Mortgage Dictionary

Courtesy of the Irish Financial Regulator:

A

Additional voluntary contributions (AVCs)

These are extra contributions you pay in addition to the normal pension contributions you or your employer make if you are a member of an employer pension plan. AVCs help to boost the value of your pension fund or can be used to contribute to a tax-free lump sum at retirement. You can claim tax relief on AVCs up to certain limits, as long as you earn an income.

Administration fee

This usually refers to a fee you pay to a financial services firm for a service or product. All regulated firms have to give you details of administration and other fees before you buy a service or product. This can also refer to charges on an investment fund or for setting up a loan or mortgage.

Allocation rate

This is the percentage of your money that is used to buy units in a pension or other type of investment fund. An allocation rate of 97% means that for every €100 you invest €97 is actually used to buy units. So in effect you pay €3 (or 3%) as a charge to the firm you invest with.

Annual equivalent rate (AER)

The AER shows what your interest on a savings account would be if the interest was compounded and paid out to you each year instead of monthly or over any other period. You may earn less than the AER because your money may not be invested for as long as a year. Sometimes firms use Compound Annual Rate (CAR) instead of AER on savings and investment products.

Annual percentage rate (APR)

The APR is the annual rate of interest you will be charged on a loan. It takes account of all the costs involved over the term of the loan, such as any set-up charges and the interest rate. You can use the APR to compare costs between different loans, as long as you compare them over the same term, for example 3-year loans.

Annuity

An annuity is a contract with a life assurance company that will pay you a guaranteed, regular pension income for the rest of your life in return for you paying them a lump sum when you are ready to retire. The amount of pension income you get depends on the size of the lump sum and the annuity rates at the time, plus your age, gender and state of health.

Approved Minimum Retirement Fund (AMRF)

If you have an Approved Minimum Retirement Fund you cannot withdraw any of your original capital until you reach the age of 75. Until then, you can only access any growth in value the fund may deliver.

Approved Retirement Fund (ARF)

An Approved Retirement Fund (ARF) is a personal retirement fund where you can keep your pension invested as a lump sum after retirement. You can withdraw from it regularly to give yourself an income, on which you pay income tax.

APR

See annual percentage rate.

ATM

Also known as a 'hole-in-the-wall', it stands for 'automated teller machine'. If you have an ATM or Laser card you can used the machine to take out cash, order statements, read your account balance and get access to other information about your bank account.

Average clause

This is a condition included in some home insurance policies that limits what you can claim if you are under-insured. For example, if the contents of your home are worth €40,000 but you insure them for just €20,000 you are under-insured by 50%. If your contents are damaged, destroyed or stolen, the most you will get from your insurance company is 50% of the total damage.

B

Balloon payment

This is a large final payment, due at the end of some hire purchase agreements including car finance deals. It is used to keep monthly repayments lower and must be paid to finish the agreement and allow you to become the owner of the goods.

Benefit statement

This is a statement giving details of your pension plan that is sent out to you usually once a year.

Bank Identifier Code (BIC)

Also known as a SWIFT code, this is the unique identification code given to banks. If you transfer money from one person’s bank account to another, you will need the BIC of the bank that will receive the money transfer. Your code can usually be found on your bank account statements.

Bonds

Some life insurance companies offer guaranteed bonds which provide either a guaranteed return of the investment amount at the end of the term, together with a guaranteed level of the bonus or a guaranteed level of income for the term of the bond, usually 5 years, together with a guaranteed return of the investment amount at the end of the term.

Bridging Loan

This is a loan given by a lending institution to 'bridge' a time difference between buying a new home and selling your existing home.

C

Capital gains

This refers to any profit you make if you sell an asset, such as shares, for a higher price than you originally paid.

Capital Gains Tax (CGT)

This is a government tax that you must pay if you make a profit (a capital gain) of more than €1,270 in any tax year if you sell an asset such as shares or investment property.

You have to pay 20% of the gains you make above €1,270. (Correct as of July 07 - check the Revenue site for updates). If you make a loss, you can subtract the amount of the loss from any amount that you owe in CGT.

Collateral

Collateral is something that a lender accepts as security for a loan. This is usually an asset such as an existing property or investment. If the loan is not repaid, the lender can sell the collateral to meet the outstanding debt.

Collective investment

See pooled investment

Commission

This is a payment that a financial services company makes to a financial intermediary, such as a broker or financial advisor, for selling their financial product.

Conveyancing

This is the term for the legal process of transferring the ownership of property from seller to buyer.

Cost of credit

The cost of credit shows you the real cost of borrowing. It is the difference in Euro between the amount you borrow and the total you will repay by the end of the loan period.

