Terms & Definitions (Please be sure to contact your broker for any more questions)
| Term | Definition |
|---|---|
| Fixed interest rates | A fixed interest rate is an interest rate that will remain the same for the entirety of the fixed rate term. For example, if a loan option were to have a fixed rate of 3.75%, the same rate of 3.75% will be the interest payable until the expiry of the fixed rate term. |
| Variable interest rates | A variable interest rate is a rate that changes in accordance with the rates in the marketplace, lenders, policies and regulatory guidelines. For example, if the variable rate at the start of the variable term began at 3.75%, and a volatile market resulted in rate fluctuations, the initial rate of 3.75% is still applicable to the interest payments and will not change during the duration of the variable rate term. |
| Loan to Value Ratio (LVR) | The loan to value ratio is the amount that is borrowed represented as a percentage of the value of the property. Depending on individual scenarios, an LVR can allow buyers to borrow the majority of the property value, or even the complete amount. For example, if a home loan was secured with an 80% LVR of a property worth $500,000, a maximum amount of $400,000 is eligible to borrow. |
| Lenders Mortgage Insurance (LMI) | Lenders mortgage insurance is a one off insurance premium that has a purpose of protecting the lender in the event that a buyer defaults on their mortgage for any reason. Typically, if the borrowing amount is totals more than 80% of the property value, the lenders will usually apply an LMI. |
| Offset accounts | An offset account is similar to a savings or transaction account that’s directly linked to a home loan. It can help reduce the amount of interest paid on a loan and help pay it off sooner. The more money in the offset account, the less interest is paid. For example, if a home loan of $500,000 possessed $100,000 in a linked offset account, the interest on the remaining $400,000 of the mortgage is applicable instead of the full $500,000. |
| Principal & interest home loan | Principal and Interest is when both the principal and the interest during the term of the loan is paid. |
| Establishment/Up front/Start up/ Settlement/ Set Up fees | A one-off payment at the start of a loan, or during settlement. This is in accordance as per lender and or policies. |
| Discharge/Termination fees | These may be charged when a mortgage is paid out in full to cover the final costs of the completion of the mortgage process, such as paperwork and other logistics. |
| Redraw facility and fees | A redraw facility allows money to be withdrawn from a balance that includes repayments that have already been contributed. The balance consists of any extra payments that have already been made towards paying off the loan, on top of the usual regular monthly repayments. For example, if an extra $100 a month on top of the existing repayments was paid, access is granted to the funds that are accumulated overtime. |
| Rate lock & fees | A rate lock enables a buyer to secure the advertised rate from a lender. It usually covers buyers from rate changes for up to 90 days until settlement date. Buyers are guaranteed that ‘locked rate’ until the settlement date disregarding any fluctuations from volatile marketplaces, lenders, policies and regulatory guidelines. Fees apply for locking in a specific rate for those 90 days. For example, if a rate of 3.75% was ‘locked in’ until the end of the 90 day settlement date, and the interest rates were to suddenly rise to 3.95%, the initial 3.75% that was locked in is still applicable to the loan repayments. |
| Term of the loan | The term of the loan is the lifespan over which the loan agreement is active. The mortgage should either be repaid or renegotiated for another term before the term ends. Many different institutions and lenders provide either short term or long term home loan options. Short term loans usually mature within 10 years. Long term loans can last upwards of 30 to 40 years. |
| Ongoing/Service/Administration /Annual fees | These fees can be charged either monthly or yearly for administering a loan. Typically, if a buyer is under a package home loan with special discounts on interest rates, a lender may charge these fees. |
| Valuation fees | This is a fee charged by the lender for conducting a mortgage valuation on the property involved with the home loan. It is a basic inspection of the property, and its purpose is limited to whether the home is suitable security to lend on. Lenders want to make sure that they are not lending the buyer more than the value of the property. |
| Stamp Duty/Land transfer duty (Government imposed fee) | Stamp Duty is a state government tax based on the purchase price of the property and generally paid at the time of settlement. It is typically a percentage of the market value or purchase price of the property targeted depending on the state, type of property, whether it is a new home or not. The state revenue office determines how much is payable by the buyer. First Home Buyers may receive discounts or be exempt from Stamp Duty or entitled to a rebate or concession such as the First Home Owner Grant. |
| Registration of Mortgage fee | This is a fee of no more than $200 charged by state governments to register the property as the security for a home loan. The fee is paid when a home loan is established or when it’s discharged. |
| Title search | A title search is a current copy of the Certificate of Title which shows the current owner, the land description and any dealings associated with it. |
| Split loan | A split home loan is when the loan is divided into multiple parts - meaning a buyer could nominate a portion of the loan to have a fixed interest rate and the remainder could have a variable interest rate. For example, a $500,000 home loan is intended to be secured, and after careful considerations regarding the types of home loans available and how they may match individual needs, a decision on a 60:40 split is made. The resulting home loan would then be divided into two loans - a fixed interest rate would be charged on $300,000 and the remaining $200,000 would have a variable interest rate. |
| Deposit | A home loan deposit refers to the initial funds used as an up-front payment to a financial institution or private party in the purchase of a house. It reassures the lenders that the buyer will be able to meet their repayment obligations. It constitutes a percentage of loan value. For example, a 20% deposit on a $100,000 loan would be $20,000, which gives the home buyer a loan-to-value ratio of $80,000. |