We are going to outline the main terms and phrases you will come across while on your mortgage journey.
1. Interest rates
The interest rate is the amount a lender charges a borrower and is a percentage of the amount borrowed.
E.G: If you are borrowing €300,000 at a rate of 3.4% you will be paying 3% interest on your repayment every month.
2. Fixed-interest rate
This is a type of interest rate where the rate on a mortgage loan doesn’t change for a set, specified period. This is known as the fixed period. E.G: You can fix your mortgage for 5 years at a time and in these 5 years your rate will not change. Different lenders offer different fixed-rate mortgage terms.
3. Standard variable rate
In contrast to a fixed interest rate, variable interest rates change over time. They can go up or down. This will change as the ECB changes rates and lenders put forward increases and decreases.
4. Capital/Principal
The capital, also known as the principal of the loan, is the total amount that you borrow from a lender. This does not include costs and interest rates and is purely the amount you borrow to purchase your new home.
5. Annual Percentage Rate (APR)
Also known as Annual Percentage Rate of Charge (APRC), this is the calculation of the overall cost of your loan yearly.
It takes into consideration the interest rate charged and any other fees incurred. The lower the APRC, the lower your repayments and the lower your cost is over the term of the mortgage.
6. Approval in Principle (AIP)
This is a letter from a lender that indicates the amount they would be willing to lend you, based on the information you provide after an initial consultation. AIP is usually valid for 6 months and is needed to be able to make an offer on a property.
AIP isn’t legally binding and it does not mean that you have mortgage approval.
7. Direct debit mandate (DDM)
This is when you give your bank permission to pay your lender for your mortgage repayments each month from your account.
If you are on a variable rate, the amount due will change and the direct debit automatically changes too.
8. Loan-to-value (LTV)
Loan-to-value refers to the ratio between the amount you have borrowed and the value of the property.
To calculate the loan-to-value ratio, divide your total outstanding mortgage balance by the value of your property and multiply by 100.
For example, (You still owe €280,000 ÷ by your property worth €350,000) x 100 = 80% LTV.
9. Guarantor
A guarantor is a third party that accepts to cover the monthly mortgage repayments if you can’t pay them.
This is most often put in place with first-time home buyers and a parent being their guarantor.
10. Title deeds
Title deeds are documents that outline ownership of land and property.
Lenders will retain your deeds for the duration of your mortgage term, as deeds are the security they hold for your loan.
When your mortgage has been repaid, you can request the deeds back.
