Terminology
At Huggable Home Loans, we believe in sharing information. The level of information and education shared, is up to you. Detailed information on commissions and credit policy are also shared however these can only be given once your situation has been assessed.
Following are some of the basic terms that we hope will help you gain a basic familiarity:
- A -
Additional Repayments - Extra amounts paid over and above those agreed in the loan agreement.
Agreement - The legal contract.
Applicant - The person/s making application to borrow funds.
Application Fee - That part of the pre-paid costs to the lender at the time of application to cover expenses.
Appraisal - A report made by a qualified person as to the value of a property as of a given date.
- B -
Bank Cheque - A cheque issued by a bank in preference to one issued by an individual.
Basic Variable Loan - A variable home loan at a reduced rate with fewer features than a standard variable.
Break Costs - Penalty charges that are actioned when a loan is paid out before the contractual period. This usually only applies to Fixed Rate Loans,
Bridging Finance - Short term finance provided usually when a client is transferring from one home to another and the new home is settling prior to the settlement of the current home.
- C -
Capital - The value of your investment in your house or business.
Combination Loans - Loans that may have a number of sub loans within them. They may incorporate variable, fixed and line of credit facilities on the one security. Also known as Split Loans,
Commission - The fee collected by the broker from the financial institution for the service of introducing the borrower and preparing their loan documents on the lenders behalf.
Comparison Rate - This is the interest rate that is calculated to indicate the true rate charged on the loan. Establishment and ongoing fees are included to give this more detailed rate.
Convey - To transfer real estate from one person to another.
- D -
Deferred Establishment Fee - A pre-calculated amount, stated in the contract, charged if a loan is paid out within that stated period of time.
Drawdown - The payment of loan funds from the lender.
- E -
Equity - The amount of true ownership you have in a property i.e. the difference between the value of the property and what you owe on the property.
Establishment Fees - The fee paid, if contractually agreed to, to set up the loan facility. This fee is charged by the lender.
- F -
Fixed Rate - The interest rate is fixed for a specific term on the loan, eg. 3 or 5 years. Repayments also remain fixed for this term.
Funds to Complete - This is the amount of money required to settle the loan. This is the difference between the loan amount and the total amount required (purchase cost plus fees and charges).
- G -
Genuine Savings - The amount of money that a bank would like to see saved to evidence a clients commitment and maturity as a borrower. This is generally 5% of the purchase price (but can be as low as 3%).
- I -
Interest Only - A loan facility whereby only the interest component is repaid. This is normally up to a certain amount of time in a home loan term, such as 1 - 5 years.
Introductory Loan - The loan is offered at a reduced rate for the beginning months of the loan, usually 12. Also known as a honeymoon rate.
- J -
Joint Tenancy - An ownership arrangement where if one partner dies the other person/s on the title get the interest of the deceased. See Tenants in Common.
- L -
LMI - Lenders Mortgage Insurance - An insurance that covers the lender should there be a shortfall when a property is sold to recover debts outstanding (perhaps in the event of a forclosure).
LVR - Loan to Value Ratio - The ratio showing the amount of the loan against the value of the property, shown as a percentage. This is one of a bank's main factors to gauging risk.
Low Doc Loan - A lending product offered by some institutions where there is a lesser requirement to clearly establish debt servicing capacity (e.g. they have not yet done their financials for the year).
Line of Credit/Overdraft - A contractual limit that allows a person to operate an account drawing funds up to that particular limit.
- M -
Mortgage - A contract in which a borrower’s property is pledged as security for a loan which is to be repaid on an installment basis.
Mortgagee - Those that lend the money.
Mortgagor - Those that borrow the money.
- N -
Negative Gearing - An accounting term meaning when you are earning less money on your investment than on the cost of maintaining it (eg. with a rental property).
- O -
Offset Facility/Account - An account, attached/associated with a loan that essentially earns what the associated loan incurs (eg $50000 in offset against a $200000 loan means you are only paying interest on the $150000 difference). These generally only work against variable loans (a couple of banks are exception to this).
- P -
Pre-Approval - A commitment by a lender to extend credit provided that specific conditions are met.
Principal and Interest Loan - A loan which has repayments calculated comprising of both Principal and Interest.
Progress Payment - The drawdown amounts used whilst constructing. These usually come in 4 or 5 lots.
- R -
Redraw Facility - A loan feature that allows you to recover any extra payments made into the loan.
- S -
Serviceability - A lender’s calculation to determine your ability to meet your repayment obligations. Your ability to repay should also be considered by doing your own budget.
Settlement - The gathering of interested parties such as solicitors, agents and banks to finalize all exchanging of monies and security.
Settlement Date - The date on which settlement occurs.
Stamp Duty - A government charge calculated on the purchase price of the property as well as on the mortgage documents.
Standard Variable Loan - A variable rate loan that offers comprehensive features. It is also generally the rate that fixed rate loans revert to at the end of the fixed periods.
- T -
Tenants in Common - Where each party on the title have a separate and distinct share and his/her share becomes part of his/her estate in the event of death. See also Joint Tenants.
- V -
Valuation - A report completed by a licensed valuer stating the description and value of a property.
Need more help? Please call (07) 4723 6000.
