MyRate Education Centre
Glossary
100% loan
The loan amount covers the full purchase price of the property. In other words, no deposit is required, however any government, legal or lender fees are still payable.
Amortisation
Amortisation is the process by which a loan, such as a mortgage, is gradually eliminated through regularly scheduled payments that cover the interest and a portion of the principal.
Application fee
A cost you might incur when you apply for a loan. Some lenders have this and some do not.
Break Costs
The amount of loss to the lender as a result of a fixed loan (or any part of it) being repaid before the fixed rate term ends. Usually this is repaid to the lender by the customer.
Broker commission
A fee charged to the lender by a broker for sourcing a mortgage for their clients.
Commercial Loan
A loan that is used to buy or finance a business.
Comparison Rate
Is the current rate combined with any foreseeable fees and charges. It is used to compare loans from different lenders to see which is the better deal.
Construction Loan
A loan made to a builder or home owner that finances the initial construction of a property. The funds are either disbursed as needed or as part of a pre arranged plan. When the construction is complete the loan then changes into a traditional home loan.
Conveyancing
The legal work carried out by a solicitor or licensed conveyancer for the transaction of buying or selling of a property.
Credit check
When a lender views your credit history (eg. if you have any defaults on loans, bills etc.) to assess how likely you are to repay the loan without a problem.
Credit Crunch
A sudden reduction in the availability of loans (or "credit") or a sudden increase in the cost of obtaining a loan from the banks.
Debt consolidation
Replacing multiple loans with a single loan that is normally secured on property. This can often reduce the monthly outgoing interest payments by paying only one loan. Because the loan is secured, the interest rate will generally be considerably lower.
Deferred establishment fee
A fee charged by a lender when a customer pays out their loan within a short amount of time, or refinances with another lender. It can also be known as an exit fee.
Equity Loan
Sometimes referred to as a second mortgage or borrowing against your home. The loan allows you to tap into your home's built-up equity (which is the difference between the amount your home could be sold for, and the amount that you still owe) and use this as security to borrow further.
Extra repayments
The act of paying more than the minimum repayment towards your home loan if you have cash to spare. Extra repayments reduce the principal thus decreasing the amount of time it takes to repay the loan as well as the total interest paid.
Fixed Rate
A rate that is locked in for a specified period of time (usually 1-5 years) and it is not subject to change within that period. At the end of this period, the rate reverts to a variable rate.
Formal approval
The stage in a home loan application where the lender has issued a contract that they approve you for the loan based on your serviceability. This is the main milestone for applying and usually means you will receive the loan.
Home loan
A loan secured by real property through the use of a mortgage (a legal instrument). However, the word mortgage alone, in everyday usage, is often used to mean home loan.
Honeymoon rate
This is usually a loan with a low interest rate for an agreed initial period which reverts to a standard variable rate once the period is passed.
Interest only loan
A loan where only the interest and not the principal is paid for an agreed term (usually 1-5 years) or during a construction period.
Interest rate
The percentage rate at which interest is charged on a loan you borrow, or paid on savings you deposit.
Investment loan
A loan taken out for the purpose of buying an investment property and secured against this property. Investment loans are usually taken out as an Interest Only Loan and the interest is tax-deductible in most circumstances.
Legal disbursement
Legal expenses that a lawyer passes on to a client, such as for photocopying, overnight mail and messenger services.
Legal fee
This is a fee that covers the cost of the time your property lawyers or solicitor spends on your conveyancing. Some lenders charge this fee, others do not.
Line of Credit
Sometimes known as a revolving line of credit. A line of credit means you can withdraw funds from your home loan account up to a certain limit, without the need for pre-approval. Essentially it is an interest only loan without a fixed term meaning you can manage the principal yourself – handy if you want maximum control over your finances.
LMI (Lenders Mortgage Insurance)
This comes into play when the loan amount is more than 80% of the property value (or 60% for Low Doc loans). This insurance is paid by the borrower. It protects the lender if the borrower defaults and the borrower cannot recoup the full loan amount from selling the property
Loan balance
The current outstanding balance (the amount you owe) on your present home loan.
Loan principal
The base amount of the loan – not including interest.
Loan term
The length of time set for a borrower to pay off their loan. Most home loans are from 15-30 years.
Low doc loan
A loan type designed especially for self employed people and others who don’t have the traditional proof of income documents which are usually required. Self certification is accepted instead. Interest rates are generally higher because this is considered a slightly higher risk to the lender.
