanged and ownership passes from the vendor (seller) to the buyer.
Insurance to cover loss or damage to your possessions – often this is less expensive as an add on to existing house insurance rather than as a stand alone policy.
The legal agreement between a vendor (seller) and the and buyer.
The legal work involved in buying or selling of a property
Deeds/ Title Deeds
These are the documents that show who the owner of a property is and any burdens or charges on the property. They also show the tenure (how the property is held) ie: freehold / leasehold.
This is a special rate most lenders use to attract new business, commonly it represents a good deal for a certain initial period. However it is important to consider what the options are once this period is finished. Ask your finance consultant for details.
Acronym for European Central Bank, they decide the Euro interest rates.
An interest only loan where a separate endowment (savings investment) policy is started – and paid for separately- with the intention that it will pay off the capital at the end of the term. If the policy appreciates quickly it may be possible to pay the loan and have a tax free sum left over, however, if it does not perform it can leave a deficit at the end of the term. This type of loan has fallen in popularity in recent years
The amount of the property that you own (ie: that has no mortgage on it), value of property less mortgage equals equity.
Borrowing money which is secured on the equity in your home.
Estate Agent/ Auctioneer/ Negotiator (all perform a similar task in selling property)
This is an agent who works on behalf of a seller with the aim of getting them a high price/fast sale/ or other term in exchange for a percentage of the sale price.
At this point the buyer and seller are legally bound to buy/sell the property. The buyer signs the contract and sends it (with an agreed deposit) to the seller, the seller signs it and their solicitor posts it. At that point the contracts are considered to have been ‘exchanged’.
First Time Buyer Grant
No longer exists
You can chose to have your payments fixed for a specified term, this means that your payment will stay the same during that term no matter what happens with interest rates. If rates rise you will pay less than if you were on the variable (assuming they go higher than your fixed rate) if they drop you could pay more. Often there are penalties for breaking a fixed rate – this could happen if you want to redeem (pay off) the loan or refinance the property.
This is the actual register of the title and is set out in three parts.
1. details of the property
2. Class of title and ownership
3. burdens and notices of burdens.
Forfeiture of a right of redemption on a property (generally when someone fails to pay a mortgage). A lender can apply to court for a date to be set, by which the entire amount becomes payable. If payment is not made, the property belongs entirely to the lender, who is then free to go into possession or to sell it.
Ownership of the property and land, there are no rents due and no timeline to the ownership.
This usually can only happen with second hand properties, it is where the seller goes sale agreed with one person but then rescinds based on an offer by another person.
Rent payable on a long lease (lease hold properties) to the owner of a freehold.
A person who pledges responsibility for the debt of another
Is a guarantee with most new houses and apartments. It provides against
1. losing your deposit if the builder goes bankrupt
2. 10 years warranty against major structural faults
3. 2 years defect warranty against water and smoke damage after completion.
Is the name of the certificate issued by homebond confirming that the property has been registered and is covered under their scheme.
An upfront once off fee paid by the borrower if you lend in excess of c. 70 - 80% of the value of the property. It is a form of insurance that protects the lender in the event that they make a loss on the sale of a foreclosed house. Lenders all use them but not all charge them to the client.
Acronym for Irish Credit Bureau, it is standard that lenders get written consent in order to check a potential borrowers credit bureau. This report shows what lines of credit the person has and if all loans are paid on time each month.
Joint and several liability:
Liability of more than one person, under which each may be sued for the entire amount of damages due by all. The obligation may arise by agreement or may be imposed by law. This is important to note when two people buy a house because even if both don't live there and payments are missed it affects both peoples credit records.
Ownership of property by two or more people with a right of survivorship. If one owner dies, his share passes to the surviving owners so that, eventually, the entire property is held by one person. Married couples and trustees are frequently joint tenants. (Contrast with tenancy-in-common.)
The Land Registry deals with the registration of ownership. The register is conclusive evidence of the title of the person whose name appears on it. Most agricultural land in Ireland is registered in the land registry.
The purchaser owns the property but pays ground rent annually and is subject to the terms of the lease.
Acronym for Loan to Value. A very important figure in calculation the feasibility of a mortgage. You get the LTV by dividing the mortgage amount by the purchase price of the property and multiplying by 100. First time buyers can go to a maximum of 92% LTV. With investors it is normally less than this.
A loan, secured by the first lien (first ownership) on a property. It is used to guarantee the payment of a debt and it automatically becomes void once the debt has been paid.
Mortgage Interest Relief / TRS - tax relief at source.
A tax relief calculated on how much mortgage interest a person pays. First time buyers get more than those who are not first time buyers. It is commonly taken at source - by the bank - and is referred to as TRS (tax relief at source) therefore if you had ? 50.00 per month tax relief and your mortgage was ? 950 then the actual amount that would come out of your account each month would be ? 900 (this is generally the way it is done). This is applied for by filling out a TRS-1 form which you request from the Revenue Commissioner.
