If you are buying your first apartment, are in the process of selling, or are just curious about where to start in real estate investment, the chances are quite high that you will be left scratching your head over the unfamiliar jargon and industry-specific terminology that you come across. To assist all those working in the world of real estate, Icon Luxury Hotels has compiled a handy dictionary of the most useful real estate terms, ideal for both experienced professionals and those just starting out in the industry.
One of two standard types of loan. In adjustable-rate mortgages, interest rates may change over the duration of the loan period. This interest rate change can take place at five, seven, or ten-year intervals. Due to the unpredictability of market rates, an adjustable-rate mortgage is a higher risk, especially for those wishing to take out a mortgage over a long period of time.
One of two standard types of loan. Unlike adjustable-rate mortgages, fixed-rate mortgages have interest rates that do not change throughout the duration of the loan. These are generally deemed to have less long-term risk.
An assumable mortgage is one in which all the terms and conditions set out in a mortgage are transferred from a seller to a buyer. In short, it refers to instances where the new buyer of a property takes on and continues to pay off the existing debt on a property rather than take out a new mortgage themselves.
An appraisal is a determination or judgment by the bank or mortgage lender regarding the value of the property that is to be purchased. An appraisal is carried out prior to getting a loan so that the banks or mortgage lenders can correctly evaluate that the value of the loan to be issued is correct. An appraisal involves an examination of the property, its selling price as well as other comparable properties in the local vicinity.
Principal refers to the sum of money which is borrowed to purchase a property. Alongside interest payments, the sum of the principal is what determines the monthly mortgage payments due.
Interest refers to the actual cost of borrowing money to purchase a home. Generally speaking, individuals with longer mortgage terms will pay more in interest by the end of the period in which the loan is paid off in full. Interest, alongside principle, determines the monthly mortgage payments due.
Amortisation refers simply to the schedule in which you pay your mortgage payments. It is a combination of both principal and interest and is usually paid monthly over a period of 10 to 30 years depending on the terms of the mortgage.
Refinancing refers to when you choose to restructure a loan in order to take advantage of lower interest rates on the mortgage of a property. Refinancing occurs when an old loan is replaced with a new loan that has different rates and terms of payment. Refinancing is a method that allows homeowners to reduce their monthly payments as well as the overall payment due to their debt.
Appreciation refers to the amount and extent to which a property increases in value over a period of time. Appreciation can occur due to increased demand on the market or as a result of changes in interest rates and inflation.
Contingencies are the conditions that must be met before a property purchase can be finalized. Contingencies are formulated and agreed upon by both buyer and seller and form a legal contract of sale. Contingencies may include but are not limited to, the approval of loan or financing as well as appraisal values being near to or within a stipulated range of the final sales price.
Closing formally refers to a meeting that takes place between the buyer and seller or their representatives where the property sale is finalized. During the closing, the buyer makes the down payment and the buyer and seller are required to sign final documents. The buyer is also required to pay closing costs.
Closing costs refer to costs made by the buyer upon closing that is in addition to the final agreed price of the property. Closing costs typically include excise tax, loan processing costs as well as title insurance.
In real estate terms, equity refers to the percentage or amount of the home that is actually owned. It refers to the amount of the principal that has already been paid off, which is the difference between the current fair market value of the property and the balance of the mortgage which is yet to be paid. In general terms, higher equity allows for more flexibility should you wish to refinance.
A down payment is a sum of money that is paid and used to fund the purchase of a property. In most cases, a down payment refers to the amount of money that a buyer has saved up and which will be used alongside a loan to purchase a property in full. Down payments are usually stated and referred to as a percentage of the overall purchase price of the property. In other words, this is the percentage of the total purchase price which will be paid upfront.
Inspection refers to a home or property inspection which takes place once an offer to purchase a property has been made. Typically, the purpose of an inspection is to check the structural integrity of the building as well as the property’s plumbing, electrics, and other features. Inspections are important in flagging potential issues that could impact the negotiation of the final sales price.
Escrow refers to an account that is set up by a third party to hold funds throughout the duration of a process or transaction. In real estate, escrow typically refers to the buyer’s funds which are held and only released to the seller once closing and finalization of the property purchase have taken place.