LVR (loan to value ratio)
The loan amount divided by the property amount (shown as a %). This is a measure of how risky the loan is. If your LVR is very high this means the borrower is likely not to recoup the full loan amount from selling the property in case you default. As a result, the higher your LVR the more risky the loan would be considered by the lender (with most lenders requiring you to pay LMI if your LVR is over 80% or 60% for low doc loans).
Mortgage
A legal document specifying a certain amount of money to purchase a home at a certain interest rate, and using the property as collateral.
Mortgage broker
An agent who compares the various loan options on the market for a client and arranges loans for them. They charge the lender a fee or commission for bringing them the customer.
Mortgage contract
The legal document that sets out the terms of the mortgage and the rights/obligations of each party.
No deposit loan
See 100% loan
Ongoing fees
These are fees that you will have to continue to pay throughout the life of the loan. Examples are account keeping fees, administration fees or service fees. Some lenders charge these fees, others do not.
Owner-occupied property
A property that serves as the borrower's primary residence.
PAYG borrower
A borrower working for an employer and receiving a salary from which the employer automatically deducts tax.
Portability
A portable mortgage is one that can be transferred to another property without penalty if the borrower moves house within an early repayment charge period. The new interest rate that the Lender will be prepared to offer depends on whether the loan amount increases or decreases. If the latter, early repayment charges may apply.
Pre-approval
An initial approval in writing by a lender subject to terms and conditions, which provides an estimate of how much a borrower can borrow.
Predatory lending
A type of lending that falls between appropriate risk-based pricing and blatant fraud. An example would be a broker who writes loans for people who they know cannot afford the repayments, expecting them to default but going through the transaction for the sake of their commission.
Prime lending
Lending to borrowers with highly rated credit histories. Prime loans are often called "A" credits.
Principal
The amount of money owing on the loan.
Principal & interest loan
A type of loan where the repayments cover more than the interest so that the loan balance will reduce with each repayment.
Redraw facility
This allows you to make extra repayments and access the funds whenever you want. This encourages you to make the extra repayments, while having the security of knowing you can always have the money again later if you need to.
Refinancing
Paying out an existing home loan by taking up another loan. The new loan may feature a lower interest rate, no fees or flexible options.
Revolving line of credit
See Line of credit
Salary crediting
Having your loan repayments taken directly from your salary.
Securitised funds
Funds which come from investors pooling together large sums of money and giving them to companies that repackage them and invest them in ventures like mortgages on their clients’ behalf.
Security (property)
The property provided as collateral for a loan, such that if the borrower defaults on the loan the lender can sell the property and use the proceeds to recoup the loan.
Self employed borrower
A borrower whose income is derived from a business source in which he/she has an ownership
Settlement
The conclusion of the mortgage transaction. This includes the delivery of a deed, the signing of notes, and the disbursement of funds necessary to the mortgage loan transaction.
Settlement Fee
A fee charged by the lender for handling or processing settlements. Some lenders charge this fee, others do not.
Split Loan
A loan that is split into two or more parts. Its generally split with part fixed rate and part variable but can also be split in other ways. (eg. between two different variable loan products)
Stamp duty
A State Government tax on payable by the borrower and assessed on the amount secured by the mortgage. The higher the amount secured by the mortgage the greater the Stamp Duty on Mortgage that is payable.
Standard variable rate loan
The variable rate available to all borrowers, not requiring any special conditions (such as having a loan amount greater than a certain amount).
Sub-prime lending
A type of lending that relies on risk-based pricing to serve borrowers who cannot obtain credit in the prime market. Because of this greater risk the interest rate is generally much higher. Very few lenders in Australia engage in sub-prime lending, almost all lenders (including MyRate) exclusively engage in prime lending.
Title search
Research into public title records to determine the current status of ownership of a piece of property; a licensed attorney must provide any legal interpretation of the records found
Valuation
An assessment and written report of a professional’s opinion of a property’s value.
Valuation fee
The fee paid by the borrower for the lender's inspection of the property. Some lenders charge this fee, others do not.
Variable rate
An interest rate that moves up or down depending on market conditions.
Variation
Any changes you wish to make to your loan after the contract is drawn up. This could include anything from an increase or decrease in loan amount to splitting the loan. There may be a fee charged to make a variation.
|