Homebuying is a demanding process and it can be overwhelming when banks and real estate agents begin speaking in financial jargon. When applying for a loan, it is vital you understand exactly what is being said. Below are some of the most common mortgage terms explained.
Credit report
A credit report outlines an individual’s credit history, including their current debts and their competency in paying back past loans. These are used by lenders to determine whether or not to offer you a loan. Your credit report may also be accessed by employers and potential landlords while determining whether to offer you a job or a rental property. Your credit report will contain important information including:
- Identifying information
- Credit information
- Information regarding past bankruptcies
Deferred payment
A deferred payment is an agreement where the date by which an amount must be paid is postponed. You may be able to defer a payment by speaking to a lender about your current circumstances, whether this be financial hardship, illness or injury, natural disaster or reduced work hours.
Fixed rate
A fixed rate is an interest rate that is set for an agreed period of time, for example one year. During this time, the interest rate does not fluctuate, allowing the borrower to accurately predict what their future repayments will be.
Interest-only loan
When a borrower takes out an interest-only loan, they only pay back interest for a short period of time, before they begin to repay their actual loan. In the short-term, the borrower will have smaller repayments. However, after the interest-only term is up they will end up paying more.
Refinancing
Refinancing involves switching your loan from one lender to another with the goal of either finding a better interest rate or modifying your repayments to suit a change in circumstances. You may also decide to refinance your loan to consolidate debts, making repayments simpler and reducing the interest you pay each month.
Settlement
The date of the completion of the purchase of a property. After all the stress and confusion, this is that date you finally become the owner of your new property.