Mortgage protection/ Life assurance
An insurance policy that at its least is intended to pay the balance of the mortgage upon the death of a policy holder. This is normally a mandatory requirement (with certain exceptions)
This occurs where the mortgage is greater than the market value of the property
Negative margin mortgage/loan
This is a loan where the interest rate being charged to the borrower is less than the cost of providing the loan given the interbank or money market expenses. This became prevalent from July 2007 until January 2009 when wide margins developed between the ECB (that tracker mortgages were based on) and the 3 month Euribor (which many banks actually borrow at to provide the loan with).
Outlay/ Vouched Expenses/ Disbursements
These are expenses are paid for by the solicitor on a clients behalf, it normally then becomes part of your bill. It is important when you get a quote from a solicitor for a conveyance that you find out what the outlay is and then get a Section 68 letter to confirm the price.
An interest only loan is taken out on a property, and separate to that you start a pension with the intention that its will clear the principle. It can be a very tax efficient option for certain people. Talk to your finance consultant for more details.
The monthly amount paid for an insurance policy.
This is the most common means of selling property in Ireland. It occurs when a person puts a property up for sale and then is open to 'offers' upon accepting an offer the property will normally be described as 'sale agreed' and not open to further offers and contracts are sent to the buyers solicitor with a view to exchanging within a certain period of time. Really it describes any form of selling other than by auction or tender.
Property is commonly thought of as something which belongs to a person and over which they have total control. But it is more correctly defined as a collection of legal rights over a thing. These rights are usually enforceable by the owner or the State against others. In the world of mortgages 'property' most commonly refers to real or immovable property (such as land or buildings).
Completely clearing a mortgage, this happens when you either
1. Refinance and the mortgage is cleared and re-instated with another lender
2. Your mortgage balance reaches zero either at the end of the term or via a lump sum paid.
This can occur (in residential lending) when you redeem a loan while on a fixed rate. This is penalty is paid on the basis that you are breaking a contract which you entered when you chose a fixed rate. Often referred to as a 'Break fee' or a 'Break out fee'.
Registry of Deeds
The registry of deeds provides for the registry of documents dealing with unregistered land. Registration in the registry of deeds does not guarantee title to the land.
This is where a person starts another loan as a replacement for an existing one.
A portion of a loan that is held back subject to a condition or conditions being met. For example 'pending a final valuation' etc.
These are carried out by your solicitor and are normally land registry or registry of deeds, planning searches, judgement and bankruptcy search and sheriff search (only when leasehold). These ensure that the person selling the property has the legal right to do so or that there is not other interest shown on the title.
This is a 'second mortgage' or 'second lein' which means that a loan is take out which is secured in second position on the title, so if you had a 2nd mortgage and sold the first mortgage lender would be paid, then the second one, then the person who bought the property.
Serious Illness Cover/ Critical Illness Cover/ Specified Illness Cover (all relate to the same thing)
This is an insurance that pays out a tax free lump sum in the event a person suffers from one of the illnesses covered by the policy. It can be done in conjunction with mortgage protection as part of the policy or as a stand alone benefit.
When buying a new home you get an opportunity to survey the property and ensure that there are no defects or unfinished work that needs to be completed.
Legal representative who acts on behalf of their client when buying or selling a property, and on behalf of the client and the bank when dealing with a mortgage.
These are non generic terms on the loan offer that must be satisfied in order to draw down a cheque.
A government tax on buying a home. First time buyers are non-first time buyers/ investors are subject to different rates.
This is a full inspection of the property, the surveyor will then generally produce a report which tells you if the property is structurally sound. Although not mandatory it is always suggested (in second hand houses) to have one carried out.
The person who carries out a structural survey
The number of years over which a mortgage is taken out. In the case of refinance it is sometimes possible to have a portion paid under a different term than the rest. This is most often used in debt consolidation with the effect that the loans are still paid off over the same number of years but a large amount of interest is saved.
This is a mortgage where the rate is determined by a fixed margin above the ECB therefore it literally 'tracks' the European Central Bank rates. This makes for an easily understood rate and pricing system. Trackers, although a variable rate in essence, tend to be less expensive than the standard variable rates that banks charge. For that reason many people believe that variable rates will decrease rapidly in popularity as people who come off fixed rates are offered trackers as opposed to the traditional variable rates.
Undertaking normally refers to the legally binding given by a solicitor to a lending institution to have certain things done.
Valuation Report/ Valuation Survey
This is an inspection of the property for the lender to determine its value and help them decide if they will proceed with the proposed loan. It is generally carried out by an independent surveyor on behalf of the lending institution. This is not to be mixed up with a structural survey which is carried out by the buyer (see above)
This is the actual person who carries out a valuation, they are generally experienced local estate agents who provide their professional opinion on the guide price of a property as well as the rebuild cost or 're-instatement value'. They don't normally work for the bank directly but they are acting on behalf of the lender, the bank can't go and inspect every property they finance so a valuer is key to any mortgage backed property purchase.
This rate can rise and fall with European Central Bank rates, but unlike a tracker it is not tied to the ECB so if rates drop a lender does not have to drop their variable (although most do) by the full amount of the drop in rates.