Home Mortgage Loans Repayments 101: What Are The Components Of A Repayment?

Taking out a home loan is a big step. If you are hesitant, it is time to learn more about the ins and outs of home mortgage loans repayments and how they work. 

Read on to demystify the jargon with some definitions and a clear explanation of the bigger picture of this long-term commitment. 

Firstly, here are some definitions of the financial terms you will encounter when you take out home mortgage loans. Your repayment will be made up of these things.

Principal Amount

The principal amount is the original amount you borrow at the beginning of the loan period before any other costs are added. Because you are paying this amount back over a long period of time, you will see that initially, only a small portion of your monthly repayment goes towards reducing the principal amount.

Interest And Interest Rate

For the lending institution to loan you the principal amount, they will charge you interest. You can think of it as the price you have to pay for the privilege of having access to the funds. The interest rate is negotiated at the beginning and is expressed as an annual percentage. 

Interest rates can be fixed for the loan period or floating, fluctuating as the bank lending rate moves up and down. Your mortgage broker will advise you on the most suitable option for your home mortgage loans and help you to negotiate the lowest possible interest rate.

Other Fees Included In Repayments Of Home Mortgage Loans

Ask your mortgage broker to itemise the fees, taxes and insurance amounts that will be payable over and above your principal and interest payments.

What Is Not Included In Your Home Mortgage Loans Payment?

It is important to note that the following items are not included in your repayment amount and will need to be paid separately:

  • Body Corporate or homeowner’s association fees
  • Utilities
  • Household insurance
  • Rates

Initial Costs For Home Mortgage Loans

When you first take out a mortgage loan, there will be some initial one off costs including some or all of the following, depending on your lending institution:

  • Deposit - depending on your credit rating and other factors, most lending institutions require you to pay a deposit upfront. The property's purchase price less the deposit will be the principal amount of the loan.
  • Transfer duties and bond registration or initiation fees.
  • Conveyancing fees
  • Building inspections

If this all sounds like too much, get in touch with Simpler today. We are experts in simplifying the process of applying for home mortgage loans and negotiating the best possible deal for you. We aim to simplify the process and get you into your new home as quickly as possible.

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