When you are looking to buy a home, there are a lot of things you need to be aware of in order to make a successful home ownership deal. In order to help you acquire some of the key knowledge that you need, LoanMart is here to help you by providing 10 financial terms every homeowner should know.
The principal is the amount of money that you initially borrow on any kind of loan. However, this does not include whatever amount you will owe in interest and other fees. When you pay more than you owe on a monthly payment, the extra money you pay will generally be taken off of the principal sum, rather than interest. This in turn lowers the amount of interest you have to pay and will put you that much closer to having your loan entirely paid off.
A lien is a claim against the property for the money that is currently owed. A good example of this is when you give the bank a lien on your mortgage when you take it out. You will have your home seized from you if you do not repay the loan. A lien can also be given to a contractor like a builder. If you do not pay for their work, your home could be auctioned off so that they can get the money that they are owed.
Loan-to-Value is a ratio that will decide how much money the bank is able to provide to you in a loan. This is usually as a percentage of the value of your property.
4. Fixed Mortgage Interest Rate
A fixed mortgage interest rate is an interest rate on your mortgage that will stay the same during the course of the entire length of the repayment of the loan. It will not fluctuate according to market conditions at all.
Refinancing is where you terminate the home loan package that you currently have and then taking on another one with a different bank. Usually this is done in order to get a lower interest rate, a lower monthly payment, a longer amount of time to pay back the loan, as well as better terms.
You can end up saving yourself quite a bit of money in terms of what you pay for your mortgage every month by refinancing the loan you currently have with a better one from a different bank.
Equity is the difference between the amount of money that you still owe on your home and the current market value for it. When you go to sell your home and manage to make a profit from doing so, equity will be the money that you earn after you have managed to pay off your mortgage.
When you have decided that you would like to go ahead with refinancing the mortgage on your home, you will need to make sure that you are no longer bound by your current mortgage’s lock-in period.
For those who might be unaware, a lock-in period is an amount of time that is agreed upon ahead of time when signing a mortgage with a bank where you promise that you will not pay off the mortgage in full either by complete settlement, sale, or refinancing. If you do end up breaking this agreement, you will be charged with an exit penalty fee.
8. Early Repayment
Early repayment is pretty much exactly as the name would suggest. It essentially means that you are clearing your mortgage balance ahead of the originally scheduled date. This can be done either by repaying your mortgage in one fell swoop or by making an overpayment on your monthly mortgage payment.
As mentioned earlier however, there are often penalty fees charged to you for doing so, especially if you clear out the balance of your mortgage while you are still in the lock-in period you agreed to. There are other instances in which you will have to pay a penalty fee for paying off a home loan as well.
9. Assumption Agreement
When you are in the process of buying a home and you decide to sign an assumption agreement, you are taking on the responsibility for the existing mortgage on the home. The person who is selling the home will then no longer be under any obligation to keep paying back the mortgage.
10. Closing Costs
Closing costs are essentially any of the additional fees that you will be required to pay on the date of closing on a house. This happens when the transactions are finalized, and you become the new owner of the home. These kinds of costs include things like transfer fees, disbursements (which are fees that your lawyer will have to pay for you and be reimbursed for), as well as legal fees.