Mortgage Terms For Home Buyers

Posted by Alan Zunec on Thursday, September 18th, 2014 at 5:52pm.

Because the world of mortgage lending is boundless, the language for first time buyers is easy to confuse. A buyer should familiarize themselves with common mortgage terms so they can understand the process as well as the mortgage conditions that are offered prior to entering a bank. The top seven mortgage terms and their meanings, Canadian buyers should know, are listed below:

Down Payment: This is the amount of payment that is given to the seller that is not covered by the loan. The higher the down payment the lower the risk the buyer is considered to have. The larger the down payment, the more interest the buyer is assumed to have invested in the property. A larger down payment lowers the LTV and if it falls below eighty percent mortgage insurance may not be required.

Mortgage Insurance: Lenders are protected from any losses that could come from the loan via Mortgage Insurance. This is not the same as home owner’s insurance as that protects the buyer from property damage and other possible liabilities.

Loan-To-Value: Loan to value or LTV is the mortgage term that determines a comparison that the value of your loan versus the value of your home. Your LTV is determined by dividing your loan amount by the home’s appraised value to the price of purchase.

This is a very important number because it is used to determine by the lender if the borrower will default on their mortgage. Therefore, this could be the deciding factor on if you are getting your loan.

Variable Rate Mortgage: This type of loan carries an interest rate that will vary according to market conditions. They payment will stay the same but the changes in the interest rate affects how much the monthly payment is. These changes will also affect the length of time it takes to repay the loan and the total interest that is paid over the life of the loan. These mortgage rates can be tricky because the initial rate is typically very low and many first time buyers only take into consideration the initial rate. This is why it is important to consider the type of loan and how it will also affect you years down the road, prior to making a decision.
    
Fixed-Rate Mortgage: In a nutshell, the interest rate will not fluctuate for the entire loan on this type of loan.
    
Closing Costs: Closing costs are all of the fees and expenses that encompass the property sale. For example broker fees, taxes and title costs, just to name a few. The sale contract specifies which responsibilities are the buyers and which are the sellers. The closing costs are paid by the buyer, in addition to the down payment

Term: A term loan is a monetary loan that is paid back over a preset period of time in regular payments. It usually lasts between one to ten years but can last as long as thirty, depending upon the case. Usually it involves an interest rate that is unfixed and will add some type of additional balance of some sort to be repaid.

Usually these are used for small business loans to repay over a long period of time for new or expanding enterprises, as they are assuming profit increases over time. These are used to raise their business supply capabilities very quickly thus increasing capital. A new company may use it to add more vehicles, increase their technology, or get more space for their daily operations.

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