Decoding the Language of Home Loans

Purchasing your first home can be a daunting experience, and it can be made even more intimidating by the seemingly endless amounts of acronyms and home loan jargon.

While it may all seem very intimidating at first, in this article we’ll aim to clue you in on some of the most common terms and what they mean for you, as you dive in to the world of home loans and mortgages.

Loan to value ratio (or LVR for short) is the ratio of your loan from the bank compared to the value of the house itself. Banks use this number in order to assess the risk of a particular loan, with a higher LVR representing a greater risk.

Establishment fee
The establishment fee of your loan refers to the total cost of handling the loan from the interview all the way through to the final settlement.

Variable interest rate
A home loan with a variable interest rate is one that will change according to the market interest rates. This is opposed to a fixed interest rate, which is locked in for the life of the mortgage.

Mortgage insurance
Mortgage insurance refers to the payment made at loan settlement, which protects the lender in the event that the borrower defaults on the loan.

Basic loans
Basic loans have a lower variable interest rate than a standard interest rate loan. Basic loans, however, do not come with extra benefits such as line of credit and redraw. In addition, no extra payments can be made on the loan.

Certificate of title
A certificate of title is a document held by the lender. It contains the details of the property location and ownership; until such time that the loan is paid in full.

Honeymoon rate
A honeymoon rate is an introductory rate only offered for a brief time, normally at the beginning of the loan.

Accrued interest
Accrued interest refers to interest that has been gaining on your loan, but has not yet been paid. Your interest is calculated daily on your loan, however, you pay your loan in periodic installments. Interest is accruing from one payment to the next, and this is your accrued interest.

Contract of sale
A contract of sale is a legally binding document stating you agree to the requirements of the sale.

Bridging finance
Bridging finance refers to a loan provided on a short term basis. It is generally provided to help pay for the purchase of a new home while the sale of an existing home is yet to be settled.

We hope this article has helped you to understand some of the more common terms that you’re bound to see as you begin your research into your first home loan.
This article was provided by Tomorrow Finance – a home loan comparison website who can help you find the best rate on your Australian mortgage.

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