This refers to any extra loan payments you make on top of your scheduled repayments. Almost all Variable Loans allow unlimited prepayments and the ability to Redraw them later. Fixed Loans often have restrictions on making extra repayments.
Annual percentage rate (APR)
This is the total charge for the loan including fees and interest expressed as a percentage, which allows you to compare across the market.
Application Fee / Establishment Fee
Also called ‘application’, ‘up-front’, ‘start-up’ or ‘set-up’ fees. This is a one-off fee payable when you start your loan.
Break Cost for Fixed Loan
You may be charged a ‘break’ fee if you break your fixed rate mortgage. The break fee may be very high. Generally, the more interest rates have come down since you took on the fixed rate loan, the higher the break fee will be. You won’t know how much until the credit provider tells you.
These are used to manage the transition between buying and selling properties. These are used by people who buy a new home before selling their existing home or who are building a new home. Refer Bridging Finance.
The amount of the loan taken out as cash from the equity in the home. It can be used for unspecified purposes.
Home loan interest rates can vary significantly between home loan providers. Banks are obligated to provide comparison rates which express the loan interest rate and fees over the lifetime of the loan. However, many banks have different ways of doing this with different loan terms or loan amounts, which makes it like comparing apples and oranges. What you will receive from Murray Home Loans is an apples-and-apples comparison.
A trained expert who represents you during process of transferring ownership of your new home from the vendor to you. Some solicitors also offer this service, although some can charge extra.
Credit Score / Credit Rating
This is an assessment of the credit-worthiness of an individual. It is based on their borrowing and repayment history (credit report). Lenders consider your credit rating when deciding whether or not to give you a loan, how much to loan you, and what interest rate you will pay. Find out more about Credit Rating and how to get a Credit Report
This is the amount of cash you have available to put towards a property purchase.
This takes the place of all or part of the 10% cash deposit usually required up front when purchasing residential property. By guaranteeing your deposit for you, it enables you to defer the payment of your deposit until the settlement date on your new property.
Also called ‘termination’ or ‘settlement’ fees, and is mainly an admin fee of a few hundred dollars. These may be charged when you pay out your mortgage in full.
This is the amount of your property that belongs to you and not the bank (ie. the value of your property less the loan amount).
First Home Owners Grant (FHOG)
This is a national grant (funded by the individual states and territories) that’s given to first home buyers. Amounts and conditions vary.
This allows you to lock in an interest rate for a set period, typically 1-5 years. Accordingly, your repayments also remain the same for the amount of debt that is fixed. This safeguards you against future interest rate rises and helps with budgeting. The disadvantage is you won’t benefit from falling interest rates and there will likely be restrictions on making additional repayments. Refer Variable and Fixed Rates..
This is a term used by the lending industry when defining whether the funds to be used as a deposit by a proposed borrower (for a property purchase) have been genuinely saved over time. This therefore excludes asset sales, tax returns and gifts. Many lenders require you to show that you have 5% of the purchase price as genuine savings. There are exceptions to this.
The third party (usually an immediate family member) who provides a guarantee to support your home loan. Refer Security Guarantee.
Government Fees & Charges
These are charges levied by the government (predominantly stamp duty, mortgage registration fees and mortgage transfer fees). These vary in each state and territory.
Intro Rate or Honeymoon Rate
A lower interest rate offered by a lender at the start of your loan (ie. the ‘honeymoon period’). This then reverts to a higher rate after the honeymoon period ends.
An arrangement with the lender where you only make interest payments. Once the agreed interest only period ends, you will begin to repay Principal & Interest.
Investment Home Loan
This is a specific loan type used for investment purposes (such as the purchase of an investment property). Refer Investment Loan for more information.
Lenders Mortgage Insurance (LMI)
This is a one-off insurance payment which protects your mortgage lender against your default. LMI is commonly paid when the LVR is 80% or more. Premium varies depending on the lender, loan amount and LVR.
Line of Credit
This can be used as a home loan or transaction account. It has a credit limit. While there’s no fixed repayment, you need to make payments to cover the interest and fees on the loan.
This includes the Mortgage Document (the legal mortgage document that is lodged by your lender with your state or territory), Letter of Offer (your formal contract with your lender that outlines the terms and conditions of your loan) and general terms and conditional. These all need to be reviewed, signed and returned to your lender.
Loan to Value Ratio (LVR)
The loan amount divided by the value of the property, expressed as a percentage.
The contracted loan terms is usually 30 years (some loans up to 40 years).
This is your home loan. It is also a document lenders use as security for your loan.
The lender who provide the loan (and hold a mortgage as security).
This is you, the borrower, who will be repaying the loan (and at the same time you provide a mortgage as security).
