Frequenty Asked Questions
A
| Additional Payment | The method of significantly reducing your home loan with extra payments to your mortgage. Even paying fortnightly rather than monthly can have a big impact. |
| Amortisation | A rather large word that simply refers to the repayment of debt. Over the term of the loan, your regular repayments are said to “amortise” the loan. |
| Application / Entry / Establishment Fee | A fee charged to help recover the costs of establishing your product. Fees can vary, and our adviser will ensure you know exactly what they are. |
| Assets | Money, property or the goods you own. |
| Asset Finance | A generic description of all types of finance that relate to the purchase or lease of assets that are not real property (also known as Chattel Finance and Equipment Finance). |
B
| Bad Credit History | Bad credit refers to a individual’s poor history of paying their bills on time (no gold star for them!). Your credit history (good or bad) is one of the factors a Lender will assess your mortgage application. You may be seen as having an increased risk of defaulting on a loan, resulting in a higher interest rate or having your application rejected. |
| Balloon Loan | A type of loan that does not fully amortise over its term. As it is not fully amortised, a balloon payment is required at the end of the term to repay the remaining principal balance of the loan. |
| Balloon Payment | Not the type of balloons you get on your birthday! Balloon payments are a large payment due at the end of a balloon loan, such as a mortgage, a commercial loan or another type of an amortised loan. It is significantly larger than the other instalment payments under the contract and often expressed as a percentage of the amount financed. |
| Basic Home Loan | A home loan with a low variable interest rate but offers a lower interest rate and mortgage fees. This type of loan is cheaper because it comes with less bells and whistles.Bill of Sale |
| Bill of Sale | A form of security for a business loan taken over an asset which is not real property, such as a piece of equipment or a vehicle. Also known as a Chattel Mortgage. |
| Break Costs | This is a fee charged by a lender when a fixed rate loan is paid off before the fixed rate period ends, or when you exceed the maximum additional payments during the fixed rate period. |
| Bridging Finance | A bridging finance, or a bridging loan, is a short-term loan that supports the buying of a new property while you are selling your current property. |
C
| Capital Gain | The financial gain obtained when you sell an asset for more than you paid for it. |
| Chattel Mortgage | A mortgage on a moveable item of property, such as a vehicle or equipment. The lender has the right to repossess the chattel if you fail to repay the loan on time. |
| Community Title | Community titles are properties of land that are divided into lot arrangements where each lot is sold to different owners. |
| Company Title | Company Title is a form of right of occupancy that applies when owners of units in a block form a company and each hold shares in the company, that entitle them to occupy a defined area of land. |
| Comparison Rate | A tool to help you understand the true cost of a loan. A comparison rate is an interest rate that lenders are required by law to display next to any advertised interest rate. A comparison rate is made up of a loan’s interest rate and most of the fees you’ll have to pay, including application fees and ongoing fees. This allows you to find out the true cost of a home loan. |
| Construction Loan | A loan created to suit the needs of those building a new property rather than buying a home that’s already established. This can significantly reduce your interest payments. |
D
| Daily Interest | Interest calculated on a daily basis. It varies according to the daily account balance. |
| Debt Consolidation | Debt Consolidation means taking out a new loan to pay of a number of liabilities and consumer debts, generally unsecured ones. In effect, multiple debts are combined into a single, larger piece of debt usually with more favourable payoff terms. Favourable payoff terms include a lower interest rate, lower monthly payments or both. |
| Deposit | The money you pay on exchange of contracts as part of your initial contribution to the purchase of your home. |
| Deposit Bond | A deposit bond functions as a replacement for the cash deposit in between signing a contract and agreement and can be issued for all or part of the deposit amount needed. |
E
| Equity | The difference between the amount you owe on your home loan and the current value of your property, For example, if your home is worth $400,000 and you still owe the bank $150,000, then your equity is $250,000. |
| Equity Loan | This loan allows you to borrow up to a certain limit either all at once or in smaller amounts. The advantage is that you only pay interest when you withdraw (known as “drawing down”) these funds. This flexibility usually results in a higher interest rate. An Equity Loan is the same thing as an Equity Line or a Line of Credit. |
F
| First Home Owner Grant (FHOG) | Under the FHOG scheme, a one-off grant is payable for eligible first home buyer who buy or build a residential property to live in. Amounts, terms and considerations differ between states and territories. If you want to know if you qualify, or if you do qualify, contact our advisers and we will help you with the process. |
| Fixed Interest Rate | An interest rate for a home loan, set for an agreed period, which gives you repayment solidity for the agreed upon time. As the interest rate does not change for a specified period (usually between 1-5 years but even up to 10 years). |
| Freehold Title | Freehold gives the purchaser complete and indefinite ownership of a property and the land on which it stands. |
G
| Genuine Savings | Genuine Savings are the funds that an applicant has saved themselves gradually over time. Saving a fixed amount of money over a certain period gives comfort to the lenders that a mortgage commitment can and will be upheld. |
| Guarantor | A guarantor is a person; usually a spouse or a family member, who guarantees to pay a borrower’s debt in the event the borrower defaults on a loan obligation. The guarantor acts as a co-signer as they pledge their assets or services in case the borrower cannot perform their duties. |
H
| Home | Is where the teachers’ heart is |
I
| Interest Only (IO) | A loan where, for a period of time, you only repay the interest on your loan and not the actual debt. This facility is popular with investors or can be useful when financial hardship occurs. |
| Introductory (Honeymoon) Rate | A reduced interest rate offered for a specific period, usually the first 12 months to 3 years. Once the honeymoon period ends, the interest rate usually reverts to a higher rate. The lower rate is designed to attract borrowers and is offered for a set period. |
