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Glossary

Don't be confused or overwhelmed by financial terms. We unpack a range of terms below.

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Here are some commonly used terms in the finance industry that you may see from time to time.

A balloon payment is the lump sum payment that is attached to a loan, mortgage, or commercial loan. This payment is usually made towards the end of the loan period. A balloon payment is higher than what you might be paying towards the loan on a monthly basis.

Your borrowing capacity is the amount of money a lender will loan to you.

Early exit fees are sometimes charged if you payout your loan in full within a certain period of time

The value of your property minus the amount you owe on your mortgage. Equity in your property can be used for a variety of purposes such as purchasing an investment property.

Demonstrated funds saved by a borrower over a period of time, traditionally three months. Lenders will generally require evidence of at least 5% or more of the purchase price saved.

Lenders Mortgage Insurance is a one-off, non-refundable, non-transferrable premium that’s added to your home loan. It’s calculated based on the size of your deposit and how much you borrow. LMI protects the bank against any loss that they may incur if you are unable to repay your loan. It does not protect you.

‘Interest’ is the fee the Lender charges you for the use of their money. The interest charge on your loan depends on the amount of money you borrow, the interest rate and the term of the loan.

This term might sound scary but it’s just another way to describe the repayment of your debt. Over the term of the loan, your regular payments are said to ‘amortise’ the loan.

‘Loan Repayments’ refers to the regular payments you make over the term of your loan. These are typically monthly and generally cover the interest charge and a portion of the principal.

‘Term’ is the agreed period you have to repay your loan. For some loans, this could be a year or less, while for most home loans it is between 25-30 years.

The amount which is borrowed from the lender compared to the value of the property being purchased. For example, if you borrow $480,000 to buy a property valued at $600,000, your LVR is 80%.

‘Principal’ is the amount of money you borrow from a Lender when you take out a home loan, mortgage or other finance.

Replacing of an existing loan with a new loan, usually with a new lender, that has a lower interest rate or improved product features that will ultimately reduce repayments or length of the loan.

The process of a property title being transferred from a seller (vendor) to a buyer once the balance of the purchase price is paid. This is the date when interest starts to be calculated and home loan repayments begin.

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