Home Loan/Mortgage Terminology
Amortization
The repayment of a loan through instalment payments.
Amortization Term
The agreed upon number of months or years a borrower will be making payments to pay off an original debt.
Appraised Value
The value assigned to a property by a licensed professional to assess its fair market value.
Bankruptcy
A debtor that is judged legally insolvent and whose remaining property is then administered for the creditors or is distributed among them.
Bridging Finance
A loan to cover the purchase price of a new property when you still have to sell your existing property. The security for the loan is usually over both properties.
Consumer Reporting Agency
Also known as a bureau, a Credit Reporting Agency tracks payment history, account activity and other relevant public records for the purposes of determining credit worthiness of individuals. For example, Baycorp
Conditional Agreement
A Conditional Agreement is a legally binding contract, but the property is not bought or sold until a certain condition or conditions detailed in the Agreement have been satisfied, usually by the Purchaser (e.g. selling your existing home by a set date or arranging mortgage finance by a certain date). Conditions can also be included by the Purchaser requiring the Vendor to do something by a specified date, e.g. that Settlement is to take place only on the condition that the house is painted, the windows repaired or that all the rubbish around the section is removed. (Note - conditions of the second type usually do not prevent the sale taking place but may allow the purchaser to delay settlement without penalty or claim damages if the conditions are not met in time).
Credit History
A history of an individuals ability to pay their bills on time as well as any other relevant public records.
Credit Report
A report outlining an individuals credit history, public records and credit worthiness.
Debt Servicing Ratio (DSR)
The Debt Servicing Ratio measures how easily you can afford the mortgage payments. It is the percentage of the persons income available to service debt. The DSR is calculated in different ways by different lenders. However, the principle is the same: they merely apply different percentages. The equation is loan payments divided by eligible income.
Lenders generally allow 30% to 35% of your own income and 80% of your rental income to be eligible income applied to loan payments.
Equity
The difference between what is owed against a property and its fair market value is the properties Equity.
Finance Rate
This is the true cost the client is paying. It takes into account not only the interest rate, but (generally and for example), the up-front fee paid to the lender.
First Mortgage
This is what most people think of when someone says mortgage. It is a loan in first position against a property that is usually the balance of the loan used to purchase a property in the first place. All other loans against the property are subordinate to this loan.
Fixed Rate Mortgages
A type of mortgage loan usually with 30 or 15 year loan terms where the interest rate remains constant throughout the life of the loan (anything from 6 months through to 7 years). The advantages of a fixed rate loan is your own security that the interest rate will not increase. The disadvantage of a fixed rate loan occurs when interest rates substantially decline below the interest rate of your loan. If the mortgage is discharged before the end of the fixed rate term, there is usually an Early Repayment Penalty incurred.
Foreclosure
Procedure whereby property pledged as security for a debt is sold to pay the debt in the event of default in payments or terms.
Interest
What is repaid over and above the amount borrowed.
Interest Only
A loan where the amount owed remains the same and the regular payments are made up solely of interest. At the end of the interest only period, the amount owed is the same amount as initially borrowed. Short term interest only loans are often called bridging finance as they usually are used to “bridge” the period between the drawdown of loan monies and the known future receipt of monies, generally from a property sale.
Interest Rate
A charge for a loan usually a percentage of the amount loaned.
Joint Tenancy
Joint ownership by two or more persons with right of survivorship; all joint tenants own equal interest and have equal rights in the property.
Liability
Something for which one is liable; an obligation, responsibility, or debt. Examples of liability would include, a mortgage payment, a tax bill, an insurance bill, etc.
LIM (Land Information Memorandum)
If you are buying an existing property it should be recommended that you obtain a LIM report. This tells you everything the Council knows about the property from it’s records. It is important for you to match- up what is shown in the report with what they see on the property itself.
Loan Agreement
This is the document that sets out the agreed terms of repayment with the lender.
Loan Documents
Disclosures and written agreements that are required for the closing
of a loan. Documents are the contract upon which the terms of a loan are outlined and agreed upon.
Loan to Value Ratio (LVR)
The Loan to Value is the percentage of what is owed against the property vs. what the properties fair market value is. . To calculate the LVR, simply divide the loan by the value of the property. For example, the LVR on a $100,000 property with a proposed $80,000 mortgage would be $80,000 ÷ $100,000 % = 80%. (or $80,000 x 100 ÷ 100,000 = 80%)
Lock
A commitment from a lender to guarantee an interest rate for a borrower for a period of time. Rate locks expire after an agreed upon time.
Mortgage
This is the security the lender takes over the property.
Mortgage Broker
A person who arranges mortgage loans through mortgage bankers. This person acts as a middleman and is not limited to the restrictions of having to go through only one lender. This person can "shop" your loan to get you the best rate and term available.
Mortgagee
One to whom a mortgagor gives a mortgage to secure a loan or performance of an obligation, a lender.
Mortgagor
One who gives a mortgage on his property to secure a loan or assure performance of an obligation, a borrower.
Net Worth
Net worth is the difference between an individuals assets and liabilities. Net worth takes into consideration all assets and liabilities liquid or not and can be a positive or negative number.
Payment Holiday
Some lenders allow payments to be suspended for up to 3 months. These payments, plus extra interest on these payments are added to the total amount to be repaid.
Principal
The amount borrowed or still owed, excluding interest.
Principal Balance
The balance of the amount of the loan that is outstanding.
Priority
The First Mortgage, and all moneys secured from time to time under it, will have first priority over the Second Mortgage and the Third Mortgage for an amount not exceeding the First Mortgagee Priority Amount. This figure is set by the First Mortgagee to cover all costs such as interest, fees, bank charges, tax etc.
Revolving Credit / Redraw Facility
A revolving credit or redraw facility is basically a large overdraft facility but based on the lenders floating rate. Interest is calculated daily on the amount owing on that day.
Reducing Mortgage
A loan that has the same amount of principal paid off in each payment. Every payment reduces slightly as the interest is calculated on the reducing amount you owe (the principal). The intial repayments are usually higher than under a table structure and less interest is paid overall in comparison to a table structure.
Remaining Term
The time that is left before a loan is paid in full.
Second Loan (mortgage)
A second mortgage is another loan secured by the property much like a first mortgage. It is a loan which is subordinate to the first mortgage.
Table Mortgage
A loan set up to be paid off with the same regular payment (eg fortnightly) over the loan term.
Tenancy in Common
Ownership by two or more persons who hold undivided interest, without right of survivorship; interests need not be equal.
Term
This is the number of years it will take the scheduled repayments to pay off the amount borrowed. The original loan term can reduce if the repayment amount is increased.
Top Up
Where an existing loan is in place with a lender and the client wishes to borrow more.
Trust Deed
Just as with a mortgage, this is a legal document by which a borrower pledges certain real property or collateral as guarantee for the repayment of a loan.
Trustee
One who holds property in trust for another to secure the performance of an obligation.
Unconditional Agreement
The legal contract that binds both the Purchaser and the Vendor to settle on the agreed date at the agreed price. It is either not subject to any conditions being satisfied or those conditions have already been satisfied. You should only consider entering into an Unconditional Agreement if and when you are absolutely sure you want to buy a particular property and you already have the full purchase price or "pre-approved" loan finance from a bank, i.e. An Unconditional Agreement commits you in all respects to purchasing the property.
Vendor
Person selling property – Purchasee .
|
