5 Home Loan Key Words Explained

Oct 22

Negotiating legal documents, especially in financial matters like mortgages, can be overwhelming for many first-time home buyers. While financial experts aim to simplify the process, having some knowledge about the documentation can empower buyers and make the loan process smoother.

The thrill of purchasing your first home is coupled with excitement about the future and finding the perfect place to call your own. However, this journey can also be filled with stress and uncertainty, making it essential to seek professional advice to navigate potential pitfalls and mistakes to avoid. By seeking guidance from experts, first time home buyers can gain confidence and make well-informed decisions, ensuring a successful and rewarding home-buying experience. Remember, the key to a successful home purchase is not just finding a house, but also finding a place where you can truly build your future and create lasting memories

Once you’ve settled into your new home, you might start thinking about personalizing your space even further through a reputed Remodeler in Ogden, UT (or wherever you live). Enhancing your property can not only make it more comfortable but also potentially increase its value. Whether it’s updating the kitchen, adding a new bathroom, or creating a cozy outdoor space, understanding your financing options, like home equity loans or lines of credit, can be as crucial as your initial mortgage decision. Just as with your home purchase, seeking expert advice and planning your remodel carefully can lead to a transformation that enhances both your living experience and your property’s long-term appeal and value.

Here are five key terms related to home loans that you should be familiar with:

Fixed Rate

This type of loan will have a fixed rate of interest locked in for a fixed period of time. It will also have fixed monthly repayments. If variable interest rates rise, you will be locked into your fixed rate, which can be advantageous for you. If, however, interest rates fall, you will be locked into the higher rate. Finding a firm that offers good mortgage rates with low interest would be a good idea. Some Canadian Home Loan Interest Rates are fixed for different time periods, with low mortgage rates and also options for refinancing. You could find similarly attractive deals in the place of your residence as well, and enjoy lower fixed rates that can be paid over different periods of time, based on your choosing.

Principal and Interest

The repayments on this type of loan are comprised of interest plus a portion of the loan principal, or the amount you borrowed, to reduce the loan. This is the most common type of loan and repayments are set for the life of the loan, usually 25 to 30 years.

Lenders Mortgage Insurance

The lender will need to safeguard or insure against non-payment or default by the borrower. The lender will organise this insurance for you. If you are borrowing more than 80% of the value of your property, LMI will be required. Ask your lender if you can add the LMI to your home loan. By taking out LMI, some lenders will allow you have a smaller deposit to put towards your home loan. LMI is not protection for you, it is protection for the lender and if you default, the insurance company will be after you.

Interest Only

The repayments are made up of interest only with this type of loan. It is usually available for a fixed number of years agreed to between the lender and the borrower. The principal is untouched and will only become part of the loan when the interest only period is over.

Offset Account

An offset account links your home loan and savings account. Interest charged on your home loan is calculated on the balances between your savings account and your home loan, thereby decreasing the amount of interest you will pay each month. If you have a home loan of $400,000 and an offset account with a balance of $20,000, you will be charged interest on $380,000.

There are many different types of home loans available. Make sure to select the best loan that suits your current circumstances. Loans can always be renegotiated at a later stage with the lender. A mortgage will be with you for a long time, so be aware of all the terminology and read the fine print before entering into any agreement. Buying a home can give you security and become a great investment.