April 14, 2016
The Language of Mortgages
Like many specialist subjects, mortgages involve some jargon which may confuse the uninitiated. Your mortgage broker will make sure that you fully understand all of the terms used by lenders but the following offers a brief overview of some of the most common phrases you may encounter.
Loan-to-Value Ratio (LVR)
This is the size of a loan compared to the value of the property against which the loan is secured. For example, a loan of $250,000, secured against a property valued at $500,000 gives a LVR of 50%.
Lender’s Mortgage Insurance (LMI)
Where the LVR of a loan transaction exceeds 80%, most lenders will require borrowers to pay an LMI premium. LMI is an insurance policy taken-out by the bank to protect them in case the borrower is unable to repay their loan. LMI offers no protection to the borrower. LMI premiums are usually added to the loan as a lump sum and are non-refundable.
The comparison rate of a loan seeks to show the full cost of a loan by incorporating both the interest payable and the other costs of the loan, such as annual package fees. Comparison rates are calculated on a standardised loan of $150,000 for 25 years. For any loan of a different size or duration, the true cost will be different to the quoted comparison rate.
This is a shorter-term loan used where a new property is bought before an existing property is sold.
This is the process for transferring the ownership of a property from the seller to the buyer. This work can be carried-out by a solicitor or conveyancer.
This is the difference between the value of a property and the loan secured against it. Equity represents the value that the owner actually owns.
This is a savings account which is linked to a home loan account. Money held in the offset account reduces the amount of interest charged on the home loan account.
This is a state government tax. The amount of duty is calculated according to the value of the property.