Buying a property requires you to first become familiar with some new terms that you may not otherwise consider – such as the mortgage glossary for first-time homebuyers.
Here, now, is a short mortgage glossary that will help first-time home buyers understand the jargon used by their financial institution or financial advisor when obtaining a loan in order to buy a home.
A “mortgage loan” will be granted by your financial institution so that you can purchase a property. This loan has the distinction of being secured by the home itself – in other words, if you do not meet your monthly payment obligations, the creditor (your bank) will seize the house and sell it in order to get their money back.
The down payment is the amount of personal money that you, as a first-time home buyer, invests in the purchase of your property. Currently, a minimum down payment of 5% is required to purchase a home.
So if you want to buy a house that is worth $300,000, you will need to make a minimum downpayment of $15,000 and you will then obtain a mortgage for $285,000 to cover the rest of the investment.
If the period of amortization is longer, the interest rate that you will pay will be higher.
The interest rate is always expressed as a percentage. It is the price paid by the borrower (you, the first-time home buyer) to the lender (your bank) in order to obtain a loan. The interest will be added to the total amount of your loan and you will pay this off with your mortgage payments.
Depreciation is the period of time over which your mortgage payments will be spread out – or, in other words, the repayment of your debt. The maximum amortization period is now set at 25 years.
The mortgage term
The mortgage term is the length of the contract between you (the first-time home buyer) and the financial institution (your bank). Typically, the mortgage term is much shorter than the amortization period (which may range from a few months to several years). The terms of your contract will not be changed before the end of the term unless you pay certain penalties.
If you plan on buying or selling a home, visit DuProprio.com today.