Are you struggling with home loan terminology?
Here is a home loan dictionary from our finance partner:
A fee you pay when you set up your loan.
One basis point equals 0.01% interest. So 25 basis points equals 0.25%.
BICOE (Construction loan) or Suitable for building
A home loan that lets you draw down your funds as the building project progresses—and you need money to pay the builders. This option is available on selected variable rate loans.
Bridging finance A loan to cover you after you buy a new home and before you sell your old home (generally temporary and short-term).
Conditional Approval Approval in principle is a useful pre-purchase exercise that gives you an indication of how much you can borrow (based on the information you've given us).
Conveyancer A conveyancer is an expert who represents you during the home transfer (conveyancing) process.
Comparison rate Includes both the interest rate and most of fees and charges that are payable over the life of your loan. It's especially useful to compare the comparison rate between different lenders (note: redraw and early repayment fees, or fee waivers are not included and may affect the cost of your loan).
Conveyancing The legal process of transferring ownership of your new home from the seller to you.
Credit limit (or facility limit)
The maximum amount you can borrow under your home loan contract.
Credit reference or credit report A report from an authorised credit reporting agency which shows your credit history (note: we need your permission to obtain this).
A cash deposit substitute.
Drawdown date When you actually use your loan funds for the first time.
Economic costs (or break costs) Economic costs is a fee which may be payable if you switch your loan from a fixed to a variable rate (during the fixed rate period). Or if pay out some or all of your loan before the fixed rate period ends.
Equity Equity is the part of your property that belongs to you and not the bank (ie. the value of your property, less the outstanding loan amount).
First Home Owner Grant (FHOG)
First Home Owner Grant (FHOG) is a national grant (funded by the states and territories) that's given to first home buyers.
Fixed interest rate
An interest rate that stays the same for a set period. Accordingly, your repayments also remain the same.
Charges levied by the government (including stamp duty, mortgage registration fees etc.).
Guarantee An undertaking by a third party (friends or family) to pay your loan if you’re unable to.
Guarantor The third party (usually friends or family) who provide your guarantee.
A lower interest rate offered at the start of your loan (ie. the 'honeymoon period') which reverts to a standard variable rate after the honeymoon period ends.
Interest in advance
Interest charged on a loan at the beginning of a set time. For instance, charging the first year’s interest at the first month of a loan (available for fixed rate loans for investment purposes).
Interest in arrears Interest charged on a loan at the end of a set time.
Interest only repayments Interest only repayments are where you defer the repayment of your loan principal for an agreed period of time and only make interest payments. Once the agreed interest only period ends, you will begin to repay your principal.
Australian Securities and Investments Commission has some useful information for customers interested in using an interest only repayment period as part of their loan term. Check out their MoneySmart guidance for some easy to follow infographics highlighting the pitfalls and benefits of this type of lending structure. You can also find examples of how much you may expect to pay for this type of loan structure.
Introductory rate Like a 'honeymoon rate', a lower interest rate offered at the start of your loan (which converts to a standard variable rate once this period ends).
Loans used for investment purposes (such as the purchase of an investment property).
Monday, 4 February 2019