Understanding Commonly Used Mortgage Terms
There are many terms that are commonly used in the mortgage and property world. If you are unsure what they mean, it can make mortgages seem tricky and confusing to navigate. We have created a glossary of key mortgage terms to make this easier for you:
1. Loan-to-value (LTV)
3. DTI (Debt-to-income) ratio
Banks determine your borrowing risk by calculating the percentage of your net monthly income (after taxes) that goes towards paying your monthly debts and fixed outgoings; such as your rent, existing mortgage payments and car finances – the value does not include any bills you pay or shopping you do. A low debt-to-income ratio demonstrates a good balance between debt and income and means that your request for a mortgage is more likely to be accepted. This value is calculated with the following formula:
Total of Monthly Debt Payments / Net Monthly Income = DTI%
Ideally your DTI percentage, including your new spanish mortgage, should stay below 30%.
Ask our expert mortgage advisors if you have any questions on this, or try out our Mortgage Calculator.
4. Interest Rate
Interest refers to the amount that you are charged for your loan and is materialised as a percentage of the total you owe, charged monthly.
5. Fixed or Variable interest mortgages
With fixed interest mortgages, the value of the interest percentage is a predetermined rate that does not change until the agreed period of time for the mortgage has elapsed. Adversely, the percentage fluctuates monthly with variable interest mortgages, therefore some months you may end up paying more or less than you expect.
6. Euribor (Euro Interbank Offer Rate)
Euribor is a reference rate based on the average interest rates at which European banks borrow funds from each other. This affects variable interest mortgages, as it is written into the agreement for this type of mortgage that you will have to pay the Euribor-rate plus a fixed commission, for example Euribor +1%.
7. IVA Tax (Impuesto sobre el Valor Añadido)
The Spanish equivalent of VAT in the UK. The IVA rate for property purchases is 10%.
8. NIE number (Número de Identidad de Extranjero)
NIE is a tax identification number for foreigners in Spain, which allows the Spanish government to assess and process annual tax payments and the annual wealth tax, both of which are declared by resident and non-resident property owners. An NIE is required in order to purchase property in Spain as a non-resident. If you are an EU citizen in Spain for longer than 3 months after acquiring your NIE number, you are required to register for a government certificate that shows your NIE number.
9. Mortgage opening/set-up fee
Before granting the mortgage, the bank will require that the property be valued by a registered valuation company. The cost of this varies depending on the value of the property.
A professional within the Spanish law system who certifies Spanish documents and legalises agreements and contracts. When finalising the mortgage deed, a notary stamp is required and this will incur one-time additional fees.
12. Completion costs
The costs incurred by a qualifying buyer, made up of the deposit, bank fees, commission charges, notary fees and taxes. This is a one-off payment which is then followed by monthly mortgage charges.