Hi there, welcome to my blog! Today I’m going to share with you the top 5 home financing terms you should know before you buy your dream house. Whether you’re a first-time buyer or a seasoned investor, understanding these terms can help you make better decisions and save money.
1. Interest rate. This is the percentage of your loan amount that you pay to the lender as a cost of borrowing. Interest rates can vary depending on your loan type, term, credit score, and market conditions. Generally, lower interest rates mean lower monthly payments and less interest paid over the life of the loan.
2. Loan term. This is the maximum length of time you have to repay your loan. Common loan terms are 30-year or 15-year. Longer terms usually have lower monthly payments but higher interest rates and more interest paid over the life of the loan. Shorter terms help you pay off your loan faster, saving on interest.
3. Down payment. This is the amount of money you pay upfront when you buy a property. The down payment reduces the amount you need to borrow and shows the lender that you have some skin in the game. The minimum down payment required depends on your loan type and lender, but typically ranges from 3% to 20% of the purchase price.
4. Loan-to-value ratio (LVR). This is the percentage of your property’s value that you borrow from the lender. For example, if you buy a $500,000 house with a $100,000 down payment, your LVR is 80% ($400,000 / $500,000). The lower your LVR, the less risky you are to the lender and the more likely you are to get a better interest rate and avoid paying extra fees.
5. Mortgage insurance. This is a type of insurance that protects the lender in case you default on your loan. If your LVR is higher than 80%, you may have to pay mortgage insurance as an additional cost on top of your interest and principal payments. Mortgage insurance can be paid upfront or monthly, depending on your loan type and lender.
