Monday, April 25, 2005

Australian Mortgage Terminology

Mortgage Terminology

If you have started looking into home loans you have probably noticed a lot of confusing terms such as loan valuation ratio. The following is a list of important mortgage and financial related terms which will give you a better understanding of issues relating to the mortgage process.

Accrued Interest – Interest calculated but not yet added.

Adjustable Rate Mortgage (ARM) – An adjustable (variable) rate mortgage loan has interest rates that are adjusted periodically based on changes in a selected index. As a result, your monthly payment may increase or decrease as result of changes in the overall interest rates.

Arrears – This refers to an amount that is overdue on a loan.

Assets - Property owned by the applicant.

Closing Costs - closing costs or fees that are charged for services are performed in the process of closing the loan application. Examples of closing costs include title fees, recording fees, application fees, credit report fees, solicitors's fees, taxes and surveying fees.

Credit Bureau – or otherwise known as the Credit Reference Association of Australia. Lenders can obtain credit information on applicants.

Equity – The amount of an asset which is actually owned. If a home is worth is $250,000 and the loan value is for $100,000 then the equity amount is $150,000.

Guarantee – a form of security in which another party promises to repay a loan if the borrow fails to repay.

Home Appraisal - a written analysis of the estimated value of your home.

Liabilities – this term refers to a person’s debts.

Lien – the right to hold property

Line of Credit – a loan with a specified ceiling, somewhat like a credit card.

Loan Maintenance Fee – a loan management fee charged over the life of a loan.

Loan Valuation Ratio (LVR)– the ratio of the amount lent to the valuation of the security. This is the ratio of the loan amount to the property valuation expressed as a percentage. An example would be a loan of $150,000 on a home valued at $160,000. The LVR is $150,000 times 100 and divided by $160,000 which is 93.75%.

Mortgagee – the lender of the funds.

Mortgagor – The person borrowing the money.

Principal – the capital sum borrowed on which interest is paid.

Principal and Interest – A loan where both the principal and interest are repaid together over the life of the loan.

Redraw Facility – a loan facility where you can make additional payments on a loan with the option of accessing this money if it is needed in the future.

Title - a document that gives evidence of ownership of the property. It also indicates the rights of ownership of the property.

Valuation - a report which gives professionals opinion on the value of the property. The valuation can be more or less than the purchase price.


Australian Mortgage Terminology

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