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The terms used in the above graphic:
Remaining Mortgage: This represents the outstanding balance of the mortgage on the property. It’s the amount of money that still needs to be paid back to the lender.
Realtor Fees: These are fees paid to a real estate agent for their services in selling the property. Typically, this is a percentage of the sale price and is paid by the seller at the time of closing.
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Closing costs: These are expenses over and above the price of the property that buyers and sellers normally incur to complete a real estate transaction. These costs can include title searches, lawyers’ fees, transfer taxes, and other administrative expenses.
Liens: A lien is a legal claim or a right against a property. Liens are typically put in place as security for the repayment of a debt, such as loans, unpaid taxes, or other obligations. If the property is sold, liens must usually be satisfied (paid off) before clear title can be transferred to the new owner.
Home Net Worth / Net Equity Released: This is the amount of money a homeowner can expect to receive from the sale of a property after all debts and expenses have been paid off. It represents the remaining value of the property that the homeowner “pockets” after the mortgage, liens, realtor fees, and closing costs have been settled. It is important that you consult with a real estate professional to provide you with an estimte of your home’s net equity. This will give you a better result when using the above Retirement Mortgage Calculator.
Principal: The amount of money borrowed on a loan. Over the life of the mortgage, the principal is gradually paid down through scheduled repayments.
Interest: The cost of borrowing the principal amount, typically expressed as a percentage rate. Interest is usually calculated on the principal amount still owed and forms part of the regular mortgage payments.
Down Payment: An upfront payment made by the buyer of real estate as part of the total purchase price. The size of the down payment affects the amount of the mortgage required and often the terms of the loan.
Amortization: The process of spreading out a loan into a series of fixed payments over time. You pay off the interest and a part of the principal in each payment, which means that the total debt decreases over the period until it’s completely extinguished.
Escrow: An account held by a third party on behalf of the two primary parties in a transaction. For mortgages, this usually involves holding funds for the purposes of paying property taxes and homeowner’s insurance.
Fixed-Rate Mortgage: A mortgage that has a fixed interest rate for the entire term of the loan. The principal and interest portion of the payment remain the same throughout the loan term.
Adjustable-Rate Mortgage (ARM): A mortgage with an interest rate that can change periodically based on the performance of a specific benchmark, potentially causing payments to increase or decrease.
Refinance: The process of obtaining a new mortgage, usually with better terms, to pay off an existing mortgage. Refinancing can be used to reduce interest rates, cut monthly payments, shorten the loan term, or convert from an adjustable-rate to a fixed-rate loan.
Equity: The value of the homeowner’s interest in their home. This is the difference between the fair market value of the property and the principal balance of all mortgage loans.
Foreclosure: The legal process by which a lender attempts to recover the amount owed on a defaulted loan by taking ownership of the mortgaged asset and selling it.
Reverse Mortgage: A loan available to homeowners 62 years or older who have considerable home equity; it allows them to convert part of the equity in their home into cash. The loan is typically repaid when the borrower moves out or passes away.
Retirement Mortgage: A type of mortgage designed specifically for retirees who may have difficulty qualifying for a traditional mortgage due to a lack of regular income. It allows the borrower to borrow against the equity in their home, and the loan is typically repaid from the sale of the home when the borrower moves out, sells the home, or dies.