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Glossary

Glossary

Accrual: The time when the payment obligation arises.

Administration fees: These are the charges for processing deeds, settling taxes with the Inland Revenue and carrying out formalities in the Land Registry, executed by an independent professional.

Appraisal: The real value of the property, calculated and certified by an appraisal firm in accordance with the law, and registered in the appraisal firms register of the Bank of Spain, as is necessary based on the provisions of the Mortgage Market Act.

Binding offer: A document Financial Entities are required to provide customers containing all of the financial conditions of the mortgage loan offered pursuant to the Order of the Spanish Ministry of the Economy and Tax Administration EHA/2889/2011 of 28 October on Transparency and Consumer Protection in Banking Services (Official Spanish Gazette dated 29 October 2011).
The validity of this document cannot be less than fourteen business days as of the date of issue.

Borrower:The person or persons who receive a sum of money as a loan, undertaking to return the loan to the lender along with interest within the terms and under the conditions agreed. If the loan is attached to a mortgage guarantee, it must be formalised through a notarised public instrument.

Calculation basis: Number of days used to calculate the interest. Most banks and savings banks base the calculation on a year of 360 days.

Capital gain: See "Tax on Increased Value of Urban Real Estate”.

Certificate of Occupancy: An administrative document that proves that the property complies with technical occupancy regulations and is, therefore, suitable for residential use. This document is necessary in order to be able to contract utility services for the first time.

Charges: Limitations on the right of ownership of a property, bound to compliance with an obligation. Mortgages, resolutory conditions and usufruct are some examples of charges. They must be registered in the Land Registry.

Co-borrower: This person is considered to be the same as the borrower. This party has the same obligations, even though it is not the owner of the mortgaged property.

Deed of sale: An official document issued by a Notary Public that contains the clauses and conditions agreed by the buyer and seller. This document is subsequently registered in the Land Registry.

Deed: A public document executed by a Notary Public that sets forth the terms and conditions of the agreement. It is registered in the Land Registry.

Deposit: A sum of money that a future home-buyer hands over to the seller as a guarantee that he/she will buy the home within a certain time. If, after this term, the buyer does not buy, he/she loses the sum handed over. If the seller fails to respect the agreed term or sells the home to another person, he/she must return double the amount to the person who handed over the deposit. If the transaction is successful, the deposit is considered a payment on account.

EAR (Equivalent Annual Rate): The result of a mathematical financial formula that considers the nominal interest rate, frequency of the payments (monthly, quarterly...), bank charges and other costs. It is used to compare the real cost of different offers regardless of their specific conditions. In cases of loans with variable rates, the EAR is calculated assuming that the successive interest is that of the first review, calculated based on the value of the latest reference rate published.

Early cancellation: The total, early repayment of a loan before its term. It is usually subject to a charge (compensation due to cancellation).

Early payoff: The total or partial early payoff of a loan before the agreed date. This is generally subject to a commission. This commission is normally higher if the interest rate on the loan is fixed.

Entry: A registry entry is the way in which the Registrar certifies a registry transaction in the Registry related to a registered property. Depending on the transaction, the entry is classified as presentation entries, registrations, provisional filings or marginal notes.

Escrow: A sum held to pay for all of the expenses generated by the mortgage loan and the purchase (taxes, notary, registry…). This sum is settled against the invoices for the payments made once all procedures have been finalised.

Euribor (Europe Interbanking Offered Rate: The average of the price used by the most important European banks to loan money in the money market.
Specifically, it is the monthly average daily interest year at one year.

FIPER (Customized Information File): shall provide customized information that is necessary to meet your loan application, so that you may compare the loans available in the market, assess its implications and make an informed decision before signing your contract. Shall be provided to all customers in advance and free of charge.

FIPRE (Precontractual Information File): available to customers upon request. Collects enough clear information about the loans that are offered. Free information aimed to providing guidance only.

Fixed rate mortgage loan: This is a loan in which the interest rate remains unaltered during the whole of the repayment period.

Grace period for capital (or partial repayment grace period): A term during the life of the loan when only interest is paid and not capital.

Grace period: A term during the life of a loan when neither interest nor capital is paid.

