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. As a result of the credit crunch, these loans are virtually non-existent.
Account keeping fee
An ongoing amount charged by lenders for maintaining the loan, usually charged monthly. MyRate does not charge account keeping fees.
All-in-one facility (see Line of Credit)
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 one off cost charged by lenders on set up to cover the cost of preparing documents and processing the loan. MyRate does not charge an application fee.
Assets
Anything of material value owned by an individual or company. These are things such as your home, vehicles, shares, electrical appliances and furniture.
Arrears
If your account is 'in arrears' you are behind in your repayments. If you are unable to meet the repayments on your loan you should contact your lender immediately.
Auction
A method of selling property in a public forum through bidding. The person who offers the highest bid purchases the property.
Borrower
The individual or entity in a loan contract which receives money from a lender in order to purchase property and agrees to repay the money over specified period of time.
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. This is repaid to the lender by the customer. Break costs are not instantly ascertainable, only valid for 48hrs and the amount of the break costs payable will be greatly affected by market conditions.
Broker commission
A fee charged to the lender by a mortgage broker for sourcing a mortgage for their clients. Broker commissions run into the thousands of dollars and banks can afford to pay them through a higher pricing structure. MyRate is a direct lender and does not pay broker commissions resulting in a cheaper interest rate.
Capital gain
A profit that results from the sale of assets. Sold cost - purchase cost = capital gain. Capital gains on the sale of a home remain exempt from capital gains tax.
Caveat
A warning or note of caution on a property's title. Usually that a third party such as an ex-spouse or government body, has some stake in the property.
Certificate of title
Document proving ownership of land. The certificate also shows dimensions of the land, name of owner, details of mortgages, easements or encumbrances.
Contract of sale
The contract of sale is a legal document between the buyer and vendor that sets out the terms and conditions of the sale of the property. Before signing the contract of sale it is highly advisable that you have a solicitor or conveyancer view it.
Co-Borrower
Any additional borrower(s) whose name(s) whose income and credit history are used to qualify for the loan. All co-borrowers involved are liable for the loan. The names of co-borrowers also appear on the property's title.
Covenant
Restrictions and provisos relating to the property which are mentioned on the certificate of title. The covenant may affect future plans or resale of the property. This is why you should use a licensed solicitor or conveyancer when purchasing property.
Commercial Loan
A loan that is used to buy or finance for business purposes.
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. When advertising home loans, it's compulsory that lenders provide a comparison rate.
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. A credit check cannot be conducted without your consent.
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.
Deposit
The deposit is the amount you contribute to the price of the property. Most lenders require you put down 10% of the value of the property.
Deposit bond
An insurance company will, for a fee, guarantee a deposit of 10% toward your property purchase. Deposit bonds are often required when simultaneous settlements are required ie: selling one property and purchasing another.
Debt consolidation
Replacing multiple loans with a single loan that is normally secured by 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.
Dependent
For the purposes of your loan assessment, this is anyone living with you who requires money to support. This includes children under 18 as well as your spouse if they are not working and are NOT applying for the loan.
Direct Debit
An instruction given by a borrower to a lender to deduct funds from a nominated account on a one-off or regular basis.
Direct Lender
A direct lender lender deals directly with the customer resulting in fewer costs and a better priced home loan. This is achieved because the direct lending model does not make use of brokers. MyRate is a direct lender.
Early repayment
Where the borrower repays the full loan amount before the loan term has been reached.
Equity
The value of the property less the loan amount - or the portion of the home that you own. If your property is valued at 300k, and you have a loan of 200k, you have 100k of equity.
Establishment fee
A fee charged by lenders to cover the cost of setting up the loan. MyRate does not charge establishment fees.
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. These extra funds can be taken out of a variable loan at any time (this is called a redraw), meaning that you can use your loan as a savings account.
First Home Owner's Grant (FHOG)
A $7000 government grant available to Australians buying or building their first home. The grant is available for owner-occupied properties and you have to live in the property for 6 months to qualify. Application for the FHOG is can be done through the home loan lender or directly.
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. The rate typically factors in the lender's speculation of where their variable rate will go within the next 1-5 years.
Fixed rate loan
A home loan with a fixed rate. Most lenders let borrowers fix part or all of their loan.
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.
Gazumping
A practice where seller agrees to sell a property to a particular buyer and then either sells to another buyer or raises the price if two or more buyers wish to purchase.
Government Fees
State and government charges at the time of settlement, e.g. stamp duties and mortgage registration fees.
Gross Income
Income from a person or company, before tax, superannuation or payroll deductions.
Guarantor
A person/persons who agree to be responsible for the payment of another person's debts. In home loans, this is often a parent whose servicing is taken into account for a child's loan application.
Home loan
A loan secured by real estate property through the use of a mortgage (a legal instrument). However in everyday usage, the word mortgage alone is often used to mean home loan.
Honeymoon rate
This is a low home loan interest rate that is effective for an agreed initial period and then reverts to a (higher) standard variable rate once the period is passed. This is done to make it easier for new borrowers to meet repayments as well as for marketing purposes.
Internet banking
The ability to transfer money between accounts, pay bills, see statements and perform other financial transactions over the internet. Most home loans in Australia give the borrower access to internet banking.
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. At the end of the period, the loan reverts to a principal and interest loan, is refinanced with another lender or is discharged.
Interest rate
The percentage rate at which interest is charged on a loan you borrow, or paid on savings you deposit. Interest rates are usually expressed as percent per annum.
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.
Lender
A company that lends consumers money received from deposits, professional money markets, financial partners etc. Lenders include banks, building societies, credit unions and direct lender.
Loan Consultant
An employee at a lender who arranges the borrower's home loan application, helps with the details as well as the setting up of the home loan.