J
| Joint Tenants | Equal ownership of a property between two or more individuals. A common arrangement for married couples. If one party dies, their shares pass to the survivor(s). |
L
| Lenders Mortgage Insurance (LMI) | Applies if you want to lend more than 80% of the value of a property. It’s a safeguard for the lender against financial loss in the event you cannot make your payments. It’s important to note that the insurance only covers the lender; if there is a claim, the insurer chases the borrower for any loss. |
| Liabilities | A person’s debts or obligations, such as a credit card, loan, leases or mortgages. |
| Line of Credit | A flexible loan arrangement that allows you to borrow up to a certain limit either all at once or in smaller amounts. The advantage being that you only pay interest when you withdraw funds, however, this flexibility usually results in a higher interest rate. |
| Loan Principal | This is the amount you borrow from the Lender; and it’s the amount the lenders interest is charged. |
| Loan Term | The agreed period you have to repay your loan. On average, the loan term for a home loan is 30 years – but the sooner you pay it off, the less money you pay in interest. |
| Loan to Valuation Ratio (LVR) | The ratio of the loan amount compared to the valuation of the property. For example, a loan of $90,000 on a home valued at $100,000 means the ratio is 90%. |
| Low Documentation (Low Doc) Loan | Low Doc Loans are for possible borrowers who are self-employed or small business owners and don’t have access to the documents needed to secure a traditional mortgage. A bigger deposit is required. A suitable solution for applicants who may not have up to date or complete monetary information obtainable at the time of the application. |
M
| Mortgage | A mortgage is a debt instrument, secured by the collateral of specified real estate property, that the borrower is obliged to pay back with a predetermined set of payments. The lender (mortgagee) has the right to take the property if the borrower (mortgagor) fails to repay the loan. |
| Mortgagee | The lender of the funds and the holder of the mortgage. |
| Mortgagor | A person who borrows monetary and grants a mortgage over their property as security for the loan. |
N
| Negative Gearing | When you earn less from an investment property than it’s costing you. For example, the interest and costs for the property cost more than the rent your tenants pay. You may choose to make a loss to reduce your taxable income, or you might accept a short-term loss in the hope of a capital gain later. |
| Non-Conforming Loan | A type of loan from specialist lenders for borrowers whose situation is outside the normal eligibility requirements of the major Banks. |
O
| Offset Account | A transactional account that is linked to your home loan. The balance of this account offsets the balance of the home loan, helping to reduce the interest paid and overall term of the loan.Ombudsman |
| Ombudsman | An arbitrator who supplies a way for customers to make a complaint about their financial institution or advisers. The arbitrator can then provide an avenue for claims to be dealt with independently without the need for a lawyer. |
P
| Principal | The amount originally borrowed or the outstanding loan total upon which interest is calculated. |
| Principal and Interest (P&I) | This is a loan with two components, and classified as a “traditional loan structure”. One part pays off the debt (Principal) and the other pays off the interest portion of the loan. Suitable for people who want to own the property. |
R
| Redraw Facility | A loan facility where you can make additional repayments (to reduce the interest) and then access those extra funds if necessary. Like a savings account except you save interest, rather than have it paid to you. |
| Refinancing | To replace an existing loan (or debt) with funds from a different lender. Usually at a cheaper rate, for additional features, or for an amount more than your current lender can provide. |
S
| Security | An asset (property, vehicle, equipment etc.) offered as security for a loan. |
| Settlement Date | The date on which your money is due to be paid to the seller of the asset (property, vehicle, equipment). The date on which the buyer assumes possession. |
| Split Rate Loans | Generally, a loan that is part variable and part fixed, but it can also be a loan with multiple variable parts. For example, you may fix the interest rate on part of your loan as a protection against possible interest rate rises, while keeping part of the loan at a variable rate to allow flexibility with additional repayments and redraw. |
| Stamp Duty | A Government fee, applied to transactions such as transfers and agreements, for the sale of a property. The amount of the duty will vary depending on the value of the asset you intend to buy and is decided upon by the state you’re buying in. Each state and territory has different rules and calculations. |
| Standard Variable Loan | A loan with an interest rate that varies according to market forces. The loan usually comes with all the bells and whistles, such as offset and redraw facilities. |
| Strata Title | The most common title related with town houses and home units. It acts as proof of a unit’s ownership. In a strata plan, individuals each own a small portion of a strata building such as a unit, which is identified as ‘lot’ on the title. |
| Survey | A plan that shows the boundaries, and the position, of any building within a block of land and confirmation whether the building complies with Local Government Legislation. |
T
| Tenants in Common | Property in the names of two or more individuals where each individual may be in equal or unequal shares. When one individual dies their share is not awarded to the surviving “tenant(s)” but becomes part of the deceased’s estate for disposal in agreement with the will. |
| Term | The duration of a loan or a particular portion within the loan. This is usually written in months. |
| Title Search | A procedure that ensures the seller has the right to sell and transfer ownership of an asset, and check there aren’t any concerns that could cause complications in the future.Torrens Title |
| Torrens Title | The most common form of property title in Australia. It means the purchaser owns both the house and the land on which it’s built. You are responsible for the property’s upkeep – both inside the property and outside on the block of land. |
U
| Unencumbered | A property free of debt (such as a mortgage) or restrictions. |
| Term | The duration of a loan or a particular portion within the loan. This is usually written in months. |
V
| Valuation | A report needed by the lender specifying a professional opinion of a property’s value. |
| Variable Interest Rate | An interest rate that varies during the term of the loan, in accordance with the marketplace. |