Guarantee: A guarantee from a third party in the event of failure of the borrower to pay a debt or the interest on that debt.

Home multi-risk insurance: Home insurance with a wider coverage that may include risks to the structure, contents and home assistance.

Horizontal division: A document formalised in a deed through which the owner of a building decides that the different parts thereof (stores, homes, lumber rooms, parking spaces, etc.) must be considered separately in legal terms (given that they previously formed part of the building, which was the only object existing, based on the juridical standpoint) and be governed by the specific Horizontal Property regime, defining the common elements and establishing the coefficient that expresses the share that each part of the building must pay to the Property-Owners Association, both actively (the extent to which the common elements belong to the association) and passively (the extent to which a contribution must be made to maintenance, repairs, etc. ).

Horizontal property: Whenever there are private or individual areas (i.e., each home within a block) assigned to each owner and common areas for all owners (i.e., a lift or gardens…) in a residential building with flats, the Horizontal Property Law states that “horizontal property” may be constituted, which makes it possible to: (i) individualize each private area as independent property; (ii) regulate the conditions of use and enjoyment of the common areas and (iii) establish the percentage each individual owner will contribute to the costs and maintenance of the common areas.

Informational sheet: Information financial entities make available to their customers containing all of the features of their mortgage loans. This information is regulated in the Order of the Spanish Ministry of the Economy and Tax Administration EHA/2889/2011 of 28 October on Transparency and Consumer Protection in Banking Services (Official Spanish Gazette dated 29 October 2011).

Instalment: The amount that the loan holders agree to pay with the agreed frequency (usually monthly, quarterly or six-monthly) during the life of the loan. The instalment is formed by interest and repayment of the capital, except in the case of a grace period being granted.

Interest or Interest Rate: A percentage applied to the outstanding capital to calculate the interest payable by the borrower. It forms part of the instalment.

IRPH (Mortgage Loan Reference Rate): This is the average mortgage loan rate (there is an IRPH for banks and for savings banks) for mortgages with a term of more than 3 years, (average IRPH for the sector) by all financial entities for the purpose of buying a home, during the month that is taken as a reference.

Land Registry Expenses: Registry expenses are the fees received by the Land Registry to register the purchase and the mortgage (or any other document) with the Land Registry.Registry fees are also charged in accordance with the standard duties approved by Government Decree.

Land Registry:Financial Entities usually charge customers for payment defaults to compensate for the expenses deriving from collecting the debt at the time of collection. This is a fixed amount that is pre-set in the contract.

Late interest: Additional interest payable on the unpaid instalments of a loan, depending on the days of delay in making payment.

Life insurance (FIAP):This insurance guarantees the repayment of the loan in the case of Death, Absolute and Permanent Disability, depending on the capital insured.

Margin: See "Spread".

Mortgage deed:A public document that is authorised by a notary which outlines the clauses and conditions agreed in a loan with a mortgage guarantee. The deed is required to be registered with the Land Registry in order for the mortgage guarantee (mortgage) to be fully valid.

Mortgage liability:The sum of all items guaranteed by means of a mortgage loan (the capital loaned, ordinary interest, default interest, legal costs, expenses, etc.). This represents the maximum amount of the burden on the mortgaged property in the event of non-payment of the loan.

Mortgage Loan Access Guide: compiled by the Bank of Spain, so as to give clients adequate information in order to adopt their financing decision. This guide will be available in all the business establishments of credit institutions, in their internet pages as well as in the Bank of Spain page, and shall be available to customers at any time and for free.

Mortgage Loan:This is a loan which, in addition to being backed by the personal guarantee of the borrower, is also guaranteed by a property. With the return of the loaned capital, it also guarantees the collection of ordinary interest, late interest, costs and expenses incurred in court claims in the event of failure to pay the instalments. It is formalised in a deed and registered in the Land Registry.

Mortgage: This is a tangible right that associates a property to the compliance of an obligation, in this case, the loan. The mortgage is created when it is registered in the Land Registry, and continues to exist until the amount that guarantees it has been cancelled in full.

Non-Certified Land Registry Extract: A document issued by the Land Registry declaring the ownership status and any burdens on the property. Unlike registry certification, it is not considered a public document meaning it does not certify the content of the entries and for this reason is also known as a “non-guaranteed land registry extract”.

