Glossary


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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% and 33%

Equity

The amount of an asset not subject to any Lender's interest e.g. property worth $300,000, with a mortgage loan of $150,000 - equity is $150,000.

Equity Loan (or Line of Credit)

A loan usually secured by the proportion of the home in which one has equity. It usually operates like an overdraft, where the borrower has a set credit limit to which they can draw funds.

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 Interest

An interest rate set for a fixed term. Penalties may apply if the loan is paid out before the term expires.

Garnishee

To legally divert whole or part of someone's money to another party

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, shares or other investments. The interest rate is generally higher than a standard variable rate, and these accounts are not suitable for everyone.

Honeymoon Rates

"Honeymoon" or introductory rates are offered to entice borrowers with a low advertised rate that may be up to 2 percentage points below the standard home loan rate and therefore look very attractive. The rate can be fixed, capped or variable for the first six to 12 months of the loan. Then they automatically revert to the standard rate offered by that lender. Use the 'comparison rate' to help choose and compare loans, not the intro rate.

Interest Only Loan

A loan where the principal is repaid at the end of the loan term and interest only is repaid during the term of the loan. These loans are usually short term, say 1 to 5 years.

Joint Tenants

Where more than one person is the owner of the property. If one person dies, then the title reverts to the survivor(s), irrespective of the deceased's will. Refer also to "Tenants in Common".

Legal Fee

May be charged where an outside party is used to prepare bank documentation.

Liabilities

A person's debts. There are also "Contingent Liabilities", which are Liabilities that are contingent on something happening e.g. where a guarantee is acted upon through a loan default. In other words, the liability may or may not come into effect.

Loan Stamp Duty

The State Government's stamp duty on the mortgage taken to secure a loan. Also referred to as "Mortgage Stamp Duty". Some States offer exemptions on this for first home buyers.

Loan to Value Ratio (LVR)

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).

Mortgagee

The party taking a mortgage over land, usually to secure a loan.

Mortgage Insurance (MGI)

Some lenders may provide up to 95% of funds for a loan if you agree to take out mortgage insurance (MGI). 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.

Mortgagor

The party granting a mortgage over land, usually to enable borrowing from a Lender.