Mortgage 101: All The Mortgage Terms You Need To Know
What is a mortgage calculator? What is the LTV ratio? What is a down payment?
Read on and find answers that will make your real estate property hunt more exciting.
Terms to Remember
Some people who are not familiar with real estate or financial terms can be confused and frustrated when agents or bank officers start spewing words used by industry insiders.
First-time real estate property buyers who haven’t come across these terms can get lost in the jargon. It can also be that these buyers just weren’t interested to know about these terms before.
One word you will encounter frequently while on your real estate property journey is “mortgage”. What does mortgage mean and how will this term figure in your quest to find a new home?
Let’s start familiarising you with the basics:
Mortgage
Sometimes you don’t have enough money to purchase a property. In this case, you can take a mortgage. A mortgage is a sum of money that you take out to buy real estate property. It is a loan that you borrow from a financial institution or lender that you are expected to pay over a specified period, with interest.
A mortgage is also known as “claims on property” or “liens against property.” It is usually tied with an immovable asset such as a house or personal property.
Should you fail to keep up with your mortgage payments, the lender has the right to foreclose the property. This means the lender can take ownership and sell the mortgaged property to recoup their losses.
Home Price
The home price refers to the amount you pay for the home you are buying.
Down Payment
The down payment is the initial amount that you pay for a house or real estate property. It is a fraction of the cost you shell out to secure the property you are buying. It can also reduce the amount of the loan or allow you to have smaller monthly payments.
Loan-to-Value (LTV) Ratio
The percentage of the purchase price that mortgage lenders finance is referred to as the loan-to-value (LTV) ratio. This plays a significant role in the home-purchase process as LTV is used to describe the maximum loan lenders will make.
As a rule of thumb, the larger the down payment you make, the easier it is for you to get approved for a mortgage. On the other hand, some top-tier real estate developers can offer you a loan for up to 80 or 85 per cent of the property cost by paying a minimum down payment of only 15 to 20 per cent.
Loan Term
Loan term refers to the amount of time you have to repay the loan. The period varies from as long as 25 years, or it can be as short as five years. Established real estate companies can offer various payment plans that will allow you to choose how to pay the mortgage loan according to your financial ease and capacity.
Mortgage Calculator
While looking for the best real estate property investment, you would most likely want to find the best mortgage rates. One helpful way to find the best rates is by using a mortgage calculator. This tool estimates your monthly house payment and allows you to try multiple scenarios until you arrive at an acceptable price range based on your current requirements and financial situation.
Aside from the estimated monthly payment, it also includes the principal, interest, taxes, and insurance (PITI). You can encode and change one or more variables to see how it would affect your monthly mortgage payment, interest, and total loan cost.
Knowledge is Power
Buying a home can be exciting. On some occasions, however, it can also be a daunting task, especially when you encounter words that are not familiar to you. Armed with the new information that you learned from the abovementioned words, you won’t go into the purchase blindsided with unfamiliar words. Now, you can make more informed decisions and look forward to owning your home with confidence.
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