Legal disbursement
Legal expenses that a lawyer incurs that they pass on to a client, such as for photocopying, overnight mail and messenger services. Note: legal fees are charged on top of this.
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. Note that this is different to a legal disbursement, which is charged by all lenders since otherwise it means they incur a direct loss as a result of the application.
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 to value ratio is more than 80% of the property value. This insurance is paid by the borrower. It protects the lender if the borrower defaults and the full loan amount cannot be recouped from selling the property. Some lenders allow borrowers to capitalise this insurance fee, that is to add it to the loan amount so that they don't have to pay it upfront.
Loan balance
The current outstanding balance (the amount you owe) on your present home loan.
Loan principal
The base amount that's owed on a home loan - not including interest.
Loan term
The length of time set for a borrower to pay off their loan. Most home loans are 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 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 the LVR is very high this means a borrower is borrowing almost all of a property's value and is likely not to recoup the full loan amount from selling the property in case they default. As a result, the higher the LVR the more risky the loan would be considered by the lender (with most lenders requiring borrowers to pay Lenders Mortgage Insurance if the LVR is over 80%).
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. Specifically, the mortgage document outlines that if the borrower defaults on their repayments, the collateral may be sold by the lender to attempt to recoup the loan amount.
Mortgage broker
An agent who compares the various home 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. A broker typically compares only the lenders who pay them this commission.
Mortgage contract
The legal document that sets out the terms of the mortgage and the rights/obligations of the mortgagee and mortgagor.
Mortgage insurance (see LMI)
Mortgagee
The lender of the funds used for a loan.
Mortgagor
The person borrowing money with a mortgage.
No deposit loan See 100% loan
Net Income
The income received by an individual AFTER tax has been taken out.
Ongoing fees
These are fees that a borrower continues to pay throughout the life of their home 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. A home loan taken out to buy an owner-occupied property is treated slightly differently to an investment loan- both by the lender and in terms of government fees and tax concessions.
Offset account
An offset account works as a savings account directly linked to your mortgage account. The balance of this account is used to reduce the interest payable on the customer's home loan. Some lenders, such as MyRate, will offer free, unlimited additional repayments and redraws, which allows customers to deposit their savings and salary directly into their loan account. These extra funds will reduce the interest charged on the loan, while being accessible via phone and internet banking.
Private sale
An owner managed sale of a property, without the use of a real estate agent. This results in the owner saving on having to pay the real estate agents commission.
PAYG borrower
A borrower working for an employer and receiving a salary from which the employer automatically deducts tax. This type of borrower must be able to provide pay slips and group certificates to confirm their income.
Portability
A portable mortgage is one that can be transferred to another property if the borrower moves house. 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.
Power of Attorney
Allows another person/s to act on behalf of the borrower. This is required in some situations, such as when the borrower is physically located outside the country they are applying for a mortgage in.
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. A pre-approval can be obtained before a property is found, or a contract of sale signed.
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 who have a stable income and good credit history (no defaults). Because there is less risk involved in lending to them, the funds can be obtained (and past on to borrowers) at a lower interest rate.
Principal
The original loan amount, or the amount which remains unpaid. Does not include the interest charged or payable.
Principal & interest loan
A type of loan where the repayments cover more than the interest so that loan balance will reduce with each repayment. This results in the loan being paid off within an agreed period (usually 25-30 years).
Redraw facility
This allows you to make extra repayments into your loan account, and access these funds when you need them. While the extra funds are in your loan account, they offset your loan balance and reduce the interest charged, helping you to pay off your loan earlier. 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 a new loan at another lender. The new loan may feature a lower interest rate, no fees or flexible options. A common reason for refinancing is to borrow additional funds against the properties current market value.
Revolving line of credit
See Line of credit
Reserve Bank of Australia (RBA)
The Australian body responsible for maintaining financial system stability and monetary policy. The RBA sets the official short-term cash interest rates on which many variable home loan rates are based.
Serviceability
The measurement of a borrower's ability to comfortably make repayments on their home loan. This takes into account a number of factors, including the borrower's income, debts and ability to handle possible future rate rises.
Salary crediting
Having your loan repayments taken directly from your salary. This is done via depositing your salary (either the entire salary or a portion of it) directly into the loan account.
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. Additional financial paperwork may be required with the loan application.
Settlement
The conclusion of the mortgage transaction. At settlement, the home buyer, seller, and the lender (or each parties representative, such as a lawyer or conveyancer) meet to exchange funds and property title deeds. A property purchase is not finalised until settlement has taken place.
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. This is charged when registering and/or transferring ownership of a property. Some concessions are available, such as to First Home Buyers.
Standard variable rate loan
A loan with a variable rate which fluctuates in accordance with interest rate movements. A Standard Variable Rate loan is generally fully-featured, allowing redraws and repayments, as opposed to a Basic Variable Rate loan, which generally sacrifices features and flexibility in return for a lower interest rate.
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 deed
A document lodged with the government registering ownership of a property.
Title search
The process of investigating the current status of ownership of a property, to determine if the title holder is the vendor of the property, and to check if any restrictions have been registered against the property.
Tenants in common
Also referred to as property co-ownership. This is when two or more people share the ownership of a property. Each owner can bequeath their share of the property to whomever they wish.
Transfer
The process of transferring the title of a property to another party. This is noted on the certificate of title, verifying the change of ownership of a property.
Valuation
An assessment by a real estate professional of a property's value. Lenders require valuations in order to determine the risk of lending against that property.
Valuation fee
The fee paid by the borrower for the assessment 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.
Vendor
The current owner and title holder, who is offering the property for sale.
Zoning
Zones show how your land can be used and developed. Types of zones include residential, business, industrial and rural.
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