Taking out a home loan is a big decision. If you are new to this type of loan, it is time to learn more about the ins and outs of mortgage solutions and how repayments work.
Let us look at the jargon used in the home loan industry and provide guidance on initial costs and items not included in your repayments.
Mortgage Loan Jargon Demystified
When applying for a mortgage, you will face various documentation and information on the repayment of this particular type of loan, much of which will contain terms that you may not be familiar with, including the following:
- Principal Amount: The principal amount is the sum of money you borrow at the beginning of the loan period before any other costs are added. Because this amount will be paid back over a long period, you will see that in the beginning, only a small portion of your monthly repayment goes towards reducing the principal amount.
- Interest and Interest Rate: Interest can be considered the price you pay for the privilege of having access to the funds you need to buy a house. The interest rate is given as an annual percentage and is usually negotiated at the beginning of the process.
Interest rates can be fixed or vary as the lending rate moves up and down. Your broker will advise you on the most suitable option for your needs and help you negotiate the lowest possible rate.
- Other Fees: Ask your mortgage broker to list the fees, taxes, and insurance amounts that will be payable over and above your principal and interest payments.
What Is Not Included In Your Mortgage Repayment Amount?
It is important to note that the following items are not included in your repayment amount and will need to be paid separately:
- Levies or homeowner’s association fees
- Household insurance
When you first take out a mortgage loan, there will be some once-off costs, including some of the following:
- Deposit – depending on your credit rating and other factors, most institutions require a deposit upfront. The purchase price less the deposit is the principal amount of the loan.
- Transfer duties and bond registration or initiation fees.
- Conveyancing fees.
- Building, electrical and gas inspections
If you need assistance navigating the available mortgage solutions, contact Nowik Mortgage Team today. We are ready to help!