15 Jun Confusing loan terms explained
Terms relating to the applicant
Mortgagor: The applicant – the person who pays the mortgage loan.
Mortgagee: The lending institution the applicant accesses the loan from – the lender.
Mortgage broker: She/he arranges the home loan process between the applicant and the lender. They spend time analysing the applicant’s situation and, using their experience and market knowledge, provide the appropriate lending solution.
Split loans: If the applicant is unsure about locking in their interest rate, or going variable, and/or desire flexible repayments, they can ‘split’ it using both options.
Stamp duty: 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.
Pro-pack loan: 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.
Low doc/no doc loans: Loans that don’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.
Non-conforming loans: Loans provided to applicants who have a poor credit status or limited information on their income.
Terms about the loan
LVR: Loan-to-value ratio – refers to the percentage of the loan compared to the home’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.
‘Pre-approved’ or ‘approval in principle’ loan: 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.
Offset account: 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.
Private treaty: This is when the sale is privately negotiated – as opposed to an auction.
Terms relating to things that might happen
Portability: This allows flexibility of the loan to move over to another property; however, there are usually additional charges, including valuation fee, registration fee and lender’s fee.
Redraw: Allows a borrower to access extra repayments they have already made on their mortgage, that are above their required minimum repayment.
Break costs for a fixed rate: 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.