Mortgage credit glossary.

Amortization

Decrease in the amount of capital owed on the mortgage loan from home credit.

Early repayment amortization

Liquidation, total or partial, of the amount due or of an installment before the end of the credit agreement.  

Evaluation

Visit to the property by an expert in order to assign a market value to it. When this value is the lowest, between the appraisal or acquisition, it is considered for the mortgage credit.

Capital

Capital corresponds to the value that is borrowed or lent to the banking entity.  

Equity capitals

It corresponds to the monetary value that the buyer has to give as a down payment when buying the property. In normal situations, banks can finance up to 90% of the property value (the lower of the acquisition or appraisal value). The Bank of Portugal regulates that the own funds for primary residence properties correspond to at least 10% and for secondary residences to 20%.  

Real Estate Notebook

Document that identifies the housing and its main characteristics (such as location, property area, owner, and taxable value). This certificate can be requested at the Tax Office of the Parish Council where the property is located, valid for 12 months.

Energy Certification / Energy Certificate  

Energy certification is mandatory for all properties being sold or rented. The document issued in this process, the Energy Certificate, evaluates the energy efficiency of the housing on a scale from A+ (very efficient) to F (less efficient).

Commissions  

As a rule, commissions refer to the fees that banks charge for the services provided throughout the home loan process, such as study commission, appraisal commission, formalization commission, contract commission, among others.

Promise to Purchase and Sale Agreement (PPSA)

It is an agreement between the buyer and the seller before the property deed. Although not required by law, it is done to formalize the intention of purchase and protect both parties in case of withdrawal from the purchase/sale of the property.

Creditor

The creditor is the entity that lends capital, in other words, the bank.

Preferential rights on real estate - Law 89/2021.

This law provides that the seller of a property intended for housing must declare their intention to sell publicly, so that the legal right of pre-emption can be exercised by private individuals (tenants, caretakers, etc), or by government institutions (Municipalities, etc). The seller must declare their intention to sell by publishing the announcement through the Casa Pronta website. The proof of the published announcement is a necessary document for the formalization of a mortgage contract.

Debt Service to Income (DSTI)

The DSTI is an indicator of the level of financial effort that the client has to make to pay the loan installments, and is one of the indicators used by the bank to calculate the client's solvency. The Bank of Portugal recommends that banks do not grant credit when the DSTI is higher than 50%.

Loan-to-cost (LTC) - financial term.

Represents the ratio between the financing value of a commercial real estate project (bank loan) and the construction cost of the project.  

Loan-to-value (LTV)

It represents the ratio between the loan amount and the value given as collateral to the bank by the customer.

Initial Entry

Buyers need to have their own capital available to cover the value of the property not financed (usually between 10% and 20% of the lower value between acquisition or appraisal).

Euribor - English

The European Interbank Offered Rate, which we refer to as Euribor, is the interbank rate used by banks as a reference in most variable interest rate loans. It is calculated as an average of interest rates practiced by financial institutions.

Writing

It is the document that formalizes a home buying contract as definitive. After the deed, the property belongs to the buyer.

Guarantor

A guarantor takes on the responsibility of making housing loan payments to the bank if the holder is unable to fulfill their obligations and defaults.

European Standardised Information Sheet (ESIS)

The European Standardized Information Sheet (ESIS) is a document issued by the bank that presents the main characteristics of a housing loan and pre-contractual information. It is handed to the customer by the bank at the time of a credit simulation, along with approval.

Permanent Own Housing

A property designated for the housing of the owner and their respective family, as their fiscal address.

Secondary Own Housing

A property intended for occasional occupancy by the owner (a vacation home, for example), not rented out to third parties.

Mortgage

Extrajudicial guarantee that associates a property with a home loan. Virtually all home purchase loan contracts provide for the existence of a mortgage on the acquired property. In other words, the client gives the creditor the right to the property as a guarantee of payment for their obligations.

Stamp Duty (IS)

Fixed fee or amount, in euros, applied to the transaction of buying a house and also to credit contracts, namely housing.

Property Tax (IMI)

Tax imposed on the taxable asset value (VPT) of housing in Portuguese territory. It is a municipal tax (its revenue goes to municipalities), and it begins to be paid annually in the month of April.

