We aim to simplify lending for our clients by providing information and education to ensure you can make an informed lending decision. As you become engaged in the lending process you will likely hear terms and abbreviations commonly used by lenders and participants in the industry. To make this journey easier, below is a list of the frequently used lending terms, their meanings and how they may impact your lending
A set of rules & principles specific to the financial sector, with the goal of tackling actions of laundering illicitly obtained funds by criminal or terrorist organizations. We conduct numerous verifications as part of our AML processes.
Type of valuation often used for construction lending. This is where the value of the security is determined based using a projected market value after the completion of the construction / improvements. It requires the valuer to make assumptions about the future value, that are based on reasonable objective evidence.
A standard valuation based on the asset in its current form. See Valuation definition.
A penalty paid by the borrower if you repay a fixed rate home loan early or switch loan product, interest rate or payment type during a fixed rate period. The fee is based on the lender's loss. When refinancing we will compare this fee to potential savings to ensure a change is beneficial for you.
Lenders use a serviceability buffer when determining how much a person can borrow. It is an extra percentage rate added to the calculation of your debts or planned loan. It is used to make sure that you can continue to meet repayments even if interest rates increase or your circumstances change. The rate used varies by lender and can significantly impact your borrowing capacity. As your broker we are aware of the rates different lenders use.
A comparison rate includes the interest rate as well as additional costs, like Application fees, Establishment fees, Ongoing account keeping fees. The aim of the comparison rate is to give you a better indication of the true cost of the loan.
When a lender is potentially willing to lend you funds, but they require further information and conditions to be met before they can formally approve your home loan. Conditional approval indicates that an underwriter has reviewed your mortgage application and is almost ready to grant you full approval for the home loan.
A licensed professional whose role is to handle legal aspects of the transfer of ownership, and to identify any legal issues that may affect the sale. This includes preparing and reviewing legal documents, conducting property searches, and liaising with other parties involved in the transaction.
The initial sum of money paid as the first contract instalment on the purchase. The balance is funded by a loan or, in the case of property, a mortgage. In the case of a property, you will also require additional Funds to Complete, to finalise the purchase.
A depreciation schedule is a comprehensive report detailing depreciation deductions that property investors can claim over time. It is used to maximise the cash return from your investment property. See our other services page.
A measure used by lenders that compares your total debt to your gross household income. It’s one of the ways lenders measure your ability to manage the monthly payments required to repay the money you plan to borrow.
a credit bureau that collects information about an individual's credit history to create a credit report. The main components of an Equifax credit report are your personal information, credit accounts, inquiry information, bankruptcies, directorships and collections accounts. We run a Credit Report to identify any issues that may have
The value of your ownership stake in an asset, the difference between its market value and the amount you owe on the asset. Effectively, the amount of money you would be paid after selling and all debts associated with the asset were paid off. Your equity could potentially be used to take advantage of investment opportunities, like an investment property.
Where circumstances indicate that repaying the loan in the agreed timeframe is unlikely, an exit strategy will be required. It is a backup mortgage repayment plan with the goal to demonstrate to the lender how you will complete your mortgage repayments before or during retirement.
Where your interest rate and monthly payments remain constant for the duration of the Fixed period. This can be beneficial where you expect rates to rise during the fixed period.
the amount you need to personally contribute to complete the purchase of the property. The Bank will lend you a specified percentage of their valuation of the property, you will need to fund the difference. Your funds to complete amount includes your deposit and the additional upfront costs you will need to pay. These include items like stamp duty, LMI (usually if you're borrowing more than 80%), building, pest, or strata reports, legal fees, conveyancing fees, etc.
A guarantor agrees to repay the home loan if the borrower can’t meet their repayment terms and conditions. They offer security to the lender in the form of assets to support the loan application. The added security of a guarantor means you can borrow more for your home purchase than going alone, or reduce the LVR and avoid LMI. The main risk to the guarantor is that the bank has the right to that security in the event of default. The Guarantor could potentially lose their property and suffer other financial losses.
This is a measurement tool used by lenders to approximate your living expenses. It is used to determine your available income to repay the loan. Most lenders will use the Higher of HEM or your actual living expenses to determine your repayment capacity.
The sum of money which a business or an individual receives in exchange for sale of goods or services, or through capital investment. This may include Overtime, Loadings, Bonus Income, Rental Income, Interest, Dividends and other forms. Not all income is treated equally with lending, some may be excluded, others may be shaded. It’s important to be specific with your broker when detailing your income.
This is when your repayments only cover the interest portion of your loan for a specified period. You are therefore not paying back any of the amount you borrowed, you are only paying the cost of borrowing. Once the interest-only period ends, you start repaying both principal and interest.
