Housing credit glossary
Are you going to apply for a mortgage to buy your home? Know that, throughout the process, you may come across expressions that can be confusing. We have prepared a glossary about mortgage credit to help you know everything.
Liquidation, total or partial, of the outstanding amount or installment before the end of the credit contract.
Evaluation
Visit to the property by an expert with the goal of assigning a market value to it. When this value is the lowest, between the appraisal or acquisition, it is considered for the housing credit.
Capital
Capital corresponds to the value that is borrowed or borrowed from the bank entity.
Own capitals
It corresponds to the monetary value that the buyer has to give as a down payment when purchasing the property. In normal situations, banks can finance up to 90% of the property value (the lowest between the acquisition or appraisal value). The Bank of Portugal regulates that own funds for permanent residence properties correspond to a minimum of 10% and for secondary residence, to 20%.
Property Record
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, being valid for 12 months.
Energy Certification / Energy Certificate
Energy certification is mandatory for all properties that are for sale or rent. The document issued in this process, the Energy Certificate, assesses the energy efficiency of the housing on a scale from A+ (very efficient) to F (inefficient).
Committees
As a rule, commissions refer to the fees that banks charge for services provided throughout the home loan process, such as: study, evaluation, formalization, contract commissions, among others.
Purchase and Sale Promise Contract (CPCV)
It is an agreement entered into between the buyer and the seller before the property deed. Although not mandatory by law, it is carried out 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 the 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 preferential purchase can be exercised by private individuals (tenants, caretakers, etc.), or by governmental institutions (Municipal Councils, 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 degree of financial effort that the customer has to make to pay the loan installments, and it is one of the indicators used by the bank to calculate the customer's solvency. The Bank of Portugal recommends that banks do not grant credit when the DSTI is higher than 50%.
Loan-to-cost (LTC)
It 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)
Represents the ratio between the loan amount and the value given as collateral to the bank by the customer.
Initial Entry
It is the equity that buyers need to have available to contribute to the value of the property that is not covered by the financing (usually between 10% and 20% of the lower value between the acquisition or the appraisal).
Euribor
A European Interbank Offered Rate, which we refer to as Euribor, is the interbank rate used by banks as a reference in most loans with variable interest rates. It is calculated as an average of the interest rates practiced by financial institutions.
Writing
It is the document that formalizes a purchase and sale contract of a property as final. After the deed, the property belongs to the buyer.
Guarantor
A guarantor takes on the responsibility of making housing credit payments to the bank if the primary borrower 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 banking institution that presents the main characteristics of the mortgage credit and pre-contractual information. This is delivered by the bank to the customer at the time of a credit simulation, along with its approval.
Permanent Own Housing
A property intended for the owner and their household to reside in, serving as their fiscal address.
Secondary Own Housing
A property whose purpose is occasional occupation by the owner (a vacation home, for example), not rented to third parties.
Mortgage
Non-judicial guarantee that associates a property with a mortgage credit. Virtually all home purchase loan agreements provide for a mortgage on the acquired property. In other words, the customer gives the creditor the right to the property as a guarantee of payment of their obligations.
Stamp Duty (IS)
Fixed fee, in euros, applied to the transaction of buying a house and also to credit contracts, particularly for housing.
Property Tax (IMI)
Tax that applies to the taxable asset value (VPT) of housing in Portuguese territory. It is a municipal tax (its revenue goes to municipalities) and must be paid annually starting in April.
Municipal Tax on Onerous Transfers (IMT)
Tax that taxes the acquisition of housing. This tax is based on the taxable asset value or the transaction value of the property (the higher of the two values), and is paid before the deed is formalized.
Indexer
Reference rate used as an indicator of market trends. In Portugal, the most commonly used index in housing credit contracts is Euribor, whose revision can be chosen according to banks' offerings: between 3, 6 or 12 months.
Lender
The bank that lends the capital and receives the interest.
Borrower
The customer who receives the loan and pays the interest.
MTIC
It means Total Amount Charged to the Consumer and corresponds to the total amount that the customer 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 full payment of the debt. The maximum term for a housing credit can be 40 years (480 months), with the Bank of Portugal recommending that the loan term be determined based on the age of the clients:
- 40 years - for borrowers aged 30 years old or younger;
- 37 years - for borrowers aged over 30 and under or equal to 35 years old;
- 35 years - for borrowers aged over 35 years.
The maximum age limit for staying is 75 years old of the oldest proposer.
Provision
It is the amount that mortgage holders commit to pay (usually monthly) to settle the loan. This installment pays a portion of the outstanding capital and respective interest according to the credit contract.
Credit Risk
Analysis made by the creditor (bank) regarding the possibility of the loan client not having financial capacity to pay the capital and respective interest owed. financial capacity.
Life Insurance
Financial institutions require the hiring of a life insurance associated with credit. The payment for this insurance is usually included in the mortgage installment. The goal is to ensure the payment of the outstanding capital to the bank in case of the death of one of the account holders, transferring the property of the house to the other.
Credit simulation
It is the calculation of a housing credit installment according to the parameters defined by the client. 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 client 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 depending on 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 index (Euribor), and the final result is the loan interest rate, called the Nominal Annual Rate (TAN).
Translate
TAN stands for Nominal Annual Rate, and it is the fixed or variable interest rate applied to the total amount of credit. It corresponds to the sum of the benchmark (Euribor) or fixed base rate, with the spread. Basically, the TAN expresses (in percentage) the interest on the loan, that is, the cost of credit.
APR
TAEG represents the Annual Effective Global Rate, and is equivalent to the total cost of the loan for the customer. This rate is the sum of the interest plus other charges of the credit (such as taxes, commissions, required insurance, records or other associated charges).
Effort Rate
Percentage of the relationship between the total income that the household receives and the value of the credit installments to be paid. The recommendation of the Bank of Portugal is that the effort rate does not exceed 35%, that is, the payment of credit installments should not be more than one third of the household income.
Interest Rate
Represents the cost, expressed as a percentage, that a certain entity proposes for granting a loan.
Fixed Rate
Interest rate that remains unchanged throughout the entire period of the credit contract.
Variable Taxes
Interest rate that fluctuates, rising and falling, depending on financial market conditions. Typically, the variable rate is represented by a indexed rate, revised based on the evolution of a particular benchmark to which it is associated, such as the Euribor.
Mixed Taxes
Credit agreement with an initial period of fixed or fixed base rate, and the remaining period with a variable rate.
Mortgage Credit Transfer
Transfer of a home loan to another banking institution, changing the mortgage lender, most of the time, at no cost to the customer. It allows for improving financial conditions and strengthening financing in order to achieve a budgetary margin.
If you still have doubts about home loans, know that the credit intermediaries at Poupança no Minuto can help you. The service is free and they will guide you through the entire process, so you can have the key to your new home as quickly and easily as possible.