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Loan Language Explained

Construction loan. This is where the loan is usually “drawn down” or released to the borrower over set stages throughout the construction process. Such as 20% of the loan amount provide when the slab is laid,, 15 % when the frame is up etc etc until the final draw when the house (and the keys) are handed over to the owner.
Full doc loan. The applicant is to provide full documentation to the lender so they can verify your income etc.
Low doc. Where you provide info about the security and assets you own but no proof of your income.
No Doc. Where you self certify your ability to repay the loan and you do not need to declare a income.
Professional pack. It started out as a loan with a discount rate that was only available to doctors, accountants etc. Then was broadened to large amounts borrowed. That is still the predominant criteria but these days most borrowers are large enough to qualify for the concession which may include no loan application fee, a discount on the interest rate, a “free” bank account and annual fee free credit card.
Seniors loan and commonly known as a reverse mortgage. Where the borrower may borrow up to say 25% of the value of the home and make no repayments. The interest compounds onto the amount owed until they pass on or sell.
Bridging loan. You may be selling your home and buying another one. Except, you want to buy the next one before the existing one is sold. You need a loan to buy before you sell. The trap is that you are now committed to sell before the interest rate goes up on the bridging loan after 3 or 6 months.
Term loan. The loan is to be repaid over a specific term. Commonly, this is 25 or 30 years.
Variable rate. The interest rate that is applied to your loan will “vary” as rates go up and down as the reserve bank dictates from time to time.
Fixed rate. The interest rate is fixed for a specific amount of time as agreed between you and the bank. This often between 1 and 5 years but can be up to as much as about 15 years.
Interest only. The amount that you are committed to pay is the interest only. The amount you owe doesn’t go down.
Principal and interest. Your monthly payment consists of the interest and some off the principal as well.
Line of credit. Where you pay all your income into the loan and run up your monthly expenses on your credit card. You then take some out of the loan to pay off the credit card each month.
Serviceability. This is one of the 2 main things a lender is looking at when you apply. Can you afford to service (repay) the loan based on their formulas relating to your income(s), your fixed expenses and your family structure. i.e. how many adults, how many children etc, etc.
L.V.R. (loan to valuation ratio) borrow ½ of the value of the property and that is a 50% L.V.R.
Offset account. If you owe $100,000 on your loan and you have $10,000 in a offset account. You will only pay interest on your loan as though you owe $90,000.
Rate lock. If you are going to get a fixed rate loan, you can apply to “Lock in the rate” in case it goes up before the loan is arranged.
Sub accounts. You may have a $300,000 loan approved but only need to use $200,000 for the house, you could have a number of other loan accounts for different uses. i.e. $20,000 for a car and $80,000 to invest in shares, etc
Loan splitting. You may have an amount of your loan on a fixed rate and some on a variable rate.
Redraw. If you are ahead on your loan repayments. If you have pre-arranged, it you can redraw some of it back if you needed the cash.
Repayment holiday. If you are ahead on your repayments, if you have pre-arranged it, you can not make another repayment until you have used up that surplus amount.
Portability. You are selling and re-buying. If both settle on the same day, you can effectively transfer the loan amount from one property to the next. (Must be pre-arranged).
Honeymoon rates. A special discount rate that only last for a set period of time at the start of the loan. Often it is 6 months or 12 months.
Golden handcuffs. If you get the honeymoon rate, you will be expected to stay with that institution for a minimum period of time.
Establishment fee. A fee to establish the loan.
Stamp duty. The “golden egg” for the state government. A tax on the fact you are getting a loan, transferring property, etc
Solicitors fees. Commonly known as “legals” The fees you pay the solicitor or conveyancer for arranging the transfer of the property from the previous owner to you.
Mortgagee legals. The mortgagee is the one who hold the title of the property until the loan is paid (the bank). The fee is to cover their legal costs is arranging the loan for you.
Registration of mortgage. Your mortgage being registered at the state governments land titles office.
F.H.O.G. (First Home Owners Grant) A grant provided by the federal government through the state governments to assist people who are buying their first home.
Search fees. Costs to ‘search’ various departments registers to see if they are going to build a freeway through your block of land in the future, or is a heritage listed site, etc.
Mortgage insurance. A fee you pay if you borrow more than 80% of the property value (60% for low doc loans).
Deposit guarantee. Insurance you can buy if you are approved for your loan, but can’t come up with the deposit.