Are you planning to buy a new house? Of course, it’s one thing to choose between carpeted flooring and polished flooring. Before you even begin with that, you’ve got to first think about the logistics of financing your home.
Here are a couple of important mortgage terms that every Niagara home buyer should know:
This is the term that signifies the amount of your loan. This does not include interest.
LMI (short for Lender’s Mortgage Insurance) is not the personal insurance on your home. This is a type of insurance policy taken out by the lender. This will help protect themselves against borrowers who default on the loan. Oftentimes, LMI is needed if a borrower will take out a mortgage that’s more than 80% of the total value of the property. If this is the case for you, you’ll be charged LMI. This will increase your cost of repayment.
The amount that you first place to secure the house is called the deposit. Usually, a deposit will be 20% of the property’s overall value. However, there are a couple of things you can do to lower the deposit. This includes utilizing a guarantor or taking out the lender’s mortgage insurance. The amount required for the deposit can differ from one lender to another. Also, it might vary on your current financial status.
Variable Interest Rate
For those who do not now, this type of interest rate is flexible. This means that it can change from time to time. Your interest rate might differ depending on economic and market factors. The lender will be the one who will set the rate. It can also go down or up. The thing that you should keep in mind here is that your interest repayments can rise to the point where you won’t be able to pay it. Thus, you’ve got to ensure you have thought about this probability.
Whenever the interest rate is not changing (fixed) for the agreement term, it will be considered as a fixed rate. For instance, a 3-year fixed rate would be secure at a particular rate for 3 years. The benefit of this type of rate is that you’ve got an idea about the interest you’ll be expected to pay. The drawback is that rates can go down and up. Thus, you will also take the risk that you’ll miss out on falling interest rates. Typically, you weigh up the risk of paying more in interest against the security of knowing your interest rate.
This is probably the most basic term you will hear whenever you are planning to purchase a house.
The legal agreement between the lender and the property owner is called a mortgage. The lender can be a building society or a bank. This agreement provides the lender the ability to sell the house if the borrower defaults. However, if the loan is paid back in full, the agreement is void.
These are just a couple of terms. You will hear a lot more on your journey to purchasing a house.