Mortgage 101: Common Terms and Phrases
Mortgage: A mortgage is a loan provided by a lender (such as a bank) to help you purchase a home. You borrow a specific amount of money to buy the property, and then you repay the loan over time, typically with interest.
Principal: The original amount of money borrowed to purchase a home, excluding interest.
Down Payment: The down payment is the initial amount of money you pay towards the purchase price of a home. It is usually a percentage of the total price and is paid upfront. The remaining amount is financed through a mortgage.
Term: The term refers to the length of time that you agree to be bound by the specific conditions and interest rate of your mortgage. It is usually expressed in years. At the end of the term, you can either pay off the mortgage or renew it for another term.
Amortization: Amortization is the process of gradually paying off your mortgage loan over time through regular payments. It involves both the repayment of the principal amount borrowed and the interest charged on the loan. Amortization periods can span several years, typically ranging from 25 to 30 years.
Fixed Interest Rate: A fixed interest rate means that the interest rate on your mortgage remains the same throughout the term of the loan. This provides stability and allows you to know exactly how much your mortgage payments will be each month.
Variable Interest Rate: A variable interest rate, also known as an adjustable rate, can fluctuate over the term of the loan. It is usually based on a benchmark rate, such as the prime rate, and can change periodically. This means your mortgage payments may vary over time, depending on the interest rate fluctuations.
Equity: The portion of the property's value that you own outright, calculated by subtracting the outstanding mortgage balance from the property's current market value.
Monoline lender: is a type of financial institution that specializes in providing loans, particularly mortgages. Unlike traditional banks, monoline lenders focus solely on lending and do not offer other banking services like savings or checking accounts. Their primary purpose is to provide mortgage financing to borrowers.
Pre-approval: The process of determining how much money a lender is willing to lend you based on your financial information, creditworthiness, and the property's appraisal value.
Appraisal: An assessment of the property's value conducted by a licensed appraiser to determine its fair market value. Lenders use appraisals to ensure the property's worth is in line with the loan amount.
Solicitor: A solicitor is a legal professional who specializes in various aspects of law, including real estate. When it comes to home buying, a solicitor plays a crucial role in ensuring the legal aspects of the purchase are handled correctly. They review and prepare legal documents, conduct property searches, handle the transfer of ownership, and ensure that the transaction adheres to all relevant laws and regulations. They act as your advocate, protecting your interests throughout the home buying process. Your solicitor can either be a notary or lawyer.
Notary: A notary, also known as a notary public, is an individual authorized by the government to witness and certify various legal documents. In the context of a home buying purchase, a notary can authenticate signatures on important documents, such as the purchase agreement or mortgage paperwork. Their role is to verify the identity of the individuals involved and ensure that the signing process is done correctly and legally. Notaries provide an additional layer of assurance that the documents are valid and legally binding.
Closing Costs: The fees and expenses associated with finalizing the purchase of a property. They may include appraisal fees, legal fees, title insurance, and property transfer taxes.
Home Inspection: A home inspection is a thorough examination of a property conducted by a professional inspector before buying a home. The inspector assesses the condition of various aspects of the property, such as the structure, electrical systems, plumbing, roofing, and more. The goal is to identify any potential issues or problems that may require attention or repairs, helping buyers make informed decisions about the property's condition and potential future costs.
Adjustment Date: The adjustment date refers to a specific date in a real estate transaction when financial adjustments are made between the buyer and the seller. It typically involves prorating expenses such as property taxes, utility bills, and condominium fees. The adjustments ensure that each party is responsible for their portion of these costs based on the agreed-upon terms.
Completion Date: The completion date, also known as the closing date, is the day when the ownership of the property officially transfers from the seller to the buyer. On this date, all legal and financial obligations are fulfilled, and the property officially becomes the buyer's. It is an important milestone in the homebuying process.
Possession Date: The possession date is the day when the buyer takes physical possession and control of the property. It is the date when the buyer can move into the property and begin occupying it. The possession date is typically negotiated and agreed upon between the buyer and the seller during the purchase process.
Mortgage Benefits & Payout Penalty
Common Real Estate Terms
Strata Fees: Strata fees, also known as condominium fees or maintenance fees, are regular payments made by owners of strata-titled properties, such as condos or townhouses, to cover shared expenses for the building or complex. These fees are used to maintain common areas, manage amenities, pay for utilities, and contribute to a reserve fund for future repairs or improvements.
Property Tax: Property tax is a recurring fee imposed by the government on property owners. It is based on the assessed value of the property and is used to fund local services and infrastructure, such as schools, roads, and public facilities. Property taxes are typically paid annually or in installments and are calculated by applying a tax rate to the assessed value of the property.
Purchase of Contract and Sale: The purchase of contract and sale, often referred to as the purchase agreement or sales contract, is a legally binding document that outlines the terms and conditions of a real estate transaction. It includes details about the buyer, seller, property, purchase price, financing, closing date, and any additional terms negotiated between the parties. It serves as a blueprint for the transaction and protects the rights and obligations of both the buyer and seller.
Strata Minutes: Strata minutes are written records of the discussions, decisions, and actions taken during strata corporation meetings. These meetings involve the owners or representatives of strata-titled properties and address various matters related to the
management, governance, and maintenance of the strata complex. Strata minutes provide important information about the decisions made, rules implemented, and issues discussed within the strata community.
Property Disclosure Statement (PDS): A Property Disclosure Statement (PDS) is a document provided by the seller to the buyer that discloses important information about the property. It includes details about the property's condition, any known defects, renovations or additions, environmental concerns, and other relevant information. The PDS is intended to inform the buyer about the property's history and potential issues, allowing them to make an informed decision about the purchase.
Subjects: Subjects provide a level of protection and allow buyers to conduct due diligence before committing to a home purchase. If the conditions outlined in the subjects are not met within the specified timeframe, the buyer typically has the right to back out of the agreement without any financial penalty. It is important to consult with a real estate professional or lawyer to understand the specific subjects and their implications in your home buying process.
Pre-payment Benefits: Pre-payment benefits are the advantages of making extra payments on your mortgage, beyond the regular monthly payments. By making additional payments towards your principal, you can reduce the overall interest you will pay over the life of the mortgage. This can lead to interest savings, a shortened loan term, and potentially becoming debt-free sooner.
Lump Sum Payments: A lump sum payment refers to a one-time, larger-than-usual payment made towards your mortgage principal. It allows you to reduce the overall amount you owe on your mortgage. By making a lump sum payment, you can lower your outstanding balance, potentially save on interest costs, and pay off your mortgage faster.
Mortgage Mobility: Mortgage mobility refers to the ability to transfer your existing mortgage to a new property without incurring penalties. It allows you to keep your current mortgage terms and interest rate when moving to a different home. Mortgage mobility provides flexibility and convenience, avoiding the need to break your mortgage and potentially face penalties or higher interest rates.
Payout Penalty: A payout penalty, also known as a prepayment penalty or breakage fee, is a charge imposed by the lender when you pay off your mortgage earlier than the agreed-upon term. The penalty is designed to compensate the lender for the interest income they would have received if you had continued making payments as scheduled. Payout penalties vary depending on the terms of your mortgage agreement and can be a fixed amount or a percentage of the outstanding balance.