Hopefully our Mortgage Glossary will explain some of the terms used in mortgages.

Break Costs

These are costs that may become payable should you pay off all or part of the loan within a certain period, either through your own means or through re-financing. They will vary from product to product and should be clearly stated to you before you take out the loan.

Conditional Approval

Conditional Approval is granted by the lender when the loan meets the requirements subject to some stated conditions being satisifed.

Credit Rating

During our assessment of any loan application we will, after obtaining your signed consent, run a credit report on you. This will tell us your credit rating, enabling us to determine which products you qualify for.

Deposit

This is the amount of your own funds that you put down on a property purchase. With certain loan products there may be stipulations as to the source of this Deposit such as it being from Genuine Savings (see below).

Drawdown

This is the term used to describe the action of the borrower actually taking the funds from the lender.

Evidence of Income

On some products you will need to be able to prove your income. For employed applicants this will normally be in the form of copies of two recent wage slips and a copy of their last Group Certificate or a letter from their current employer. For Self-Employed applicants they will normally need to show their last 2 years personal and company tax returns.

First Home Owners Grant

This is a government grant currently for $7,000, given when the applicants are going to live in the property within the first 12 months and all applicants are purchasing their first properties in Australia. There are other qualification criteria and any questions can be answered by contacting the First Home Owner's help-line on 1300 130 624.

Funds To Complete

Over and above any Deposit that is required on a product, borrowers are also required to be able to cover what is known as Funds To Complete. This is basically a term used to cover costs which include Stamp Duty, Mortgage Stamp Duty, Mortgage Insurance and solicitors costs.

Further Advance

These are additional funds released by a borrower's existing funder. They can be for various uses including home renovations, debt consolidation or purchasing a new property.

Genuine Savings

Depending on the product and the level of borrowing it is sometimes a condition that the Deposit comes from Genuine Savings. Although there is different criteria from different funders as to exactly what constitutes Genuine Savings. It generally means that they wish to see at least 6 months evidence of a regular amount being put away to build up the Deposit being used. Many funders tend to be very strict on what does and does not constitute genuine savings although equity from a property normal counts as Genuine Savings.

Interest Only

You can make your payments to your loan in one of two forms, either Interest Only or Principle and Interest. As its name suggests, with an Interest Only method you are only paying the interest built up on the loan.

Line Of Credit

This product is one where you are approved for a pre-specified level of borrowing. The actual amount of those available funds which you have actually Drawndown at any time can vary through out the term of the loan and your monthly payments are on an Interest Only basis based on the amount that you have had Drawndown over that period. This product tends to vary from a standard loan on an Interest Only basis because they come with a chequebook facility and are often a good alternative to business bank accounts or overdraft facilities.

Loan Statement

All lenders are required to send out a statement of a clients account at least annually and in the majority of cases bi-annually. These statements show the payments that have been made on the account and the interest accrued, along with a current balance owing.

Loan To Value

This is a percentage figure given to the amount of the loan against the value of the security property. For example, a $400,000 loan against a $500,000 security property is an 80% Loan to Value.

Low Documentation Loan (Low Doc)

On a standard loan, the applicants are required to show satisfactory Evidence of Income to prove serviceability of the loan amount they are applying to borrow. However, with Self-Employed applicants their tax return may not give a true indication of their income, or they may not have produced their most recent years tax returns at the time of applying for the loan. Therefore, depending on their circumstances and requirements, they may be able to apply for a Low Documentation Loan. Where income is verified on a signed self certification form.

Mortgage Insurance

This type of lenders insurance guarantees a full recovery of any loan amount, plus costs, should the borrower default on the loan and the property is repossessed. Please note, that any Lenders Mortgage Insurance protects the lender and not the borrower.

Mortgage Stamp Duty

A government tax on borrowing against a property or land, which applies to both purchases and re-finances. It normally works out at approximately 0.39% of the amount borrowed. Dependent upon state legislation, borrowers may be entitled to a reimbursement of previous Mortgage Stamp Duty paid on a property if they are increasing their loan on that property.

Overpayments

These are payments over and above any regular payments required on the loan. For example, if the required payment is $1,500 per month and you make payments of $2,000 per month you are making $500 per month overpayments, which may be available to you as a Redraw Facility, dependent upon the product you have.

Principal and Interest

You can make your payments to your loan in one of two forms, either Interest Only or Principal and Interest. With the Principal and Interest method the payments are mathematically calculated so that if you make that payment over the term of the loan, and the interest rate does not change, you will pay off the whole loan on the end date of the loan. You are thus paying not only the interest but also a portion of the Principal amount borrowed with each payment.

Redemption Penalty

These are costs that may become payable should you pay off all or part of the loan within a certain period, either through your own means or through re-financing. They will vary from product to product and should be clearly stated to you before you take out the loan.

Redraw Facility

Any Overpayments that you make, may, dependent upon the product that you have, be available to you as a redraw facility. Under which you will at any time be able to have them paid back to you for your own personal use.

Settlement

This is the day that the funds are actually handed over for the purchase of the property. If it is a re-finance then the settlement date is the day that the funds are Drawndown from the new lender or the additional funds are released if it is an existing lender with a Further Advance.

Stamp Duty

A government tax on purchasing property or land. It is payable to the government on or prior to Settlement and forms part of the Funds to Complete. If the borrower qualifies for the First Home Owners Grant they may also be entitled to a reduction in their stamp duty payable. Although this varies state to state.

Unconditional Approval

Unconditional Approval is granted by the lender when the loan has satisifed all stated conditions.

Valuation Report

With the vast majority of loan applications part of the criteria is that the security property passes a valuation report. These tend to be carried out by Independent valuers. They will value the property based on their own experiences and judgment, and recent sales in the area.

If you would like to speak with one of our loan consultants call us on 1300 551 695. Alternatively if you would like us to call you, please complete the enquiry form .