Your Mortgage is probably the most significant financial commitment you will ever make. To ensure that you make the right decision and can communicate with your lender or broker it is essential for all Australian borrowers to understand the Australian mortgage jargon. Attached are some of the most common Aussie lending terms in circulation: Comparison Rate Also referred to as AAPR, the Comparison rate reflects the total cost of your loan by taking into account other costs other than the advertised interest rate. This is then expressed as a total interest rate cost to you over an average loan term. Loan-to-Value Ratio (LVR) This is the ratio of the loan required over the security value property. With a mortgage of $80,000 and the security property value of $100,000 your LVR is 80%. With such an LVR you will generally not have to pay mortgage insurance. Generally mortgage insurance charges are levied on the borrower once his mortgage LVR is greater than 80%. No Doc Mortgage A No Doc Mortgage does not require the borrowers to provide details of their financial position in order to qualify for the loan. No Doc Mortgages were introduced to assist older Australians as well as business people and professional investors borrow money. Such borrowers are usually asset rich but may not have the financials requested by traditional lenders. No Doc Mortgages are also known as Asset Lending because the decision to lend is made based on the strength of the borrower asset position. Lenders Mortgage Insurance (LMI) LMI protects the lender against potential loss in the event of default and mortgagee sale. If the subsequent sale of the lenders security fails to repay the outstanding loan in full the mortgage insurance policy will repay the shortfall. The insurance protects the lender, not the borrower. In the case of an ultimate loss (shortfall), an insurer may take action against the borrower to recover the loss. LMI is usually required where a loan to value ratio exceeds 80%. Bridging Finance: A loan taken where the purchaser wishes to buy a new property before selling their existing property. The lender will take security over both properties until the initial property is sold. Reverse Mortgage Reverse Mortgages are Home Loans for borrowers over 60 years old. Reverse mortgages allow the borrower to draw cash against the value of their home. The main difference between a Reverse Mortgage and a normal mortgage is that with a Reverse Mortgage the borrower does not have to make regular repayments until they move into care, sell their home or die. When the loan ends the borrower or their estate, must repay what's owing, usually out of the proceeds of the sale of the home. Home Equity Home Equity refers to the difference between the value of your home and your outstanding mortgage. For example if your home is worth $300,000 and your outstanding mortgage is $150,000, your available equity in your home is $150,000. You may wish to access the home equity in your home for a number of purposes such as : - Debt Consolidation; - Home Renovation; - Holiday; - Investment etc. To do this most borrowers refinance their home and obtain what is known as a Line of Credit. Line of Credit A Line of Credit is a Mortgage facility which operates like a credit card secured by the equity in your home. You may use these funds for any purpose. The main advantage of a Line of Credit is that the funds are available to you at the cost of a home loan interest rate much lower than the cost of a personal loan or credit card debt. Mortgage Broker Mortgage Brokers are intermediaries between the lender and the consumer. They promote the loan products of various lenders, can assist the borrower find the loan that suits them best, help pre-qualify the borrower, complete a loan application and submit the application to one or more lenders. If the loan proceeds to settlement most brokers will receive a commission from the lender for the new loan they introduce. Some brokers also charge the borrower for the job they do others provide a free service. In Australia, to ensure that you are dealing with a reputable broker, check if they are members of MIAA (Mortgage Industry Association of Australia) or FBAA (Finance Brokers Association of Australia). Mortgage Manager Mortgage managers are lending specialists who arrange funding for home and investment loans. Mortgage Managers source their funds via a process known as securitisation. The mortgage managers job is to set up the loan and perform a liaison role with all parties involved, such as originators, trustees, credit assessors and, of course, borrowers. They provide the customer service role and are there to prudently manage your loan throughout its term. Mortgage Calculator Mortgage Calculators are provided by most lenders to assist the borrower in working out what their repayments would be and whether they would be able to afford the mortgage they are seeking. Second Mortgage A second mortgage is an additional loan secured by a property that already has a mortgage attached to it. Second mortgages usually carry a higher interest charge as the first mortgage carries first priority in the case of default. The second mortgage also carries rights to the property, but these are subordinate to those of the first mortgage. Credit Report Every credit transaction performed in your name in Australia is recorded on your credit report. This will include applications for loans, telephone contracts and credit cards. In order to approve a loan, a lender will require a credit report on the borrower to confirm previous loans applied for or credit difficulties recorded. Credit reports are prepared by authorised credit reporting agencies, such as the Credit Reference Association of Australia. The Lender obtains the borrower's permission in writing to proceed with a credit report. |
