The property market can be confusing if you don’t understand the buzzwords that finance and property professionals use. To move past the jargon and to understand the language and its meaning, here’s some of the most common words you’ll encounter.
Principle and Interest
Depending on the type of mortgage you have selected, your monthly mortgage payment typically consists of a principal and interest payment or an interest only payment. In this case, the word ‘principal’ refers to the amount you’ve borrowed and ‘interest’ is the amount that your lender charges you monthly for borrowing the principal from them.
These form of loans don’t require the standard documents to secure. Low-doc loans are usually offered to people who are self-employed, as it is often harder for business persons to prove their income due to them not having weekly pay slips and their latest tax returns or business statements. A low-doc loan is usually higher in interest and a lender will look at bank statements and credit ratings to prove if a person is a good risk.
If you’re a home owner seeking to sell your existing home and you’ve found a new home you wish to buy, you can take out a bridging loan. This type of loan is interest only, and allows you to ‘bridge’ your financial gap until you sell your existing home. Once your existing home sells the money you get from the sale will come off your new home’s loan balance.
Lenders mortgage insurance (LMI)
If you have less than a 20% deposit, then it is highly likely that a lender will require you to pay lenders mortgage insurance. This is a once-off payment that protects the lender against loan repayment default. LMI can add thousands to the cost of a home loan, but you can avoid this by saving more of a deposit before you buy.
A redraw facility is linked to your home loan and gives you access to any additional home loan payments you’ve made over the minimum payment due. For instance, if your minimum home loan payment per month was $1,200 and you’ve paid $2,000 for the last 12-months then your redraw facility would have $9,600 in it that you could use if you needed. But, before you withdraw any money you need to bear in mind that this value is added back to your home loan principal and you’ll pay interest on this.
Do you want to know more about home loans? Then contact eChoice and find the right home loan for YOU today.