Terim went with an attacking line-up in the Spanish capital, but they were behind after less than ten minutes when Cristiano Ronaldo clipped the ball home.
That was followed on the half-hour by Karim Benzema's neat finish before midway through the second period Gonzalo Higuain headed home.
Whilst Jose Mourinho was full of praise for his side's defensive work, Terim was nowhere near as happy with his backline.
"Despite all our work and training, we did not expect to concede such goals," said Terim.
"You need to minimise mistakes in such games. Real Madrid were the dominant side and I accept that."