The mandatory process of identifying and verifying your identity to ensure that you are genuinely who you claim to be. The VOI process we undertake is part of our KYC requirements.
is insurance for the lender, funded by the borrower, to insure the lender against borrower mortgage default. It covers the lender for the outstanding loan balance if the borrower is unable to meet their loan payments and the property is sold for less than the outstanding loan balance. LMI typically applies if your LVR is 80% or more (Exceptions apply).
A preset borrowing limit offered by banks and financial institutions that can be used at any time until the limit is reached. The limit is set by the issuer based on the borrower's creditworthiness.
Calculated by dividing the loan amount by the lender’s valuation assessment of the property. It's a percentage figure of how much a lender is willing to loan you against the total value of the asset you plan to buy. An LVR greater than 80% typically incur the extra cost of LMI.
A strategy of investing borrowed money in such a way as to result in a loss that can be claimed as an income tax deduction. This happens when the claimable costs of owning a rental property exceed the rent returns you earn. Not all claimable costs are actually incurred by the investor, such as depreciation, making it possible for a property to have both a positive pre-tax cashflow and still be negatively geared. Ideally a negatively geared property will return a future Capital Gain for the investor. Negative Gearing is considered when determining servicing capacity.
An offset account is a separate bank account that is linked to your home loan, where the balance of the account is offset against the amount owing on your home loan. This reduces the amount of interest payable on the loan, as you'll only be charged interest on the reduced balance.
A preliminary step in the mortgage application process, which happens before Conditional Approval. The Lender will verify some of your information and agree in principle to lend you money towards the purchase of your home. It provides an indication of your borrowing potential, however, as an underwriter may not have reviewed your information, the amount of lending is not guaranteed as it hasn't proceeded to Conditional or Unconditional approval.
The loan principal is the amount you borrow to fund your property purchase. This is the difference between the full cost of the property and your deposit.
When your Loan repayment has both a component that goes towards paying down the principal balance of the loan and a component that goes towards interest. You are therefore paying back part of the amount you borrowed as well as the cost of borrowing.
A redraw facility gives you the ability to make extra repayments on your home loan, where the additional funds can later be taken out, or redrawn, if you need them.
A measurement of the income an investment property generates, compared to its cost. It effectively represents the return on investment a property provides. Rental return is considered when determining servicing capacity.
This is the asset that is pledged by the borrower to guarantee a loan. If the loan is not repaid, the lender may sell the asset to get their money back.
The lenders measure of the borrower’s cash flow available to pay current and proposed debt obligations. It is calculated by taking a borrower's income, subtracting current expenses, household expenditure, and adding in the new loan repayments. Lenders may use income shading, and buffers to determine the capacity – each lender has a different approach. As your broker we are aware of the servicing requirements different lenders use.
Some income types are variable and not guaranteed on an ongoing basis, such as Bonus Income, Overtime, and Rental Income. Shading is the reduction of these income types by a margin to reflect the variability and likeliness of the income. The rate used varies by lender and can significantly impact your borrowing capacity. As your broker we are aware of the rates different lenders use.
A private super fund that you manage yourself. They operate under similar rules and restrictions as ordinary super funds. They have their own Tax File Number, Australian Business Number and transactional bank account, which allows the receiving of contributions and rollovers, making investments and paying out lump sums and pensions. An SMSF generally can use borrowing as part of its investment strategy.
When you divide your loan into two or more parts. You could structure each part differently, such as part Fixed, part Variable, part Interest Only, or have multiple loans of the same loan type. This may be a beneficial strategy when part of the total loan amount is being used for Tax Deductible purposes, but the rest isn’t.
The cost of switching the title of the property and changing ownership details. It is a tax imposed by state and territory governments and varies depending on the state or territory. Stamp duty also applies to motor vehicle registration and transfers; insurance policies; and hire purchase agreements.
Occurs where funds that are deductible are pooled together with funds that are non-deductible, making them not clearly identifiable individually. This is avoided by keeping the funds, or the source of funds separately. So instead of one loan that covers your owner-occupied property and your investment property deposit, you would create two loans, one being deductible and the other one not.
The lender's final decision to approve you for the loan. It means they have taken all your details into account and are happy to lend you the approved amount to buy a specific property. This can also be referred to as a formal approval or full approval.
A property inspection or pricing review undertaken as part of your mortgage application, generally using an independent valuer. The value of the property is determined, and the bank will use this number to work out the LVR and determine the amount of lending and interest rate they are prepared to offer.
The interest rate can change, up or down, over the life of the loan. The rate fluctuates based on lender policy and an underlying benchmark or index that periodically changes. . This can be beneficial where you expect rates to fall during the loan period.
A process where a qualified person, such as a JP or a solicitor, site various forms of identification and confirm that a person is who they say they are. The process may also be done via a digital platform that checks against government databases and generates a report. We use a digital platform.
Schedule your obligation free consultation Today !
Clever Lending Pty Ltd ABN 54 638 891 666, Credit Representative 552783, is authorised under Australian Credit Licence Number 384324, ABN 42 131 090 705
