Confusing loan terms explained

Terms relating to the applicant

  1. Mortgagor:Ā The applicant ā€“ the person who pays the mortgage loan.
  2. Mortgagee:Ā The lending institution the applicant accesses the loan from ā€“ the lender.
  3. Mortgage broker:Ā She/he arranges the home loan process between the applicant and the lender. They spend time analysing the applicantā€™s situation and, using their experience and market knowledge, provide the appropriate lending solution.
  4. Split loans:Ā If the applicant is unsure about locking in their interest rate, or going variable, and/or desire flexible repayments, they can ā€˜splitā€™ it using both options.
  5. Stamp duty:Ā State and territory governments place this fee on any property transaction. However, if the client is a first home buyer, there may be concessions available. The applicant should refer to their local government website for details.
  6. Pro-pack loan:Ā Designed specifically for high income earners that present low risk. The interest rates are usually attractive and there is the opportunity to bundle with other services.
  7. Low doc/no doc loans:Ā Loans that donā€™t require as much paperwork as regular loans. Designed for people who might have trouble getting such documentation together and as such are popular with self-employed people, tradespeople or those with irregular patterns of income.
  8. Non-conforming loans:Ā Loans provided to applicants who have a poor credit status or limited information on their income.

Terms about the loan

  1. LVR:Ā Loan-to-value ratio ā€“ refers to the percentage of the loan compared to the homeā€™s value. If a property is worth $600,000 and the loan is $480,000 then the LVR is 80%, as $480,000 is 80% of $600,000.
  2. ā€˜Pre-approvedā€™ or ā€˜approval in principleā€™ loan:Ā This is an indication from the lender that they are happy with your application; however, even though they would consider providing you with finance, it is not approval of a loan.
  3. Offset account:Ā A savings account linked to your mortgage, it allows lower interest to be paid. For example, if your mortgage balance is $500,000 and you have $50,000 in your offset account, you only pay interest on $450,000.
  4. Private treaty:Ā This is when the sale is privately negotiated ā€“ as opposed to an auction.

Terms relating to things that might happen

  1. Portability:Ā This allows flexibility of the loan to move over to another property; however, there are usually additional charges, including valuation fee, registration fee and lenderā€™s fee.
  2. Redraw:Ā Allows a borrower to access extra repayments they have already made on their mortgage, that are above their required minimum repayment.
  3. Break costs for a fixed rate:Ā Only affects fixed-rate home loans. This is an agreed charge for paying out your loan, or breaking the loan agreement, early.

 

Hopefully, this has been helpful in allowing the soon-to-be property owner to spend time at their new address, rather than poring over loan paperwork.

 

(Choice Aggregation)

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