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Home Loans – a guide to some of the terminology

Buying a home can be as stressful as it is exciting. The last thing you need is to be bamboozled by complex terminology. Unfortunately, a bit of jargon is unavoidable but to help you out we have compiled a list, explaining some of the most commonly used terms. Of course, this does not cover all the terms you may encounter and you should always seek professional advice when purchasing a property.

Annual Percentage Rate of Charge

Also referred to as the APRC, the annual percentage rate of change is expressed as a percentage that represents the total cost of your mortgage over the term of the loan, including any fees or additional costs. By taking account of the total cost, the APRC can help you compare different offers when selecting a mortgage. Keep in mind that the APRC calculated at quote stage is based on the interest rate applicable at the time and that some costs, e.g. insurance payments to third parties, would not be included.

Applicable Base Rate

The Applicable Base Rate is the minimum interest rate set by a bank for lending purposes. This rate can be found on the bank’s website and can be changed at the bank’s sole discretion. Interest rates on mortgages in Malta will typically be the bank’s base rate plus a margin. Any adjustment in the base rate may result in a change to the variable interest rate, which in turn will impact your monthly repayments.

Creditworthiness

Creditworthiness is the assessment carried out by the bank to determine whether a potential borrower is able to service the loan repayments.  When applying for a home loans, the bank would be required to carry out a creditworthiness assessment in accordance with the requirements of the Credit Agreements for Consumers Relating to Immovable Property Regulations.

Fixed Interest Rate

A fixed interest rate is a fixed interest rate charged on a loan or mortgage. Typically, a fixed interest rate is applied during the initial period of the loan (for instance the first 36 months in MeDirect’s case), following which a variable interest rate (see definition below) would start to apply.

Hypothec

A hypothec is a form of security required by the bank over a borrower’s property and assets as collateral for the granting of the home loan.  

Legal Title

Legal title means the checking into the ownership of the property being granted as security by the borrower. The searches and other required documentation related to the title of the property, are carried out by the Notary appointed by the borrower. These searches are subsequently provided to the bank for its own internal vetting of title procedures.

Primary Residence

A primary residence is a property in which you will habitually reside in, or intend to habitually reside in as your principal place of residence.

Promise of Sale

Otherwise known as a ‘konvenju’ in Maltese, a Promise of Sale is an agreement binding the Buyer to purchase and the Seller to sell at a fixed price at a time agreed between the parties.

Property Transfer Agreement

A Property Transfer Agreement is the final deed of transfer of property. The contract of sale can also include the granting of the loan and the hypothecary security being granted in favour of the bank, where clients also opt for bank finance to purchase their property.

Sanction Letter

A Sanction Letter is a document issued by a bank to a borrower confirming that a loan facility will be issued subject to the terms and conditions listed therein. The borrower is to provide his notary with a copy of the Sanction Letter for the notary to compile the required searches and documentation and present to the bank.

Secondary Residence

A secondary residence would be a property you intend to occupy in addition to your primary residence. Typically, this would be a holiday or recreational home.

Stamp Duty

Stamp Duty is a tax paid by the buyer of a property, which in Malta is currently set at 5 per cent of the market value of the property in question. However, things are not that simple as there are numerous variations and exemptions applied depending on different factors. These include, among others, who is buying the property (e.g. first or second time buyers) and where they are buying it (e.g. in an Urban Conservation Zone). It is important, therefore, to check and confirm how much Stamp Duty will be due on the specific property you intend to purchase. Stamp Duty also applies on properties which are inherited after death.

Variable Interest Rate

A Variable Interest Rate is a rate that changes during the term of your loan and generally this change will occur if there is a change in the Applicable Base Rate.  This change will have an impact on your loan repayment, meaning, for example, that if the base rate increases, your repayment would also increase.   

For more information on MeDirect’s home loans service click here.

MeDirect Bank (Malta) plc, company registration number C34125, is licensed by the Malta Financial Services Authority as a Credit Institution under the Banking Act 1994. Applications are subject to the Bank’s lending criteria. Terms and conditions apply and are available on request.

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We strive to ensure a streamlined account opening process, via a structured and clear set of requirements and personalised assistance during the initial communication stages. If you are interested in opening a corporate account with MeDirect, please complete an Account Opening Information Questionnaire and send it to corporate@medirect.com.mt.

For a comprehensive list of documentation required to open a corporate account please contact us by email at corporate@medirect.com.mt or by phone on (+356) 2557 4444.