Municipal Tax on Onerous Property Transfers (IMT)  

Tax that taxes the acquisition of housing. This tax is levied on the taxable asset value or the property transaction value (the higher of the two values), and must be paid before the formalization of the deed.

Indexante   - Indexer

Reference rate used as an indicator of market evolution. In Portugal, the most used index in housing credit contracts is the Euribor, whose revision can be chosen according to the banks' offers: every 3, 6, or 12 months.

Lender

The bank lends the capital and receives the interest.

Borrower

The client receives the loan and pays the interest.

MTIC  

It means Total Amount Charged to the Consumer and corresponds to the total amount that the client will pay over the total period of the loan.

Loan term/Maturity

It is the period of time that goes from the constitution of the credit until the total payment of the debt. The maximum term of a mortgage credit can be 40 years (480 months), with the Bank of Portugal recommending that the loan term be determined based on the clients' age:

• 40 years - for borrowers aged 30 or below;  
• 37 years - for borrowers aged over 30 and less than or equal to 35 years old;  
• 35 years old - for borrowers over 35 years old.

The maximum age limit for staying is 75 years old of the oldest proposer.

Installment or payment in English

It is the amount that mortgage holders commit to pay (usually monthly) to settle the loan. This installment pays off a portion of the outstanding capital and respective interest as per the credit agreement.

Credit Risk

Analysis made by the creditor (bank) about the possibility of the loan customer not having financial capacity to pay the capital and respective interest owed. [https://www.poupancanominuto.com/]

Life Insurance.

Financial institutions require the hiring of a life insurance associated with the credit. The payment of this insurance is usually included in the mortgage installment. The objective is to guarantee the payment of the outstanding capital to the bank in the event of the death of one of the account holders, transferring the property of the house to the other account holder.

Credit simulation

It is the calculation of a home loan installment according to the parameters defined by the customer. These simulations are indicative and have no contractual value, although they represent a pre-approval of the credit. By requesting a credit simulation from the bank, the customer will receive a FINE. And with the FINE, it is possible to compare credit simulations between various banks.

Spread

The spread is a component of the interest rate, defined by the bank, which varies according to the client's profile, financing characteristics, and loan guarantees. Essentially, it is the profit margin of the financial institution. The spread is usually added to the reference rate (Euribor), and the final result is the loan interest rate, designated as the Annual Nominal Rate (TAN).

TAN - translated to English

TAN stands for Nominal Annual Rate and is the fixed or variable interest rate applied to the total amount of credit. It corresponds to the sum of the index (Euribor), or fixed base rate, with the spread. Ultimately, the TAN expresses (in percentage) the interest on the loan, that is, the cost of credit.  

APR

TAEG represents the Annual Effective Annual Interest Rate, and is equivalent to the total cost of the loan for the customer. This rate is the sum of the interest plus other credit charges (such as taxes, commissions, required insurance, registrations or other associated fees).

Effort rate  

Percentage of the relationship between the total income that the household receives and the value of credit installments to be paid. The recommendation of the Bank of Portugal is that the effort rate does not exceed 35%, meaning that credit installment payments should not exceed one third of the household income.

Interest Rate

Represents the cost, expressed as a percentage, that a certain entity proposes for the granting of a loan.  

Fixed rate tax.

Interest rate that remains unchanged throughout the credit agreement period.  

Variable tax

Interest rate that varies, goes up and down, depending on financial market conditions. Normally, the variable rate is represented by a indexed rate, adjusted based on the evolution of a certain benchmark to which it is associated, such as Euribor.

Mixed taxes

Credit agreement with an initial fixed or fixed base rate period, and the remaining period with a variable rate.  

Mortgage Credit Transfer 

Transfer of a home loan to another bank, changing the mortgage lender, usually without costs for the customer. It allows for improving financial conditions and reinforcing financing in order to achieve budgetary flexibility.

If you still have doubts regarding housing credit, know that the credit intermediaries of Poupança no Minuto can help you. The service is free and they will accompany you throughout the process so that you can have the key to your new home in hand as quickly and easily as possible.

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