A Quick Guide To All Mortgage Terms

Navigating the mortgage world can feel overwhelming, especially with so many terms thrown around. Understanding the language of mortgages will help you to make informed decisions, compare deals effectively and manage your finances with confidence. Here’s a clear guide to some of the most common mortgage terms you’re likely to encounter on your homebuying journey.

1. What is an interest rate?

The interest rate is the cost a lender charges you for borrowing money, expressed as a percentage of the amount you borrow (the principal). It’s the primary factor that determines your monthly repayments. Knowing the difference between rates is key to choosing a mortgage that works for your budget.

2. What is a fixed interest rate?

A fixed interest rate means your mortgage repayments remain the same for a set period, often between one and five years. This offers stability and predictable monthly payments, making it easier to budget. However, you might miss out on falling rates, and early repayment or switching lenders during the fixed term could incur penalties. Most lenders do allow some overpayment, which can help you to pay off your mortgage faster.

3. What is a standard variable rate?

The standard variable rate (SVR) changes in line with the lender’s policies or wider market interest rates. This means your monthly payments can increase or decrease over time. Variable rates often start lower than fixed rates and offer flexibility, such as the ability to make extra repayments or top up your mortgage without penalties.

4. What is capital in mortgages?

The capital, or principal, is the total amount you borrow from a lender to purchase your home. It does not include interest, fees, or any other costs associated with the mortgage.

5. What does “total cost of credit” mean?

The cost of credit is the difference between the total amount you borrow and the total you repay over the life of the mortgage. It includes the interest and any additional fees charged by the lender. This figure helps you to understand the real cost of borrowing.

6. What is APR?

The Annual Percentage Rate (APR) or Annual Percentage Rate of Charge (APRC) reflects the overall yearly cost of your mortgage, taking into account the interest rate and other fees. The lower the APRC, the lower your overall repayments. Comparing APRCs is one of the best ways to evaluate different mortgage deals.

7. What does ‘approved in principle’ mean?

An Approval in Principle (AIP) is a letter from a lender indicating how much they would likely lend you based on basic financial information. An AIP is typically valid for six months and is usually required before making an offer on a property. While it’s not legally binding, it gives you a rough idea of your budget and can strengthen your position with sellers.

8. What is a deposit for a mortgage?

Your deposit is the initial sum you pay towards your home, usually the difference between the property price and the mortgage you’re borrowing. Deposits are paid directly to the seller’s solicitor. Always check if the deposit is refundable in case the purchase doesn’t proceed.

9. What is DDM?

A direct debit mandate authorises your bank to pay your mortgage lender automatically each month. For variable-rate mortgages, the monthly amount can change automatically as rates fluctuate. Setting up a DDM ensures your repayments are made on time and helps you to avoid arrears.

10. What is equity?

Equity is the difference between your property’s market value and the remaining mortgage balance. For example, if your home is valued at €350,000 and your outstanding mortgage is €100,000, your equity is €250,000.

Building equity over time can give you financial flexibility, as you can exchange equity for cash to fund renovations or another property purchase, for example.

11. What is loan-to-value in mortgages?

Loan-to-value (LTV) represents the percentage of your property’s value that you are borrowing. Calculate it by dividing your outstanding mortgage by your property value and multiplying by 100. For example, a €280,000 mortgage on a €350,000 home results in an LTV of 80%. Lower LTVs are generally seen as less risky by lenders and can attract better interest rates.

12. What is a building energy rating?

A Building Energy Rating (BER) measures a home’s energy efficiency on a scale from A (most efficient) to G (least efficient). Homes with higher energy ratings, typically B3 or above, may qualify for a green mortgage, offering preferential rates for energy-efficient properties.

13. What is a first-time buyer in Ireland?

A first-time buyer is someone who has never taken out a mortgage to purchase a property or land to build on. Government and lender incentives often assist first-time buyers, including the Help-to-Buy Scheme and the First Home Scheme. Reduced interest rates and tax benefits are often available for eligible buyers.

14. What is a guarantor?

A guarantor is a third party, often a parent, who agrees to cover your mortgage repayments if you cannot. Guarantors are usually requested for first-time buyers or those with limited credit history to reassure lenders.

15. What is a mortgage broker?

A mortgage broker acts as a bridge between you and lenders, providing impartial advice and helping you to find the most suitable mortgage for your circumstances. Brokers can save you time, money and effort by comparing rates across multiple lenders. They can sometimes access less expensive rates that aren’t available to you directly.

16. What is collateral?

Collateral is the security for your mortgage. In most cases, the property you are purchasing acts as the collateral, meaning the lender can repossess it if repayments are not met.

17. What is a title deed?

Title deeds are the legal documents proving ownership of land or property. Lenders usually hold your deeds for the duration of the mortgage, returning them to you once the mortgage is fully repaid.

18. What is the difference between freehold and leasehold?

• Freehold gives you indefinite ownership of both the property and the land it’s on.
• Leasehold means you own the building for a set period but not the land. You may need to pay ground rent to the landowner.

Understanding the distinction is vital when reviewing property contracts.

19. What is a deferred start on a mortgage?

A deferred start allows you to delay mortgage repayments for several months, though interest continues to accrue. This option can help with cash flow at the start of a mortgage but increases the total cost over the term.

20. What is a mortgage payment break?

Also known as a mortgage moratorium, a payment break lets you pause repayments or pay interest only for a set period. This can be useful in situations where your income temporarily drops, helping to prevent arrears.

21. What is a Letter of Offer from the bank?

Once your mortgage is approved, you’ll receive a letter of offer outlining the terms of the loan. Your solicitor will also receive a copy. Review this carefully with your solicitor to ensure all of the conditions are clear before proceeding.

22. What is mortgage payment protection insurance?

Mortgage protection insurance is a compulsory life insurance policy that covers your outstanding mortgage balance if you pass away during the term. Along with home insurance, this protects your family and is a requirement for mortgage approval. Learn more about our Mortgage Protection Insurance services.

23. What is a mortgage valuation?

A mortgage valuation assesses the market value and condition of the property. Lenders typically have approved valuers who carry out inspections, and you’ll usually cover the cost (around €150). This step ensures you’re not overpaying for a property.

24. What is drawdown in mortgages?

Drawdown is the final step in the mortgage process. The lender transfers the mortgage funds to your solicitor, who then passes them to the seller’s solicitor, completing the purchase.

25. What is mortgage arrears?

Being in mortgage arrears means missing one or more repayments. This can negatively affect your credit score, so if you anticipate difficulties, it’s best to inform your lender early.

Next Steps

Understanding these terms will make your mortgage journey smoother and more manageable. If you want personalised guidance, consider booking a Mortgage Consultation to discuss your circumstances. You can also explore other helpful resources, such as our Top 10 Mortgage FAQs Answered.

By familiarising yourself with this terminology, you’ll be better equipped to make confident decisions and find a mortgage that suits your financial goals.