Home Loans Glossary
AAPR
AAPR has been introduced in 2003 to help consumers compare the cost of different loans. AAPR includes interest, payments and fees in one rate, reflecting the total annual cost of a loan. All lenders are legally required to disclose this benchmark rate in their advertising of home loans and personal loans. In Australia , the AAPR is officially called the 'Comparison Rate' ... see 'Comparison Rate' for details on how it is calculated.
Annual fee
This is an ongoing administration fee charged each year on home loans and reverse mortgages. Admin fees on home and personal loans can be charged monthly, quarterly or half yearly.
Basic loans
Also known as 'no frills' loans. Basic loans are d iscount home loans with a lower variable interest rate than the standard variable rate loan. The downside of these discount loans is less flexibility and fewer features (no extra repayments can be made, no redraw, no line of credit, etc).
Basic Rate
Rate applied to basic, or 'no frills loans' which are generally cheaper than Standard Variable Rate Loans but do not have features such as a redraw facility or mortgage offset.
Break Costs
Relates to the penalty fees charged when a borrower terminates a fixed-rate loan contract before the expiry of the fixed-rate period.
Comparison rate
The Comparison Rate has been introduced in 2003 to help consumers compare the cost of different loans. The Comparison Rate includes interest, payments and fees in one rate, reflecting the total annual cost of a loan. All lenders are legally required to disclose this benchmark rate in their advertising of home loans.
Home loan Comparison Rates are based on a loan amount of $150,000 and a term of 25 years. Full comparison rate schedules giving rates based on a variety of amounts and terms are available from the lenders, or from the realestate.com.au Home Loans Interest Rates page.
Discharge fee
The discharge fee is a one-time payment charged on the final payout of loan.
Establishment Fee
It covers basic costs in setting up loan from initial interview to loan drawdown.
Exit Fee
Fee imposed by some lenders when the borrower refinances with another lender within the first years of the loan. Some can get as high as a break fee for a fixed interest loan, so make sure to research whether there is an exit fee for your chosen home loan.
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 other purposes 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 loans should be treated with caution.
'Honeymoon' Rates
"Honeymoon" or introductory rates are offered to entice borrowers with a low advertised rate for the first six to 12 months of the loan. Then the loan automatically reverts to the standard variable rate offered by that lender. Use the 'comparison rate' to better understand the costs associated with such loans.
Legal Fees
May be charged where an outside party is used to prepare bank documentation.
'Low doc' loans
Low-doc or low documentation loans have been designed for the self-employed who don't have the documentation required to get traditional home loans. The interest rate is higher than the standard variable rate and low-doc loans generally carry a requirement for mortgage insurance, adding to their cost.
LVR
LVR stands for 'Loan to Value Ratio'. LVR refers to the maximum amount you can borrow against the value of the property used as security for your home loan. For example a lender may approve a loan for 85% of the property value, while you will be expected to provide the remaining 15% plus costs and insurance.
Mortgage Insurance
Some lenders may provide a higher LVR for a loan if you take out mortgage insurance. This figure is a one off payment usually made at the time of settlement. The figure is calculated based on the loan amount, the value of your property and the LVR. The mortgage insurance protects the lender in the event of payment default when the borrower's debt is taken over by the insurer.
Mortgage Offset account
Offset accounts can help reduce your tax by offsetting taxable income from deposit accounts against interest paid in after tax dollars on mortgage repayments.
'No frills' loans
Also known as basic loans. 'No frills' loans are d iscount home loans with a lower variable interest rate than the standard variable rate loan. The downside of these discount loans is less flexibility and fewer features (no extra repayments can be made, no redraw, no line of credit, etc).
Non-conforming loans
Also called 'Sub-prime lending'. Non conforming loans cater for persons who do not meet the standard criteria mainstream lenders use for ordinary borrowers. Examples include persons who are self-employed, have a poor credit record or who have recently arrived in Australia . Non-conforming loans usually incur higher interest rates.
Portable Loans
A portable loan allows you to sell your house and move to a new one without having to refinance. This saves application and legal fees, but as a caveat: the loan amount usually has to be the same or lower than the one for your current property.
Redraw Facility
A redraw facility allows you to make additional repayments on your mortgage; the redraw facility can include a minimum amount and a transaction fee.
'Reverse mortgage'
These loans are for persons who find themselves later in their life owning their own home but requiring more cash for living costs, travel, etc. A reverse mortgage allows such a person to borrow against the value of their home and access the equity without having to sell the property. No repayments are required during the life of the loan, with the total interest, fees and charges being recuperated from the value of the estate at the borrower's death.
Service Fee
Usually a monthly fee covering bank cost of administering & maintaining the loan account.
Standard Variable Rate
The standard variable rate is applied to home loan products with features such as a redraw facility, portability, salary account or mortgage offset.
Sub-prime lending
Also called 'non-conforming' loans. Caters for persons who do not meet the standard criteria mainstream lenders use for ordinary borrowers. Examples include persons who are self-employed, have a poor credit record or who have recently arrived in Australia . Usually incurs higher interest rates
Switching Fee
The lender may impose a switching fee where an existing borrower changes from one loan product to another, with the same lender.
Uniform Consumer Credit Code (UCCC)
The Uniform Consumer Credit Code legislation regulates credit provided to personal custoers and strata corporations and provides uniform standards for all forms of customer lending in all states and territories of Australia . The UCCC consists of a set of rules which regulate the conduct of the lender from loan advertising and throughout the duration of the loan. It enforces the Truth in lending principle, so that borrowers are provided with clear and factual information to assist them in choosing a home loan product.
More information or help
For confidential assistance with your home loan or to talk to your local mortgage broker, call us at any time on 13 LOAN or call our direct line on +61 2 9249 3739.
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