Glossary of Terms

glossary of overseas mortgage terms

Adjustable Rate Mortgage (ARM)

Loans with interest rates that are adjusted periodically based on changes in a pre-selected index. These mortgage loans must specify how their interest rate changes, usually in terms of a relation to a national index such as LIBOR.


Amortization

Repayment of a debt with periodic payments of both principal and interest calculated to payoff the loan at the end of a fixed period of time.


Annual Percentage Rate (A.P.R.)

The cost of credit expressed as a yearly rate. The annual percentage rate is often not the same as the interest rate. It will be higher than the interest rate stated in the note because it includes in addition to the interest rate, loan discount points, fees and mortgage insurance. Because all lenders apply the same rules in calculating the annual percentage rate, it provides consumers with a good basis for comparing the cost of loans.

Application Fee

Fee charged by a lender to cover the initial costs of processing a loan application.

Appraisal (see also Valuation and Survey)

A written estimate of a property's current market value completed by licensed professional with knowledge of real estate markets.

Appraisal Fee (see also Valuation Fee and Survey Fee)

A fee charged by a licensed certified appraiser to render an opinion of market value as of a specific date.

Appraised Value (see also Value)

An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property.

Appraiser (see also Surveyor)

A licensed professional with knowledge of real estate markets who compiles a written estimate of a property’s current market value.

Approval in principle

A certificate some lenders will give you showing the amount they will probably be prepared to lend you. This is not a guarantee but can be helpful when registering with estate agents.

Arrangement Fee

Whilst some lenders charge an administration fee others may charge an arrangement fee. This fee is charged to cover administration and primarily the reserving of funds for fixed rate and/or discounted rate mortgages. This fee may be paid separately, added to the mortgage loan, increasing its size, or deducted from the value of loan that the lender is prepared to advance.

Borrower (Mortgagor)

One who applies for and receives a loan in the form of a mortgage and is obligated to repay the loan in full under the terms of the loan.

Bridging Loan

This is a short term loan. It is often used by purchasers of a property who need funds for a limited period of time. e.g. until they sell their existing home.

Broker

An individual in the business of assisting in arranging funding or negotiating contracts for a client buy who does not loan the money himself. Brokers usually charge a fee or receive a commission for their services.

Capital & Interest Mortgage (see also Repayment Mortgage)

This is one of the most usual types of mortgage. The monthly repayment made by the borrower includes a repayment of capital borrowed and an amount for the interest charged. At the beginning of the mortgage most of the payment is used to cover the interest and only a small amount is paid towards reducing the mortgage. Over the term of the mortgage more and more of the monthly payment is comprised of paying back the capital borrowed. As long as the monthly payments of repayments are always made on time the mortgage is guaranteed to be paid off at the end of the term.

Capped Rate Mortgage

This refers to a capped rate mortgage which is a cross between a fixed rate and a variable rate mortgage. The interest rate will never rise above a certain rate within what is known as the capped rate period. If the usual variable mortgage rate is less than the capped rate then the borrower is charged that variable rate. Such a mortgage is attractive as the borrower can benefit from falling interest rates but will not have to pay more than the capped rate.

Cash Out Refinancing

Money received when you refinance your loan that is larger than the remaining balance of your current loan. This is based upon any equity that has been built up in the house. The cash out amount is calculated by subtracting the sum of the old loan and fees from the new mortgage loan.

Closing (see also Completion)

The consummation of a real estate transaction. The closing includes the delivery of a deed, financial adjustments, signing of notes and disbursement of funds necessary to complete the sale and loan transaction. The meeting between the buyer, seller and lender or their agents where the property and funds legally change hands, also called settlement.

Closing Costs

These are expenses over and above the price of the property that are incurred by buyers and sellers when transferring ownership of a property. Closing costs usually include an origination fee, discount points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. Closing costs will vary according to the country that the property is located and the lenders used.

Completion (see also Closing)

This is the last stage in the purchase of a property. The legal documentation is finalised and the lender has sent the mortgage funds to the purchaser"s solicitor. Once the purchaser"s solicitor forwards the funds to the seller"s solicitor the property is now owned by the Purchaser

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Condominium

A form of property ownership in which the homeowner holds title to an individual dwelling unit and a proportionate interest in common areas and facilities of a multi-unit project.

Conforming Loan

A mortgage loan in the States that meets all requirements to be eligible for sale and delivery to Federal agencies such as FNMA and FHLMC. The maximum conforming loan amount is $417,000 for a one-unit property.

Consumer Reporting Agency (or Bureau) (see also Credit Reference Agency)

An organization that handles the preparation of reports used by lenders to determine a potential borrower's credit history. The agency gets data for these reports from a credit repository and from other sources.

Credit Report

A report detailing the credit history of an individual.

Credit Reference Agency

An organization that handles the preparation of reports used by lenders to determine a potential borrower's credit history. These agencies do no more than supply information to lenders. The lenders use the information as part of their credit scoring.

The two main credit reference agencies are Experian dna Equifax.

Credit Score

This is a number based on the information in your credit report. Generally, the higher the number, the better risk you are seen to be.

Debt-to-Income Ratio

The ratio, expressed as a percentage, which results when a borrower's monthly payment obligation on long-term debts is divided by his or her gross monthly income

Deposit (see also Down Payment)

In simple, this is the sum of you put down as the first instalment in a series of payments. In purchasing property it is the sum payable by the buyer as a sign of good faith to the seller when the initial agreement is made. The term may also be used more generally to describe a contribution by the buyer to the purchase price.