Credit history

This is your track record in repaying loans. Most lenders use a central agency, the Irish Credit Bureau to check your credit history. It keeps files on individual borrowers, and uses the information it gets from lenders to build up each borrower’s credit history.

Credit scoring

When you apply for a credit card, current account, personal loan, hire purchase (HP) agreement or mortgage, the lender will award you points or marks based on your credit history and on your answers to questions on the loan application form. The total score you get helps the lender predict how big a risk they are taking by giving you a loan and what size loan to give you.

Cross-border handling fee

This refers to a fee you may have to pay to your credit card provider when using your credit card abroad in a non-euro area.  When charged, this fee is typically a percentage of the transaction (it can range from 1% to 3%). These fees can also be known as currency conversion fees.

D

Debt Consolidation

Also called 'wrapping up your debt', this means that you take out one single loan, often a mortgage, to pay off individual, smaller, loans.

Deeds

These are the legal ownership documents of your home or property. Your lender holds them as security for your mortgage.

Default

This is a term used to describe a situation when you fail to pay some or all of the instalments due on a mortgage or other loan.

Deferred period

This is the length of time you must be out of work due to sickness or disability before your income protection insurance policy pays out. The deferred period is usually 13,26 or 52 weeks, depending on your policy.

Deposit

This refers to money you hold in a savings or deposit account at a financial institution on which you earn interest.

A mortgage deposit is the difference between the price of a property and the amount you can borrow.

Deposit Protection Scheme

This is a scheme designed to compensate depositors, subject to certain limits, when a credit institution (bank or building society) fails. For more information see our Your Rights section.

Direct debit

This is a payment taken from your account by a third party to whom you have given written permission to do so. You may, for instance, give the ESB permission to withdraw variable amounts of money to pay your electricity bill. To stop a direct debit contact the third-party supplier, in this case the ESB, and your bank to let them know you want to cancel the payment.

Dividend

This is a payment that some public companies pay to their shareholders as a way of distributing some of their profits. The payment may be in cash or shares.

E

Equivalent annual rate (EAR)

This is used to show the full price of interest on an account. EAR takes into account the basic rate of interest charged or earned, when it is charged or earned, and any additional charges. Additional charges could include quarterly fees, set-up charges, and so on. The EAR calculates the interest as if it is paid once a year, even if it is paid twice or three times per year. The higher the EAR, the more interest you will be charged or earn. It is similar to APR (Annual Percentage Rate) although APR only applies to lending products. EAR applies to deposits (credit) as well as overdrafts (debits).

Endowment policy

An endowment policy is an investment plan. You usually pay premiums into it each month, and the money is invested in shares, bonds, property and cash. The aim is to grow the policy value so that after a set number of years, it will be enough to pay off the original mortgage you borrow.

Endowment policy values can fall as well as rise so there is usually no guarantee the policy will be enough to pay off your mortgage.

Equity

Equity is the value of any assets you own after any debts are paid. In the context of your property, your equity refers to the difference between its market value and the mortgage you owe on it.

Equity release

These are schemes that allow you to release some of the equity, or the value you have built up in your home, without having to move out or sell it on the open market. Certain schemes are available to older homeowners in the form of ‘life-time loans’ or ‘home reversions’.

Equity release is also used to refer to straightforward re-mortgaging.

European Central Bank (ECB)

The ECB is the central bank for Europe's single currency, the euro. Its main task is to maintain the purchasing power of the euro and price stability in the euro area. Among its functions is the setting of interest rates for the 13 member countries in the euro zone. The Central Bank and Financial Services Regulatory Autority of Ireland (CBFSAI) is a member of the European System of Central Banks, along with the other member countries.

Eurozone

Eurozone countries are: Austria, Belgium, Finland, France, Germany, Greece, Republic of Ireland, Italy, Luxembourg, Netherlands, Portugal, Slovenia and Spain. In addition EURO transactions in other EU countries are charged at the same rate as in Ireland. Rest of EU countries are Denmark, Sweden, the United Kingdom, Bulgaria, Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Romania and Slovakia.

F

Fixed rate

Fixed interest rates are fixed for a set time, so you can miss out on the benefits of lower interest rates. If you want to pay or your full loan, you have to pay penalty fees. You can change it to a variable rate.

Fixed-term deposits

With fixed-term deposits you put money into your account for an agreed amount of time. Usually the interest rate is fixed for that period and if you take money out during that time you generally pay a penalty.

G

Guarantor

This is a person who agrees to pay off a loan if the borrower fails to pay.

I

Inflation

The risk that your money will lose value overtime. Your buying power goes down as prices increase. You need to earn more than the inflation rate to get a real return on your money.

Interest on loans

This is the amount you pay to borrow money and is added to the loan.

