A quick guide to all Mortgage Terms
Understanding mortgage terminology is essential when comparing and applying for a mortgage. To help, here’s our guide with some of the most common mortgage terms you’re likely to encounter in your mortgage journey.
1. Interest rates
The interest rate is the amount a lender charges a borrower and is a percentage of the principal
2. Fixed-interest rate
This is a type of interest rate whereby the rate on a mortgage loan doesn’t change for a set, specified period. This is known as the fixed period.
3. Standard variable rate
In contrast to a fixed interest rate, variable interest rates change over time. They can go up or down.
The capital, also known as the principal of the loan, is the total amount that you borrow from a lender. It excludes costs and interest rates.
5. Cost of credit
The cost of credit is the difference between how much you borrow and how much you will have repaid by the end of the mortgage. The difference between the two includes interest and any other additional fees.
6. Annual Percentage Rate (APR)
Also known as the Annual Percentage Rate of Charge (APRC), this is the calculation of the overall cost of your loan yearly. It takes into account the interest rate charged and any other fees incurred. The lower the APRC, the lower your repayments and cost over the term of the mortgage.
7. 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 basic 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 doesn’t mean you have mortgage approval.
This is the initial sum you pay towards the cost of your new home and is usually the difference between the cost of the property and the amount you are borrowing. The deposit is paid directly to the seller’s solicitor.
Note: Make sure you check that the deposit is refundable, should something go wrong.
9. Direct debit mandate (DDM)
Instructions that you sign to give your bank permission to pay your lender for your mortgage repayments each month from your account. If on a variable rate, the amount due will change and the direct debit automatically changes too.
This is the difference between your home’s value and the outstanding mortgage debt you owe. For example, if your home is worth €350,000 and your mortgage remaining is €100,000, then you have equity in your property of €250,000.
11. Loan-to-value (LTV)
Loan-to-value refers to the ratio between the amount 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, (€280,000 ÷ €350,000) x 100 = 80% LTV.
12. Building Energy Rating (BER)
BER is a valuation that measures the energy efficiency of a home on a scale of A to G, whereby A1 is the most energy-efficient rating. Some lenders will offer those who wish to purchase energy-efficient homes (with a BER rating of B3 or higher) a green mortgage.
13. First-time buyer
This refers to someone who has never taken out a mortgage to buy a property or land to build one on before. For a joint application, to qualify as first-time buyers, both applicants must fit this description.
The Government and lenders have multiple incentives in place to help first-time buyers in purchasing a home, such as the Help-to-Buy scheme, the First Home scheme, and reduced interest rates.
The guarantor is a third party that accepts to cover the monthly mortgage repayments if you can’t meet them. This is most often applied to first-time home buyers, with a parent being the guarantor.
A mortgage broker is a middleman between lenders and mortgage applicants. A broker will provide impartial advice on what options are available, help you find the best rates on the market, and guide you through the mortgage process.
This is the security for a loan. With a mortgage, the property you take the mortgage out on is the collateral.
17. Title deeds
Title deeds are documents that illustrate 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.
18. Freehold vs. Leasehold
There are two types of property ownership in Ireland.
A freehold title – This gives you indefinite ownership of the property and land you’re buying. Usually, this refers to the land on which the property is built, which can have separate ownership from the property itself.
A leasehold title – This means that you just own the building, not the land it’s on.
Your ownership is for a fixed number of years and gives you the right to use and occupy land and buildings. You might be liable to pay ‘ground rent’ to the person who owns the ground that the building is on (the ground landlord).
19. Deferred start
A deferred start to your mortgage will allow you to delay making any mortgage repayments for a number of months. However, this will increase the overall cost of the mortgage.
Lenders will charge interest on the mortgage for these months and add it to the original loan, so your mortgage balance will rise slightly before you begin to make repayments.
This ensures that you will still pay your mortgage off within the original, agreed term.
20. Payment break
Also known as a moratorium, this is a mortgage payment holiday during which you can take a break from repayments or choose to only repay interest. Payment breaks are good for those who may have an unexpected drop in income and are in danger of going into arrears.
21. Letter of Offer
Once your mortgage application is approved, you’ll receive an offer letter setting out the conditions of the loan. A copy will also be sent to your solicitor, so you should arrange to meet with them as soon as possible. This letter sets out the details of the mortgage that the lender is offering you.
22. Mortgage protection insurance
Mortgage protection is a form of life insurance that’s designed to pay off the outstanding balance on your mortgage should you pass away during the term. Along with home insurance, mortgage protection is compulsory to take out a mortgage.
A mortgage valuation is an inspection of a property for market valuation. This will give the lender an idea of the property’s condition and it’s value. Lenders will usually have their own list of valuers who can carry out the valuation of the property. However, you’ll still have to pay for the report yourself, which usually costs around €150.
This is the final step in the mortgage process. The lender transfers the mortgage amount to your solicitor, and it then gets passed onto the seller’s solicitor. The process is complete once these funds have been drawn down.
Being in mortgage arrears means that you have missed some, or all, of your mortgage repayments. Falling behind on paying your mortgage payments can negatively affect your credit history. If you’re worried you can’t meet an upcoming payment, it’s best to inform your lender.