What is the Principal (Money)?
The principal money is the sum of money that you borrow or want to borrow. If you need to borrow $80,000 to complete the purchase of a house then that $80,000 is the principal.
What is the Interest?
You have to pay interest on the amount you borrow, the fee or debt that you are paying to borrow that amount. Interest can be paid in several ways depending upon the type of loan you have agreed.
Some of the common types of loans include;
On this type of mortgage the interest rate is set at an agreed rate for a period of time. This could be anything between one and five years. During this set period the interest rate will not change no matter how good or bad the economy is doing or how variable the bank or lenders own interest rate or rate of borrowing fluctuates.
The interest rate changes when the Reserve bank of New Zealand adjusts the official cash rate, your monthly payment could go up or down depending on how good or bad the economy is doing.
Only the interest is paid on the home loan. The principal amount is then due when the when the loan period ends or the mortgage has ended.
Is interest rate is at a fixed price but if the bank sets a lower rate of interest you can then pay at the lower rate.
You should only use registered mortgage brokers. You should listen to their financial advice carefully and not take out a loan you cannot afford and always remember that interest rates can go up and down, which can greatly affect your monthly payments.