FAQ
What is the lender looking for in an applicant?
Basically a lender is interested in 2 things when looking at a potential loan:
- Ability of the borrower to repay the funds (current income, employment history, other current financial obligations)
- Security available for the lender to hold a mortgage over (property that the borrower currently owns or is buying)
What is the comparison rate?
The idea behind the comparison rate is to try and standardise advertised interest rates so that the true cost of the loan can be identified and they can be compared fairly against each other. So the comparison rate includes the interest rate, set-up costs, ongoing costs, term of the loan etc in the calculation. The comparison rate is based on a $150,000 loan over 25 years, which is an unlikley scenario for most borrowers (typically be higher loan amount and a 30 year term as this is the standard offer from lenders). It is useful to comapre the same type of loans against each other such as one basic loan against another basic loan. However it is not a realistic way to compare loans with more features (say a pro pack with a annual fee, offset account etc) as these types of loans don't come into their own until the borrowed amount is higher.
Glossary
| Application | The first step in the home loan process with a lender, applying to a lender for funds (loan) and nominating the property that a mortgage will be able to taken on |
| Basic loan | A home loan with minimal features, straight forward loan with no ongoing fees, no offset. Also can be called a 'no frills' or vanilla loan. Suitable for first time borrowers that are unlikley to have excess cash for an offset account and want no fees |
| Borrower | The person borrowing who either has or is creating an ownership interest in the property which they can transfer to the lender by means of a mortgage |
| Conveyancing |
The legal act of transfer of legal title of property from one person to another, that may include the granting of an encumbrance such as a mortgage (which will be the case when a loan is taken out against the property by the purchaser). Conveyancing in Australia is usually completed by a solicitor or a licensed conveyancer, who is involved in the before, during & after times of a property purchase. A typical conveyance includes, but is not limited to, the following: -title searches -checking for encumbrances and restrictions on the property -ensuring any special conditions mentioned in the contract are met -making sure rates, land tax and water consumption charges are paid by the appropriate party -arranging for the payment of fees and charges -preparation of legal documents |
| Default | When the borrower has not been able to make the required loan repayments to the lender. Subsequent steps that can be taken by the lender are outlined in the loan contract, which may include possession of the security property with the aim to sell it to recover outstanding loan funds. Typically selling a property occurs only when the lender has exhausted all other options with the borrower for repayments |
| Interest | Financial charge for use of the lender's money, typically calculated daily but added monthly to the loan |
| Lender | Any lender, but usually a bank or other financial institution |
| Loan | Funds provided by a lender in exchange for the granting of a mortgage over property that the borrower has an ownership interest in |
| Loan Contract | Legal document issued by lender once application is fully approved, stating the conditions of the loan and the rights / obligations of the borrower and lender. This document needs to be signed by the borrower/s and returned to the lender so that the lender can prepare funds to be available for the settlement of the property |
| Loan Term | The maximum period of time that the lender requires the loan to be repaid in. This will be outlined in the loan contract, typically is 30 years (but can be and is advisable to be paid out earlier) |
| LMI | Lender’s mortgage insurance – insurance taken out by the lender with 3rd party mortgage insurers, to protect the lender against any shortfall in funds against the outstanding loan amount resulting when a borrower defaults on their loan and the security property held by the lender is sold. Cost of LMI is charged to the borrower as a once off premium at the start of the loan and normally is capitalised onto the loan principal. Note that LMI does not protect the borrower in the event of default (separate mortgage insurance can be taken out by the borrower for this) |
| LVR | Loan value ratio – quoted in % terms, value of loan principal against the value of security ie loan of $240,000 against property value of $300,000 is an LVR of 80% |
| Mortgage | Is a security interest in real property held by a lender as a security for a debt, usually a loan of money. It is a transfer of an interest in land (or the equivalent) from the owner to the mortgage lender, on the condition that this interest will be returned to the owner when the terms of the mortgage have been satisfied or performed. (Note that the word mortgage has become over time mistakenly used in general to describe the actually loan on the property, ‘I have got a big mortgage that I have to worry about each month’ etc) |
| Mortgagee | Party who has received a mortgage and thus lend funds against it (lender). The lender has the right to sell the property to pay off the loan if the borrower fails to pay back the funds as per contract terms between the borrower and the lender |
| Offset a/c | A transactional bank account held with the same financial institution as a loan that for interest calculations on the loan, the balance of the offset account is taken off the loan balance and interest is only calculated on the net amount. This helps pay off a loan quicker as each repayment is paying off more of the principal as the monthly interest charge is reduced. An offset account is a common feature of a pro pack loan and thus general there is an annual cost involved, so pay off does not happen unless there is at least an average balance of $5000+ in the offset account. Works well when dual incomes, rental income etc is deposited into the offset account and the balance is deducted from the owner occupied loan (that is not tax deductible) |
| Principal | The original size of the loan and as any principal is repaid, the principal will go down in size |
| Security | What the borrower can offer the lender for a mortgage to be taken on, so that the lender has the ability to recover funds if the borrower fails to meet their repayment obligations (as outlined in the loan contract). Typically for a home loan the security involved is real property (house, apartment, vacant land etc) |
| Settlement | Nominated date (specified in the contract of sale) that property is to transfer from vendor (current owner) to purchaser. Process on day of settlement involves legal representatives and lenders from each party with exchange of funds and title facilitated. Once settlement is concluded, purchaser receives ownership of the property, mortgage has been given to the lender and the home loan has been drawn down to provide the funds for the purchase. Typically settlements occur on a business day at 2pm, with your conveyancing representative (solicitor or licensed conveyancer) and a representative of your lender attending on your behalf. The possession of the property transfers to the purchaser after settlement and your conveyancing representative will contact you to advised ‘that the keys are available’ to the property (normally at the real estate agent selling the property) |
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competitive interest rates
lenders are very competitive
at the moment, a continiously
changing market so contact
us for the latest rates on
Basic Loans
(no frills product, typically no fees)
Professional Packs
(annual fee, offset account, credit card etc)
Fixed Rates
(fixed interest rate for set period, early termination fees)
