In a person’s life, there are many decisions to make, but without a doubt, one of the most important is the purchase of their first home. This transaction, due to its impact on household finances, is usually linked to obtaining a mortgage loan. However, most buyers are unfamiliar with basic mortgage terminology before starting their loan applications.

A buyer must clearly understand not only the different types of loans but also all the mortgage-related language and terminology to be able to negotiate and make an informed decision.

That’s why we have put together a guide with 13 mortgage terms you should know before starting the home-buying process.

1. Euribor

Euribor is possibly one of the most frequently heard financial terms, but it also raises many questions. This index, also known as the Euro Interbank Offered Rate, refers to the interest rate at which European banks lend money to one another. It is also the most widely used index for reviewing variable interest rates on mortgages.

2. Binding Offer

This is a document provided by the bank or credit institution that outlines the terms and conditions of the mortgage loan, which they commit to honoring with their client.

3. FEIN (European Standardized Information Sheet)

This document must provide the client with personalized information about the loan they are about to formalize and must include specific sections and details regulated by mortgage law.

4. FIAE (Standardized Warning Sheet)

This document details information about the clauses applicable in the mortgage contract and the risks associated with them.

5. Amortization Schedule

More than just a document, this is a table or payment schedule that includes all the details related to repaying the mortgage loan, as well as any adjustments if it is a variable-rate mortgage.

6. Amortization Term

In other words, this is the agreed period for repaying the loan in full. According to data from the Spanish National Statistics Institute (INE), the current average mortgage term in Spain is around 24 years.

7. Mortgage Expenses

This refers to the cost of formalizing and registering the mortgage, which includes the appraisal, agency fees, the Stamp Duty Tax, and notary and registration fees—amounting to approximately 10% of the property’s total value. The financial institution must clearly disclose the breakdown of expenses that are the responsibility of the lender and those of the client.

8. Interest Rate

This is essentially what financial institutions charge in exchange for lending money. It is a percentage applied to the loaned amount that determines the number of installments or monthly payments required to settle the debt.

There are different types of loans:

  • Fixed-rate loans, where a fixed interest rate is agreed upon with the bank, remaining unchanged throughout the entire amortization period.
  • Variable-rate loans, where the interest rate is periodically reviewed (every 6 or 12 months) based on a market reference index, which in Spain is typically the Euribor.
  • Mixed-rate loans, which combine elements of both fixed and variable rates.

9. NIR (Nominal Interest Rate)

This is a fixed percentage paid to the financial institution as compensation for the loaned capital.

10. APR (Annual Percentage Rate)

This is a percentage indicator that represents the actual cost of a financial product. In the case of a mortgage loan, it includes the interest rate, fees, and commissions, but does not cover expenses not paid directly to the financial institution, such as notary, agency, or registry fees.

11. Mortgage Payment

This is the amount the borrower pays to the bank each month, consisting of the principal repayment plus interest.

12. Discounts

It is common for some banks to offer better loan conditions in exchange for subscribing to certain financial products, such as direct deposit of salary, utility bill payments, insurance, credit cards, or pension plans.

It’s essential to carefully evaluate these options, as while bundling financial products aims to reduce mortgage costs, it could result in paying more for the additional products.

Financial literacy remains a major challenge for many Spaniards, and financial institutions play a crucial role in providing the tools and knowledge necessary for making informed financial decisions—especially in significant matters such as purchasing a home.

Source: Habitaclia

The cover photo is by Alena Darmel (Pexels), and the blog images are by Rodnae Productions (Pexel1, Pexel2).