Home Loan Jargon explained

Application fees: Fees charged to cover or partially cover the lender’s internal costs of providing a loan approval.
Basic variable loan: A loan at a reduced interest rate that usually has fewer features than a standard variable loan.
Break costs: Costs incurred when a fixed rate loan is paid off before the end of the agreed fixed rate term.
Capital gain: The monetary gain obtained when you sell your property for more than you paid for it.
Construction loans: A loan specifically for the purpose of funding the building of a new dwelling. Can also apply to major renovations of an existing property.
Daily interest: Interest calculated on a daily basis. Therefore, it varies according to the outstanding balance.
Deposit: Upon signing a contract to purchase a property, the purchaser is required to pay a deposit. This is usually a payment of 10% of the purchase price (varies between states/territories). The deposit is often held by the seller’s real estate agent or solicitor, in their trust fund until settlement. A deposit can be in the form of a cash payment or a deposit bond.
Deposit bonds: Guarantees that the purchaser of a property will pay the full deposit by a due date. Institutions providing deposit bonds act as a guarantor that payment will be made. They are often used when cash isn’t readily available at short notice.
Equity: The difference between the property’s value and what is owed to the lender.
First Home Owner Grant: (FHOG) A grant paid by the government to eligible first home buyers to put towards their home purchase.
Fixed interest rate loans: A loan with an interest rate set for a fixed term. The loan may have fewer features than variable rate loans. Penalties may apply for repaying the loan in full, making additional repayments and/or moving loans/lender during the fixed term.
Guarantor: A party who agrees to be responsible for the payment of another party’s debts. They are ultimately responsible for the borrower’s debt if the borrower can not repay it.
Holding deposit: A deposit based on the goodwill of the buyer to go ahead with the purchase.
Income statement: A statement of income and expenditure for a period of usually a year.
Joint tenants: Equal holding of property between two or more persons. If one party dies, their share passes to the survivor/s. A typical arrangement for a married couple.
Lenders Mortgage Insurance (LMI): A form of insurance taken out by the lender to safeguard against loss in the event of default or loss at the time of sale of the property. The borrower pays a once-only premium. The insurance covers the lender, not the borrower.
Liabilities: Someone’s debts or financial obligations.
Line of credit A flexible loan arrangement with a specified credit limit to be used at a borrower’s discretion.
Low doc loan: A loan for which the lender is prepared to consider the application with a reduced level of income verification documentation.
Loan to valuation ratio (LVR): The ratio of the amount lent to the valuation of the property.
Mortgage: A form of security for a loan usually taken over real estate. The lender (the mortgagee) has the right to take the real estate if the mortgagor fails to repay the loan.
Mortgagor: The person providing the security under the terms of the mortgage (usually the borrower).
Mortgagee: The lender of the funds and holder of the mortgage.
Mortgage brokers/loan consultants: Representatives of an organisation who offer a choice of loans from a panel of lenders. Many do not charge consumers for their service.
Non-conforming loan: Specialist lenders provide these types of loans to borrowers who fall outside the normal eligibility requirements of mainstream lenders.
Offset account: An account linked to your loan in such a way that the interest earned on the account balance is applied to reduce the interest on your loan.
Ombudsman: The Credit Ombudsman Service and Financial Ombudsman Service provides an avenue through which customers can make complaints about their loan consultant or lender and have it dealt with independently.
Principal: The capital sum borrowed and owing, on which interest is paid.
Principal and interest loan: A loan in which both principal and interest are paid during the loan term

Redraw facility: A loan facility whereby you can make additional repayments and then access those extra funds when necessary.

Refinancing: To replace or extend an existing loan with a new loan.
Security: An asset that is offered to a lender, of which the lender can take possession and sell if the loan is not repaid. Legal arrangements are put in place that register the lender’s claim over the asset until the loan is repaid. Usually property such as real estate is offered as security.
Standard variable loan: A loan product where the interest rate will fluctuate up and down depending on the market. Repayments on these loans can be either interest only or principal and interest. Most owner occupied loans are variable interest rate loans. These loans usually have comprehensive features available.
Tenants in common: Where more than one person owns separate, defined portions of a property. If one person dies, the relevant portion passes through the deceased’s estate rather than to the other property owner(s) as it does with joint tenancy. Each owner can hold a specific share of ownership and has the right to dispose of their interest.
Term: The length of a loan or a specific portion within the loan.
Unencumbered: A property free of secured interests or restrictions..
Valuation: A report required by the lender, detailing a professional opinion of property value.
Vendor: The person/company selling the property.

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