Whether you are buying a house, looking to reorganize your finances in a more functional way or looking into making a large purchase for yourself or your family, understanding basic financing terms is important. Without a solid and fundamental knowledge of how money lending works, you could end up making a bad decision and paying for it for years. With this guide, you will be able to come to grips with the three major financing terms and see how each applies to you now and in the future. If you are like most people and slightly confused about financial terms, then all you need to do is have a quick read through this simple guide and you’ll be much better equipped to make those tough decisions.
What is a mortgage?
When you want to buy a house, there is little else you can think of that seems more important. A house is essential to starting and raising a family, for putting down roots and really feeling like a part of your town. When you don’t have the money to buy a house, the situation can seem completely unfair; this is where a mortgage agreement comes in. Essentially, a mortgage agreement is something that will be decided on between you, as the borrower, and a money lender, to say that you will be lent enough money specifically for the purchase of a house. You will have to agree to make regular repayments on the amount that include interest, until the debt has been cleared after a period of 15 to 30 years. The interest rate will either be fixed or adjustable depending on the agreement. A fixed rate will never change; however, an adjustable rate will start lower than a fixed rate and fluctuate over the years.
What is home equity? Do I have any and can I use it for anything?
Once you have purchased your home and owned it for several years, it will have appreciated more value that when you first bought it. ‘Home equity’ refers to the difference in value from the time you bought your house until now. Usually this value is untouchable and will only benefit you if you choose to sell your home. If you are looking into a large purchase, however, you may be able to turn this equity into a home equity loan, which is a cash loan based on the home equity value. There are no spending limitations on this loan, which is to say that regardless of whether you want to fix up the basement, buy a car or go on vacation, you can do any of these things. As long as you agree to make repayments on the debt, including a low interest rate, you should be able to handle the loan and enjoy whatever purchase has to be made!
What does ‘refinancing’ mean?
When you refinance, you take out a new loan or mortgage to replace an existing one. The reason for this would be so that you will be given the opportunity to renegotiate the repayment details of your original loan. You should be able to lower your monthly repayment amount as well as your interest rate so that creating a monthly budget will not be so strict. In the long run you will save money on interest. This is the ideal solution for anyone who has a particularly tough time paying the debt back and still keeping the household running smoothly with all that it needs.
With this basic guide, you should see the differences between each of the major three financing options and understand which of them fits in best with your situation. If you need any more information, please just fill out the form below and an advisor will get back to you as soon as possible!
