Source: elEconomista.es
Buying your first home is one of the most significant decisions in a person’s life. This process often involves securing a mortgage loan. In fact, the majority of property transactions—54.7%—require mortgage financing, according to the latest data from the General Council of Notaries. However, many buyers are unfamiliar with basic terminology before applying for a mortgage.
To help, Hipotecas.com has compiled a guide with 13 essential mortgage terms that everyone should understand before starting the home buying process. Josep Vera, Business Development Director at Hipotecas.com, an online platform of Unión de Créditos Inmobiliarios (UCI), emphasizes that “buyers need to be well-versed not only in the different loan options but also in the mortgage terminology to negotiate and make informed decisions.”
Key Mortgage Terms
Euribor: This is one of the most commonly heard financial terms, especially following the ECB’s interest rate hikes. Known as the Euro Interbank Offered Rate, Euribor is the rate at which European banks lend money to each other and is the most commonly used index for adjusting variable interest rates on mortgages.
Binding Offer: This document is provided by the bank or credit institution and outlines the conditions and characteristics of the mortgage loan that the institution commits to fulfilling with the client.
FEIN (European Standardised Information Sheet): Formerly known as FIPER, this document details the loan conditions more thoroughly and is customized based on the client’s profile. It must be provided by the financial institution during the pre-contractual phase.
FIAE (Standardized Warning Sheet): This document provides information on the clauses in the mortgage contract and the risks associated with them.
Amortization Schedule: This is a table or calendar that shows all the details related to repaying the mortgage, including adjustments if it is a variable-rate mortgage.
Amortization Period: This is the agreed timeframe for paying off the entire loan. The average duration in Spain is around 24 years, according to data from the National Statistics Institute (INE).
Mortgage Costs: This refers to the expenses related to registering and notarizing the mortgage, including appraisal, management fees, the Tax on Documented Legal Acts, and notarial and registration fees. The total sum is around 10% of the property’s value. The financial institution must provide clear information about the breakdown of costs attributed to the entity and the client.
Interest Rate: This is the percentage that institutions charge for lending their money. It is applied to the borrowed amount and determines the number of installments or monthly payments required to repay the debt. There are fixed-rate loans, where the interest rate remains constant throughout the loan term, variable-rate loans, where the interest rate is adjusted periodically (every 6 or 12 months) based on a market reference index, such as Euribor in Spain, and mixed-rate loans, which combine both types.
TIN (Nominal Interest Rate): This is a fixed percentage paid to the institution as compensation for the capital it lends.
APR (Annual Percentage Rate): This percentage indicates the effective cost of a financial product. For a mortgage loan, it includes the interest rate as well as expenses and fees but excludes costs not paid to the financial institution, such as notarial, management, or registration fees.
Loan To Value (LTV): This ratio, expressed as a percentage, represents the difference between the amount of money the institution lends and the value of the property being mortgaged, which serves as collateral for the loan.
Mortgage Payment: This is the amount the borrower pays to the bank each month, which includes both the capital repayment and the interest.
Discounts: Some institutions offer improved conditions in their mortgage offers in exchange for the purchase of certain products, such as direct deposit of wages, bill payments, insurance, credit cards, or pension plans.
