Friday, June 21, 2013

Some terminology for the perspective home buyer

Annualised Percentage Rate (APR)The term annual percentage rate (APR), also called nominal APR, and the term effective APR, also called EAPR, describes the interest rate for a whole year (annualized), rather than just a monthly fee/rate, as applied on a loan, mortgage loan, credit card, etc. It is a finance charge expressed as an annual rate.In general:
  • The nominal APR is the simple-interest rate (for a year). The nominal APR is calculated as: the rate, for a payment period, multiplied by the number of payment periods in a year.
  • The effective APR is the fee+compound interest rate (calculated across a year).
Annuity MortgageThis is another term for a standard capital and interest repayment mortgage. 

Closing/Completion: This is when you pay the balance of the purchase price and in return receive the keys to the house.  Certain documents will also have to be signed.  These arrangements will be made by us in conjunction with the other parties involved I the transaction. Barring any problems you now own the hosue and can move in any time you like. 

Contracts: Legal documents which set out all the details of the transaction for the transfer of ownership of the house.  These will be drawn up by the solicitor for the seller. Your solicitor will review these and talk through them with you, but it is important you read yourself too. For example, do you want to have a clause added to stop the seller gazumping you (see below)? Are you happy with the clause in it about your deposit being forfeited if you withdraw? Is there an item allowing you to pull out if engineers report finds faults?

Conveyancing: Legal process for transferring the ownership of property and land. 

Deposit: Initial down-payment for a house.  Payable to the seller of the house, usually an auctioneer or an estate agent.  It will generally be 10% of the agreed purchase price, but this is negotiable. 

Disbursements (conveyancing and outlay)The cost your solicitor has to pay to carry out their work such as searches, Registration fee, photocopying, postage and couriers. 
They, in turn, will charge you.  

Engineers ReportA full inspection of property to check that it is structurally sound including having planning permission and being built to spec, signed off by planners, etc. 

Family Home (Statutory) Declaration: This is a sworn statement required by the Buyer’s lender, and the buyer’s solicitor.  It clarifies the ownership of the house and declares that it was used as a family home or not.  In the case of  marriage separation/divorce, sections of Separation/Divorce Agreement would be produced. 

GazumpingWhen the person selling a property cancels their agreement on an offer from one buyer in order to accept the higher price of another offer.This isn't normal now, but happened a lot during the Celtic Tiger years. Although rare, you should be prepared for it.

HomeBondThis is a service provided by the National Housing Building Guarantee Scheme, through registered builders, to people buying new, privately built houses and apartments.  The certificate id called ‘HB47’ and it provides:
  • A guarantee against losing your deposit if the builder goes into bankruptcy or liquidation
  • A 10 year Defect Warranty against major structural faults which happen within 10 years of completion
  • A 2 year Defect Warranty against water and smoke damage after completion.
There are three main types of insurances associated with a mortgage.
They are:

  • Life Assurance:  This is compulsory if you are taking out a mortgage.
    There are two main types of life assurance;
    Mortgage Protection:  This means the amount outstanding on your homeloan will be repaid in the event of your death.  The amount that is paid out reduces in line with your mortgage over the years.
    Term Assurance:  This is life assurance that does not reduce during the term of the loan.  In the event of death, the mortgage is repaid and the rest of the money goes into the estate.
  • House Insurance:  This is also compulsory for those taking out a mortgage.  This insures you against damage to your home, up to and including rebuilding your home should it be destroyed.
  • Mortgage Payment Protection:  This form of insurance is not compulsory.  If you cannot work because of an accident, illness or because you have been made redundant, this policy will cover the repayments on your mortgage (and more if you wish) for a period of time, usually up to 12 months.
This is simply the cost of borrowing money.  If the rate was 10% per annum and you borrowed €100 for the year, the interest payable would be €10.  Another way of saying this is that the cost of borrowing €100 for the year is €10.
Interest rates can be either:

  • Fixed:  A loan where the payments are based on a constant interest rate for a set period of time
  • Variable or Tracker:  This means that the interest rate charged on the mortgage can go up and down over the term of the mortgage. If a tracker is available, jump on it!
Interim Interest
As soon as you draw your loan, interest begins to accrue.  However, the first mortgage payment only falls due on the following month.  The interest that accrues between you receiving the money and the first repayment is known as interim interest.  This can be paid at the time or added to the loan. 

Land Registry FeeA fee paid to the Land Registry to update and entry in their records after you buy your home.  This fee will be included in the legal costs charged by your solicitor.  

Loan application FeeThis may be charged by your Broker for processing you mortgage application. Can be negotiated. 

Loan to Value (LTV)The amount you wish to borrow expressed as a percentage of the value of the property. 

Mortgage Indemnity Bond
A type of insurance that cover the lender in the event that they make a loss on the sale of a repossessed property.  It normally comes into effect when the loan amount exceeds 75% of the purchase price or property value. 

Mortgage RedemptionThis is the amount of money still to be paid to your Financial Institution on the remainder of the loan for the property being sold.  This will normally be paid from the proceeds of the sale of your property. 

Registration of TitleThe title deeds are registered in the Registry of Deeds or in the Land Registry.  The cost of this will be included in your outlays. 

SearchesThese will be carried out on the day the transaction is due to be completed. They will determine whether any judgements have been registered on the property or against the sellers.  It will also indicate whether there are any planning restrictions or planning changes. The searches are carried out by a firm of law searchers under our instruction. 

Security/ CollateralThe mortgage is secured against your home.  A mortgage lender is entitled to sell the house if you do not make the necessary repayments. 

Stamp DutyThis is a tax paid to the government when you purchase property. Currently first time buyers are exempt (Up to 1 million in value if I remember rightly).

Structural SurveyA full inspection of property to check that it is structurally sound. See my section on Engineers report.

ValuationAn inspection, carried out by a qualified valuer, for the benefit of the mortgage lender to see if the property will provide good security for a loan.  This is not a structural survey – see above.