Most people cannot afford to buy a home with cash, so will need to get a mortgage or “home loan” to cover a percentage of the property cost.
A mortgage is a loan taken out to buy property or land. The buyer will put down a percentage of the property price upfront, and the rest of the property price will be covered by their mortgage.
In addition to repaying the loan amount, the borrower is obligated to make interest payments to the lender. The home or land is served as security for the funds borrowed, meaning that the ownership of the real estate will transfer to the lender if the borrower fails to repay the loan under the mortgage loan agreement. Most types of property can be used as collateral for a mortgage.
The down payment (or, deposit) is the amount of money you put towards the purchase of a property. It’s often calculated as a percentage of the property price. A larger deposit can bring down the interest rate of your mortgage.
Mortgages are usually repaid over a long period of time, typically up to 25 years. When a property has been purchased using a mortgage, the mortgagor’s security is recorded in the register of title deed documents to make it public information, and is voided when the loan is repaid in full.
Loan-to-value (LTV) ratio
The loan-to-value ratio is the mortgage amount expressed as a percentage of the total purchase amount. It’s usually a percentage and tells you how much your property is mortgaged.