Notary Expenses: These are the notary fees for the purchase of a home as well as for the mortgage loan. They are legally established and calculated based on the sum of the purchase and the sum of the mortgage loan, respectively.

Notary: A civil servant who authorises and attests to the content of certain legal acts and negotiations (sales agreements, mortgages, etc.).

Opening Fee: This is the percentage of the amount of the transaction that includes the costs incurred in processing the loan: the study, administration and management services. It is a percentage of the loan capital that is paid in a lump sum when the loan is formalised. There is usually a minimum amount.

Payment Protection Insurance: Insurance that is usually contracted with the mortgage and that allows the payments of the latter in a situation of unemployment, sickness or accident.

Pending Cash Value: The pending cash value is calculated exclusively taking into account the pending repayment term and the costs pending payment if the transaction continues its normal course of operation and therefore, does not include any costs that have already been paid (bank commissions...).

Property damage insurance: This is required insurance, the basic structure guarantees of which (fire, etc.) aim to preserve the existence and financial value of the mortgaged security in the event of an incident. It insures the risks that may arise in the structure (not the content) of the mortgaged home.

Property Tax: This is a local tax that is paid every year, on the ownership of a property. It is a percentage of the property’s cadastral value (depending on each local authority).

Purchase option: An economic agreement between a seller and a buyer by which the buyer acquires the right to buy a home in certain conditions within a specific term. It may be converted into part of the selling price of the property if this is agreed. If the sale does not materialise, the buyer may lose the money he has handed over.

Reference Rate: In variable rate mortgages, it is the financial market value used to calculate the review, with a “spread” being added to the reference rate. The Bank of Spain is responsible for preparing and publishing the official reference rates, in order to make financial transactions transparent and objective.

Refinancing (switching banks): This refers to an act by which the borrower switches their loan to another financial entity which offers better conditions.

Registered property: A term used by the Land Registry to designate real estate that has been identified and numbered as independent in the Registry (home, non-developed property, plot of land, an independent off-street parking space…).

Registry cancellation: Given that mortgages are registered with the Land Registry as a burden on the property, the cancellation of a mortgage loan (when the financial debt has been fully repaid) must be certified and registered with the Land Registry. To do so, you must sign a deed of cancellation (with the Credit Entity only) and submit a duty statement that is Stamp Duty Tax exempt. This deed of cancellation is registered with the Registry and as of that date will be considered free of the cancelled mortgage.

Registry certificate: A certificate issued by the Land Registry showing the situation of the property with respect to charges.

Registry Verification: A check made of the situation of the property in the Land Registry. It is usually made through a Simple Informative Note, but may also be made by inspecting the records or a certificate issued by a Registrar.

Repayment term: A repayment term is a period established in the loan within which to return the total loan amount. The choice of the repayment term is always made based on the repayment capacity.

Repayment: Return of a loan, in full or in part. Each instalment has a part that is used for this purpose.

Second Home (2nd Residence): A property that does not constitute a person’s habitual residence. When applying for a mortgage loan in these cases, the financial entity normally offers a lower maximum percentage of the appraisal value than it would otherwise offer when financing the purchase of a habitual home.

Spread: A percentage that is added to the reference rate value to obtain the new interest rate that is applicable during each review of variable rate loans.

Stamp Duty: A tax levied on acts formalised in public documents, such as sales of property and mortgages. It varies from region to region.

Subrogation of holders (debtors): This is when another person or other people take the place of the holder or holders of a mortgage, maintaining the same contractual conditions.

Tax on Increased Value of Urban Real Estate, or capital gains tax: This is a local tax applied to the increase in value of urban property between the last sale and current sale. It is only paid when property is transferred. The Law establishes that the seller must pay this tax. Any pacts to the contrary must be recorded in the deed of sale.

Transfer Tax: All second and successive sales of property are subject to this tax. There is a general rate but some regions establish their own special rates and conditions.

Variable rate mortgage loan: A loan whose interest rate is reviewed every quarter, six months or every year, based on any of the reference rates recommended by the Bank of Spain: IRPH or Euribor.

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