Interest on savings

You can earn interest on certain accounts. This money is added on to your savings.

J

Joint account

These are accounts you open in the names of more than one person. Before you open a joint account, consider if the permission of all those taking part is required to make any withdrawals and what happens to the account if one of the holders dies.

L

Land Registry

This is a central register of the ownership of land and buildings. Not all properties are registered. You need to search the Registry of Deeds to find out if a property is registered.

Letter of Offer

Also called the 'offer of advance', this is a formal statement by your mortgage lender of the amount they are prepared to lend you.

Liquidity

This is the ease or speed with which you can convert your investment to cash. Liquid investments, such as property, cannot be converted to cash at short notice.

Loan-to-Value (LTV)

This is a percentage representing the amount owing on a mortgage relative to the market value of the property. You have a loan-to-value of 50% if your home is worth €500,000 and you owe €250,000.

M

Mortgage Protection

This is a form of life insurance product, which lenders must make sure you have in place when you take out a mortgage on your family home and if you are under 50 years of age. Your mortgage protection policy pays off the outstanding amount due on your mortgage if you die.

N

Negative equity

This term is used to describe a situation where the market value of your house is less than the balance you owe on your mortgage.

No-claims bonus or discount

This is a percentage reduction you get on your car or home insurance premium. It is based on the number of years since you made a claim.

O

Ombudsman

This is an official appointed to represent the interests of the public to investigate and address unresolved complaints reported by individual citizens.

You can send your complaint about a financial service to the Pensions Ombudsman or the Financial Services Ombudsman.

Overdraft

When more money is paid out of your current account than you have deposited, your account is said to be in overdraft. Your bank effectively gives you a loan. Your bank must normally approve such loans in advance.

Your bank grants overdraft permission up to a set limit. If you do not have overdraft permission the bank may still allow your account to go into overdraft but may charge an unauthorised overdraft fee.

P

Percentage point

A percentage point is the difference between two percentages. A fall of one percentage point would be a fall from ten to nine percent. When the ECB moves interest rates, it is usually by a quarter or half a percentage point.

Policy

A policy is an insurance contract between you and an insurance company.

Policy benefit

Also known as the sum assured, this is the amount of money you could receive if you have a successful insurance claim.

Policy fee

This is a regular fee you pay on some investment and pension policies. A policy fee is usually a fixed amount, for example €3.50 per month.

Premium

This is the amount you pay for an insurance policy. It can be a once-off lump sum or it can be a monthly or yearly payment.

S

Searches (property)

Your solicitor will do searches to confirm that the seller of a property can pass ownership to you and that there are no outstanding judgments or debts against the property.

Security

Security is any asset that can be sold to repay the loan if you don’t. It may be a mortgage on a property, an insurance policy or some other asset. Your lender might ask you to put up some form of security before giving you a loan.

Serious illness insurance

This policy pays a lump sum benefit if you are diagnosed as suffering from one of the serious illnesses specifically covered by your policy.

Stamp Duty (Property)

This is a tax you pay to the government when you buy a property. A sliding scale of rates applies depending on the size and purchase price of the property and whether you are a first time buyer.

Standing order

This is an instruction you give to your bank to make regular payments out of your account to another account. Unlike a direct debit, you instruct your bank directly about how much is to be paid and the amount is fixed and can only be changed by you.

Sum assured

Also known as the policy benefit, this is the amount of money you could receive if you have a successful insurance claim. With a life insurance or serious illness policy, you choose the sum assured.

Surrender value

This is the amount you will get if you cash in or cancel your insurance policy  early. This value is usually lower than the value of the policy when it matures.

T

Term insurance policy

This is an insurance policy that pays out a fixed benefit if you die within a certain number of years (the term of the policy).

Terminal illness

Insurance companies usually define terminal illness as an illness that is likely to result in a person dying within 12 months.

Tracker mortgage

This is a mortgage that is set at a fixed percentage or 'margin' above the ECB  rate. For example, it could be set at the ECB rate plus one percentage point. So, if the ECB rate rises by a percentage point, so does your rate. It will also 'track' the ECB rate when this rate goes down. Tracker rates continue over the term of your mortgage.

V

Valuation

This is when a fund manager measures and gives you an estimate value of the investments in your fund.

Valuation fee

This is the fee you pay to a professional valuer, such as an auctioneer or estate agent, to estimate a property’s market value.

W

Whole-of-life policy

This type of life insurance policy covers you for your whole life. It pays out a benefit when you die – whenever that happens – as long as the policy is still in force. The benefit is not usually fixed and can vary over the life of the policy depending on the performance of the investment fund used by the policy. Also, your premiums are not fixed and may increase from time to time, for example every 10 years or so.