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How Do You Decipher Australian Mortgage Jargon?

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 (annualised annual percentage rate), 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%.

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 lender’s 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

This a loan taken when 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.

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.

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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 with seo blog.

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.