If you’re a first-time buyer, you may encounter some home loan jargon you’re not familiar with. Understanding terms is key to making informed decisions throughout your mortgage, home, or investment loan process. It is also an important part of effectively communicating with your lender or broker, helping you avoid misunderstandings along the way. Here are some basic home loan terms explained:
Common Home Loan Terms and Their Definitions
- Additional Home Loan Repayment: A feature that allows you to make extra repayments on your home loan to pay it off sooner.
- Application Fee: A fee paid when you set up your loan.
- Basis Points: One basis point equals 0.01% interest. So 25 basis points equals 0.25%.
- Bridging Finance: A temporary and short-term loan used when you buy a new home before you sell your old one.
- Conditional Approval: Also known as approval in principle, it indicates how much you can borrow based on the information provided.
- Conveyancer: An expert who represents you during the property transfer process.
- Comparison Rate: A rate that includes both the interest rate and most fees and charges payable over the life of the loan, useful for comparing different lenders.
- Conveyancing: The legal process of transferring property ownership from the seller to the buyer.
- Credit Limit: The maximum amount you can borrow under your home loan contract.
- Credit Report: A report from a credit reporting agency showing your credit history.
- Deposit Guarantee: A substitute for a cash deposit.
- Drawdown Date: The date when loan funds are made available to you.
- Fixed Rate: A fixed rate loan with a guaranteed interest rate for a set period.
- Variable Rate: A loan where the interest rate fluctuates depending on the funding costs of the lender.
- Full Doc Loan: A loan application where income is verified via payslips, salary deposits, etc.
- Alt Doc Loan: An alternative way to prove your income, often used by self-employed borrowers.
- Interest-Only Period: A period where you only pay the interest on your loan, not the principal.
- Lender Mortgage Insurance (LMI): Insurance that protects the lender in the event that you can’t repay your loan and your property doesn’t cover the balance.
- Line of Credit: A pre-approved amount of credit on your home loan that you can withdraw at any time, paying interest only on what you use.
- Loan to Value Ratio (LVR): The amount of the mortgage compared to the total value of the property that you are borrowing (expressed in percentage).
Common Home Loan Conditions
Home loan conditions refer to the specific terms and requirements outlined by a lender that borrowers must meet during the life of the mortgage. Here are some common home loan conditions:
| Conditions | Definition |
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Loan Term
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The period over which the loan must be repaid.
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Repayment Schedule
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The agreed-upon schedule for repaying the loan, including the frequency and amount of payments.
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Interest Rate Type
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Whether the loan is a fixed-rate, variable rate, or split (a combination of both).
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Loan Portability
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The ability to transfer a loan from one property to another.
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Redraw Facility
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An option to withdraw extra repayments made on the loan.
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Offset Account
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A bank account that is linked to a home loan to reduce the interest payable.
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Early Repayment Conditions
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Any fees or conditions associated with paying off the loan ahead of schedule.
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Refinancing Restrictions
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Any limitations or penalties associated with refinancing the loan.
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Lender’s Mortgage Insurance
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A condition for borrowers with less than a 20% deposit, covering the lender's potential loss.
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Guarantor Requirements
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Conditions under which a third party (usually a family member) guarantees to cover the loan if the borrower defaults.
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Financial Hardship Provisions
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Terms under which the borrower can alter repayment conditions in cases of financial hardship.
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Loan Increase Availability
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Conditions under which the borrower can increase the loan amount.
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Default Consequences
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The lender's rights and the borrower's obligations if the borrower fails to make payments as agreed.
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Learn More About Home Loan Terms and Conditions
Learning about home loan jargon is one of the first steps to finding the right loan and lender for your needs. If you want to learn more about home loans and how they work, you can consult loan experts to guide you. Darkhorsefinancial.com.au can help you navigate the home loan process smoothly so you can find the best terms and rates. Contact us today and we'll be happy to help.
