Have you ever had an experience with buying a home? Picture yourself sitting across the loan officer as a loan officer desk, would you make sense of what the officer talks? What really did he mean by the requirement that your LTV needs be 96.50% and D/P must be 3.5% while the rate is 5.00% ? Were you too hazed to hear any further except that you’d be liable of a PITIMI payment of 1100.00 per month?
Did none of that make any sense to you? Are you wondering what are these mortgage terms the loan officer just used? Most of us are hardly aware of any of these loan terms and all these acronyms and abbreviations are too confusing to ponder. 5 most commonly used lending terms that the first time home buyer needs to understand are:
1. PITIMI (Piti-me) Payment
Abbreviation of Principal, Interest, Taxes, Insurance, & Mortgage Insurance, this is your total combined mortgage payment!
The fullform is Mortgage Insurance. Contrary to what the words would make you believe, this is not the home-owners insurance. Mortgage insurance is the insurance you are to pay for the lender. This is to accommodate banks to provide loans to people with a lower amount of down payment and the customer thus pays the insurance to cover for the risk for their loan. If the loan is defaulted upon and the lender is required to sell the property to cover the loan, the insurance will be liable to cover the gap in the amount needed to be collected.
The Home Owners Insurance, this is an insurance policy that the buyer chooses to help protect and cover their home against damages caused by disasters, fire, and theft. This insurance will cover for any damages and help you get your money back if the property or possessions are damaged.
4. LTV (Loan-to-Value)
The percentage calculated from the amount that the loan is to the value of your home. If the actual value of your home is 100k, and the loan you have applied for is 80k then the LTV is 80%.
5. APR (Annual Percentage Rate)
Contrary to popular belief, this is not the rate that the payment is calculated on. The payment is computed based on the Interest rate, however the APR is used by the bank to portray the real cost of your loan. If there are any additional costs of fee associated with the loan, then the APR will be higher that the interest rate whereas if the fees are negligible, the APR will be closer to the interest rate. It is hence best that you compare the APR and not the interest rate by itself when comparing loan products.
Confused about mortgages, rates and terms? www.expert-mortgage.ca is your one stop solution to everything you’d ever want to know about Mortgage.