Basic Rate
Applied to loans commonly called 'No Frills Loans' which have are generally
cheaper than Standard Variable Rate Loans but do not have features such
as a redraw facility or mortgage offset.![]()
Break Cost
Relates to Fixed Rate Loans where the borrower terminates the loan contract
before the expiry of the fixed rate period.
Capped Rate
The rate applied to Honeymoon (Introductory Loans) which is capped at a rate
that will not rise above the prevailing Standard Variable Rate, but may
fall.
DSR - Debt Service Ratio
Maximum of the applicants weekly, fortnightly or monthly wage which will
support loan repayments over the agreed loan term. Usually expressed as
a percentage - most lenders set a maximum DSR between 30% to 33%.
Establishment Fee
Also called Application Fee. Fee which covers basic costs in setting up loan
from initial interview to loan drawdown. Some lenders choose to absorb
this fee.
Exit Fee
Fee imposed by some lenders where the borrower has sought refinance with
another lender within the first few years of the loan.
Fixed Rate
The rate applied to Honeymoon (Introductory Loans) which is fixed at a set
rate which will not change for the duration of the honeymoon rate period.
Home Equity Loan
A home equity account gives you a revolving line of credit secured by the
value of your house.
This allows you to use the funds for any other purpose such as the purchase of a second property, or shares or other investments.
The interest rate is generally higher than a standard variable rate, and these accounts are not suitable for everyone.
Honeymoon Rate
Colloquial term applied to Introductory Loans. The rate can be fixed, capped
or variable for the first 12 months of the loan. At the end of the term
the loan reverts to the standard variable rate.
Legal Fee
May be charged where an outside party is used to prepare bank documentation.
Lenders Mortgage Insurance (LMI)
Some lenders may provide up to 95% of funds for a loan if you agree to take
out mortgage insurance. This figure is a one off payment usually made at
the time of settlement. The figure is not easy to calculate being based
on variables such as the loan amount, the value of your property and the
exact LVR (i.e. the figure between 80% & 95%).
This payment allows the lender to recoup the unpaid principal in the event of default and the borrowers debt is transferred to the Mortgage Insurer.
LVR
Loan to Value Ratio. Refers to the maximum amount lenders will approve against
the value of any property taken as security for your home loan.
For example if you wish to purchase a property worth $100,000 the lender may approve a loan for 80% of the property value. It will then be up to you to provide the remaining 20% plus costs (mortgage registration and stamp duty etc).
Lo-doc
A loan available to applicants unable to meet the required income levels
to service the loan. These loans generally carry an interest rate loading
to reflect the higher risk to the lender.
Mortgage Offset
Offset accounts can help reduce your tax bill by offsetting taxable income
from deposit accounts against interest paid in after tax dollars on mortgage
repayments. However, not all offset accounts are equal, with many not paying
the same interest as you are charged on your mortgage. In this case, the
account would be a partial offset.
Non Conforming Loans
Loans available to applicants who do not meet the criteria for regular lending.
Typical reasons could range from impaired credit history, insufficient
income or business start up finance. These loans generally carry an interest
rate loading to reflect the higher risk to the lender.
Portable Loans
A portable loan allows you to sell your house and move to a new one without
having to refinance. This saves application and legal fees. Most lenders
however insist that the loan amount is the same or less. Make sure you
know the terms of your loan.
Redraw Facility
A redraw facility allows you to make additional repayments on your mortgage,
and then have access to the additional repayments if you need to. Make
sure you understand the conditions attached to the redraw facility that
can include a minimum amount and a fee every time you use it.
Serviceablity
Lenders will assess each applicant differently on their ability to service
the loan. There are significant differences within lenders in this area
and it pays to use a home loan broker familiar with serviceablity requirements
before an application is submitted.
Service Fee
Usually a monthly fee levied to cover bank cost of administering & maintaining
the loan account i.e. fixed and variable costs such as staff, IT software
/ hardware.
Standard Variable Rate
The rate which lenders apply to their 'premium' home loan product. Carries
features such as a redraw facility, portability, salary account and mortgage
offset.
Switching Fee
The lender may impose a switching fee where an existing borrower wishes to
change from one loan type to another e.g. Variable Rate Loan to Fixed Rate
Loan.
UCCL
The Uniform Consumer Credit Code Legislation - a Federal Act of Parliament
to ensure uniformity amongst all credit providers. E.g. all loan contracts
must now adhere to a uniform format as specified by the act. It must set
out all fees / charges that the borrower (and, if required, guarantor)
are liable for under the loan contract.
Valuation Fee
Fee which may be charged if the lender seeks to cover the cost of valuing
the property taken as security for the loan.
Variable Rate
The rate applied to Honeymoon (Introductory Loans) which is variable and
usually set at a discount below the Standard Variable Rate.