Down Payment (see also Deposit)

Money paid to make up the difference between the purchase price and the mortgage amount.

Early repayment charge (see also: Prepayment Penalty)

This is a charge made by your mortgage lender which is payable on certain types of loan - usually discounted or fixed interest rate loans. The charge is only applied if the loan is redeemed or part-redeemed within the specified early repayment charge period.

EURIBOR

The EURIBOR stands for the European Interbank Offered Rate, which is a daily reference rate based on the average interest rates at which banks offer to lend unsecured funds to other banks in the European interbank market. Mortgage payments are tied to this index outside the control of the lenders with predetermined adjustments of the interest rates at specified intervals.

Equity

The difference between the current market value of a property and the total debt obligations against the property.

Fact Find

This is a form that mortgage brokers use to help ascertain the relevant information about you and your requirements.

FICO

The most common credit-scoring model used by lenders. Originally used in the US, it is now used in over 20 countries around the world. Your FICO can range from 200 to 900. According to this model, the higher your score, the less likely you are to default on your loan.

Foreign Currency Mortgage

This is a mortgage where the loan has been drawn down in another currency rather than your usual currency.

Fixed Rate Mortgage

The mortgage interest rate and payment will remain the same. Unless otherwise specified, this will usually be for the term of the loan.

Further advance

This is an additional loan by a lender to the borrower.

Grace Period

Time period as stated on the loan terms during which a loan payment may be made after its due date without incurring a late penalty. The grace period is specified as part of the terms of the loan in the Note.

Gross Monthly Income

Total Monthly income before taxes or expenses are deducted.

Interest

Consideration in the form of money paid for the use of money.

LIBOR

This base rate is the London Interbank Offered Rate, LIBOR applies not only to the Pound Sterling, but also to major currencies such as the US Dollar, Swiss Franc and Japanese Yen.

Lender

The bank, mortgage company or mortgage broker offering the loan.

Loan

A sum of borrowed money (principal) that is generally repaid with interest.

Loan Application Fee

Fee charged by a lender to cover the initial costs of processing a loan application. The fee can include the cost of obtaining a property appraisal and a credit report.

Loan Origination Fee (see also Arrangment Fee)

Fee charged by a lender to cover administrative costs of processing a loan.

Loan-to-Value Ratio (LTV)

The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.

Mortgage

A legal document by which real property is pledged as security for the repayment of a loan. A lender can take possession of the property if the borrower stops making payments.

Mortgagee

The lender in a mortgage loan transaction.

Mortgagor

The borrower in a mortgage loan transaction.

Mortgage Broker

An individual or company that charges a service fee to bring borrowers and lenders together for the purpose of loan origination.

Mortgage Term

The "term" of a mortgage is simply the length of time over which the lender is willing to advance you the money before it must be repaid.

NIE No. (Numero de Identificación de Extranjeros)

Fiscal or tax identification number required by all foreign property owners in Spain

No. de contribuiente

Fiscal or tax identification number required by all foreign property owners in Portugal

Nota Simple

Spanish extract of the property register showing a property's details and whether any debts are shown against it

Notaire

Public official and legal professional, who certifies legal status of a property sale. Role is neutral and fees are fixed by government decree

Net Income

The borrower's gross income after taxes have been paid.

Overpayment

A payment by a borrower of more than the scheduled principal amount due in order to reduce the remaining balance on the loan.

Power of Attorney

A legal document in which the signer authorizes someone to conduct business in his or her name.

Pre-Approval

The process of determining how much money a potential homebuyer could borrow before they apply for a loan.

Prepayment Penalty (see also Early Repayment Charge)

A lender's charge to the borrower for paying off the loan before the end of the term

Pre-Qualification

A non-binding process of determining how much money a prospective homebuyer will be eligible to borrow prior to application for a loan. Information submitted during pre-qualification is subject to verification at application.

Principal

The principal is the capital.
Put another way, in the context of homebuying, it"s the amount of the loan which you have borrowed, not including the interest which is calculated and paid on it.

Rate and Term Refinance

A home loan for a lower interest rate in an amount that does not exceed closing costs and the original mortgage's outstanding principal. This transaction is not intended to put cash in the hand of the borrower. Instead, the new balance is calculated to cover the balance due on the current loan and any costs associated with obtaining the new mortgage.

Refinance

Obtaining a new mortgage loan on a property already owned often to replace existing loans on the property.

Repayment Mortgage (see also Capital & Interest Mortgage)

A mortgage where the capital is repaid gradually over the term of the mortgage. Each Monthly payment is made up of interest due on the outstanding debt (the cost of "servicing" the loan), and an additional sum applied to reducing the capital balance. In the early years most of each month"s payment is comprised of interest. In later years, more capital is repaid with the result that the balance outstanding reduces.

Term

The period of time within which a loan must be paid off.

Surveyor

A licensed professional with knowledge of real estate markets who compiles a written estimate of a property’s current market value.

Underwriting

In mortgage lending, the process of determining the risks involved in a particular loan and establishing suitable terms and conditions for a mortgage.

Variable Rate

Interest rate that changes periodically in relation to a specific index.

Valuation

This is a quick survey of a property by a surveyor - the purpose is to assess the value of the property for the benefit of the lender. Typically, the surveyor will look around the property in the most general sense and then go off and talk to local estate agents about property values prevailing in the area.

Valuation Fee

Normally charged by the lender to carry out a basic inspection of the property. The resulting valuation report is solely for the lender's benefit and is used to assess mortgage suitability.