Comparison rate A comparison rate is a tool to help consumers identify the true cost of a loan. It is a rate which includes both the interest rate and the ascertainable fees and charges relating to a loan, reduced to a single percentage figure.
Deposit Guarantee A substitute for a cash deposit to assist with the purchase of a property. The buyer is required to pay the full purchase price at settlement.
Economic Cost (or Break Cost) A fee which may be payable if, during a fixed rate period, the borrower makes certain changes such as switching a loan from a fixed to variable rate or fully prepaying the loan prior to the expiry of the fixed rate period. Economic cost is the lender’s estimate of its loss resulting from the change.
Equity The difference between what you owe and what your property is currently worth.
First Home Owner Grant (FHOG) A Federal Government grant given to first home buyers
Fixed interest rate An interest rate that allows you to lock it in for a set period.
Introductory Rate A low interest rate offered at the start of a loan. At the end of the specified time period the interest rate converts to a standard rate.
Lender’s Mortgage Insurance Some lenders may provide up to 95% of the purchase price if you agree to take Mortgage Insurance (LMI), The cost is a one off payment usually made at the time of settlement. The figure is calculated based on variables such as the loan amount, the value of your property and the exact LVR (ie the figure between 80% & 95%). This payment allows the lender to recoup the unpaid principal in the event of default and the borrowers debt is transferred to the mortgage insurer.
Loan to valuation Ratio (LVR) This is the measure of the amount of the loan compared to the value of the property. For example, if you have borrowed $160,000 and your property is valued at $200,000, the LVR would be 80%.
Negative gearing Where the return on investment is insufficient to meet the costs of the investment, leading to a reduction in assessable income for taxation purposes.
100% Offset Helps reduce interest costs on a loan by linking the loan to a deposit account. The balance in the transaction account ‘offsets’ the loan principal. Interest is then calculated on the loan principal minus the balance in the account. For example, if the principal on the loan is $180,000 and there is $5,000 in the transaction account, then interest is only calculated on $175,000.
Pre approval When a lender advises you in writing how much they will lend you, subject to lending terms and conditions.
Rate Lock Allows a borrower to lock in the fixed interest rate that is quoted at the time of loan approval for up to 3 months. If interest rates change prior to the loan drawdown date then the borrower is guaranteed the original rate (provided the time between approval and drawdown is within the 3 months). A Rate Lock fee may be payable.
Redraw facility Allows you to access any additional repayments you have made on your loan.
Split loan Combination of a variable rate loan and a fixed rate loan.
A report as required by the lender detailing a professional opinion of the property’s value.