Home Financing Jargon
If you’ve never bought a home before it is easy to be confused by all the jargon used. And if you don’t understand the terms used, you could well make serious financial mistakes without realizing it until it is too late. Here are a list of terms and their explanations to help you negotiate the deep waters.
1. Lenders charge a fee to cover the cost of setting up the loan. This is called the establishment fee.
2. A fixed interest loan is one in which the interest is fixed at a specific rate and so does not rise or drop until the date set. It can be changed to a variable rate loan where the interest rates reflect the market, but you’ll have to pay for the privilege.
3. Honeymoon rates are very low interest rates available for a short time to encourage people to apply for a loan. Remember they go up.
4. A Low doc loan is for self-employed people who need loans but can’t supply all the financial details necessary. It has a high interest rate.
5. Offset account is loan account attached to a transaction account. All the money in your account goes towards paying off the loan, but you can still use it for other things. Hey, some things have to be good for the borrower!
6. Parental leave; great if a baby comes along. You can get lower repayments for a set time. A penalty may apply.
7. Portability means that you can use the same loan for a different house if you need to sell and move. Saves more setting up fees.
8. A redraw facility allows you to take back those extra payments you made if there is an emergency.
9. Repayment holiday means you can have a holiday from making those repayments - but only if you’ve built up extra to cover it.
10. Split loan means part of the loan is on fixed rate, while the other part is variable.
11. Top up means you can get credit on your loan to pay for something else to save the cost of taking out another loan.
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