Mortgage Jargon Buster
Confused by Complicated Mortgage Jargon?
While you’re looking for the best mortgage rate and product to suit your mortgage needs, you may find yourself bombarded by complicated jargon that needs a bit of explanation.
To help you better understand these terms, Bank of Ireland offers clear descriptions and definitions of the most common mortgage phrases.
Customer Type
First Time Buyer: A person who has not previously, either individually or jointly, purchased or built on his / her own behalf a property (including an apartment) in Ireland or abroad.
Mover: If you already own a home or have owned a home in the past and are moving to a new home you will be considered a Mover.
Buy to Let Mortgage: A mortgage given to a person(s) who purchases a house for investment purposes i.e. they intend to let or rent out the house.
Switcher: If you are moving your mortgage from one financial institution to another, but staying in the same home, you will be considered a Switcher.
Equity Release: If you have equity in your home i.e. the value of your home is greater than your mortgage, then you may be able to release this equity for home improvements or expenses such as medical or education.
Mortgage Phrases
Annual Percentage Rate (APR): APR stands for the Annual Percentage Rate, which is the overall cost of borrowing the loan amount. It takes account of all the costs involved over the term of the loan, such as any set-up charges and the interest rate.
Annuity Mortgage: This is the most common type of Mortgage. The initial amount of your Mortgage is known as the capital amount. Every month you pay back some of the capital borrowed along with interest. Once all the capital and interest is paid back the property is yours.
Capital: This is the original amount of money borrowed. Interest due is calculated on this amount
Drawdown: The Bank will send the Mortgage funds to your solicitor once all the conditions of the Mortgage have been fulfilled to the satisfaction of the Bank.
Endowment Mortgage: A mortgage loan advanced by the lender which is intended to be repaid principally by means of a life endowment insurance policy taken out by the borrower and assigned to the lender.
Equity: This is the difference between the value of your home and the outstanding amount on your Mortgage.
Fixed Rate: A fixed rate mortgage guarantees a specific rate for a fixed term. This ensures the monthly repayments are the same every month during the term of the fixed rate. Should you repay the loan early, or change to another rate within the fixed rate period, you may have to pay an additional funding fee. A funding fee is the additional interest expense that the bank may incur as a result of a customer breaking their fixed rate contract. If there is no additional interest expense incurred by the bank there will be no funding fee applicable.
Home Insurance: Before your mortgage cheque issues, you’ll need to arrange building insurance, which covers the cost of rebuilding your home should it be damaged, for example, by fire or flood. You may also want to insure the contents of your home, such as your furniture and electrical appliances. If you decide to purchase an apartment you will only need contents insurance as the rebuild cost is usually covered as part of your lease with the management company.
Interest Rate: The interest rate is the actual rate at which interest is charged on the amount that is borrowed.
Letter of Loan Offer: This is the contract between you and the Lender. It is issued to you and a copy is sent to your solicitor and includes the details of your Mortgage offer, for example, rate, repayment type and term.
Life Assurance: By law, you are required to have life assurance when you take out a mortgage. That way, if you were to die before your mortgage was paid off, the remainder of the loan would be paid off and your family wouldn’t have to worry about any unnecessary debt.
Loan to Value (LTV): The amount that you are borrowing relative to the value of the property you are buying.
Mortgage: A loan secured on a property, issued by a credit institution or building society, where the purpose of the loan, typically, is to either finance the change of ownership of, or improvements to, the property on which the loan is secured.
Mortgage repayment cover: Mortgage repayment cover is optional and protects you and your family should you become involuntarily unemployed or unable to work due to an accident or illness.
Owner Occupier Mortgage: A mortgage given to a person(s) who purchases a house in which they intend to live.
Redemption: The word used to describe a mortgage when it is repaid.
Repayment: The amount due to be paid each month on your mortgage.
Split Rate: With a split rate mortgage you can decide to put some of your mortgage on a fixed rate and some on a variable rate.
Term: The term of the mortgage is the length of time over which you will pay off the loan. The longer the term the less you pay each month, but a longer term also means paying more interest over the duration of the loan.
Valuation: A valuation report, completed by a valuer acceptable to the Bank, will be required. This report will give an indication of the market value of your property. It is important to note that the Valuation Report is not a detailed structural survey or planning survey.
Variable Rate: This means your repayments are influenced by market interest rates. These rates can go up or down during the life of your mortgage.