Lending Jargon - Latest News

Aggregator - Most brokers are accredited with an aggregation company. These companies form agreements with a variety of lenders so that their broker members can have access to a wide variety of lending products. They also provide broker support in the way of management of commission, software, professional development training and updates on legislation governing lending.

Amortisation - paying off the principal of a loan facility over time.

Annual Percentage Rate - rate of interest per annum

A & L - asset and liabilities statement - generally included on a loan application form and allows the lender to gain insight into an applicants asset position.

APR - Annual percentage rate. Which takes into account interest charges and costs associated with setting up your loan which allows you to accurately compare loan facilities.

Base Rate - The Interest rate set by the Reserve Bank used to determine borrowing and savings rates across the Australia.

Break Costs - This generally applies to fixed rate loans and is the incurred when the loan is paid off before the maturity of the fixed period.

Broker - An industry professional who is accredited with a number of lenders who can locate a loan facility to suit you needs. They will package the loan submission and follow up with the selected lender to facilitate settlement of your loan.

Conveyancing - is the legal process of transferring ownership of the property.

Credit Rating - Your credit rating is based on you previous repayment history and is an indication to the lender of your credit worthiness.

Credit Scoring - In order to gain approval from a lender the borrower must reach a certain credit score based on income levels, credit rating, property location and valuation, length of employment, number of dependents and other elements relevant to the lending risk.

Default - if a borrower is in arrears they are said to be in default of their mortgage and a notice of default is forwarded to the borrower and request for payment is made. If the default is not rectified the lender can then apply for a court judgement.

Equity - Your equity in your property is the difference between the market value of the property and the current outstanding debt on the property

Fixed Rate - an interest rate may be fixed for a specific period of your mortgage life.

Freehold - owning land and buildings (leasehold is where property reverts back to the owner when the lease expires).

Interest only loan - some mortgage products allow you to make interest only payments for a period of time. You will not pay any principal during this period and you laon balance will not reduce.

LMI or Lenders Mortgage Insurer - this insurance protects the lender in case of default or loss on a loan. It is payable by the borrower and is usually charged where a loan amount is a high percentage of the value of the property.

LVR - Loan to Value Ratio - the loan amount is divided into the property value to determine a percentage which indicates the amount of equity in the property.

Mortgagee - is the lender.

Mortgagor - is the borrower.

Negative Equity - is when the loan amount is higher than the current value of the property. This can happen in a falling property market.

Offset account - The interest earned on a savings account which is linked to your mortgagee is offset against the interest paid on the loan balance.

Principal and Interest - The principal as well as the interest is paid off over the loan period so that the loan balance is zero at the end of the term of the loan.

Redraw - The borrower is able to redraw funds if they have paid additional on loan repayments.

Security - The lender takes a property or an asset as security for the loan.

Sub Prime Lending is generally associated with higher risk lending for example people who have had credit problems in the past. Generally the cost of borrowing and interest rates are higher than Prime Lending as the risk is seen to be higher.

Variable Rate Loans - means the interest rate goes up or down in relation to the base rate.

Disclaimer: These are general descriptions and loan facilities can differ for each lending facility.