A rental property is said to be ‘negatively geared’ where the deductible expenses (including interest on the loan borrowed to finance the property) exceed the income earned from the property. Refer Investment Loan.
An offset account is a transaction account linked to an eligible home or investment loan. Instead of receiving interest on the savings account (which is taxable) you only pay interest on the balance of the home loan less the balance of the offset account (tax free savings at home loan rate of c.4.0%). It effectively reduces the amount of interest charged over the life of the loan and means the loan is paid off in less time. Refer Offset Account.
Owner Occupied Home Loan
This is a specific loan type taken out for your principle place of residence.
Package Home Loan
Most lenders offer the choice of a basic loan or a package loan. The Package loan offers benefits such as lower variable and fixed interest rate, a free transaction and offset account, a free credit card and discounts off other products (eg. Insurances). This usually has an annual fee of around $400. Refer Home Loan Package.
It allows you to keep features of your loan such as the interest rate, online banking, ATM card and cheque book, as you will have the same lender and loan structure. It is usually only a feature of variable rate loans. To transfer your loan from one property to another, both your sale and purchase properties must settle on the same day. If you chose this you may lose the change to investigate more competitive loans on the market from other lenders.
Pre-Approval / Approval In Principle
This is where you have been assessed for a loan without the specifics of the property or loan amount known in full. Outstanding conditions are usually things such as the Valuation being completed or the application being approved by the bank’s Leader Mortgage Insurance company. Unconditional Approval means that all outstanding conditions have been satisfied and the loan is fully approved.
Principal & Interest
The arrangement with the lender where you repay the loan principal as well as the interest.
There are a number of medical, accounting, legal and engineering professions that are eligible to borrow up to 90% with no LMI. This is usually determined by a combination of qualifications and income.
This relates to construction loans. As each stage of a home construction is completed the builder is paid. Refer Construction Loans.
Lenders will allow you to lock in the interest rate for your fixed rate loan when your loan is unconditionally approved. Most lenders charge a fee of $300-750 for this. Some lenders provide it as a no-cost option. If interest rates go up before the loan settlement date, you are guaranteed the original lower rate.
A loan feature that lets you withdraw any Additional Repayments you may have made. This applies to most Variable Loans and a few Fixed Loans. You can access these funds easily online, via telephone banking or at a branch.
Most lender give you the option of weekly, fortnightly or monthly loan repayments. Interest Only loans are monthly by default.
An arrangement with your lender where if you are ahead in your repayments, you can apply for a break—a ‘holiday’—on your repayments.
This home loan allows you to borrow money using the equity in your home as security. The loan can be taken as a lump sum, a regular income stream, a line of credit or a combination of these options. Interest is charged like any other loan, except you don’t have to make repayments while you live in your home – the interest compounds over time and is added to your loan balance. You remain the owner of your house and can stay in it for as long as you want. However, care needs to be taken as it can have a significant impact on your finances and relationships, and your quality of life in retirement.
This is an asset (usually a property, could be a term deposit) that’s used to secure your loan.
Security Guarantee / Family Pledge
This is a loan structure which can allow you to borrow 100% of the purchase price plus costs. It requires your loan to be secured by your own property and that of a Guarantor (mainly immediate family members). So, even though you may borrow >100% of the purchase price you can avoid paying Lender Mortgage Insurance and obtain a more favourable interest rate. Refer Guarantor Loan.
Also called ‘ongoing’ or ‘administration’ fees. Some loans and transaction accounts charge a monthly service fee.
The process where you finishing up either selling or buying a property. The day this occurs is called the Settlement Date.
Most lenders allow you to split loan into more than one loan account – one could be fixed rate, the other variable. The could both be variable but for slightly different purposes.
This is a tax you pay to the state or territory government when a property is sold. There are some exemptions for some first home buyers.
Subject to Finance
This is a standard condition in home purchase contracts when your offer has been accepted but you do not yet have Unconditional Approval. This clause gives you time to organise a loan for the property you’re buying. It means that if your loan application is refused, you may choose to end the contract and not go through with the sale.
The length of your home loan, usually 30 years, but can be as little as 1 year or up to as much as 40 years.
Your loan application has been fully approved and is not subject to any terms and conditions. Your loans offer documents are generally distributed at this point. Once these documents are signed, returned and checked by the lender, your application will be moved to Settlement
The value of your property value is determined by the lender. This is accomplished by using the property’s purchase price, getting an external valuer in or by doing a desktop electronic valuation.
This is where your loan interest rate can move up or down. This is normally driven by changes in the Reserve Bank of Australia (RBA) cash rate. Your minimum repayments will likely change if this happens.