15 confusing loan terms and how to simplify them for your clients
Terms relating to the applicant
- Mortgagor: The applicant – the person who pays the mortgage loan.
- Mortgagee: The lending institution the applicant accesses the loan from – the lender.
- Mortgage broker: She/he arranges the home loan process between the applicant and the lender. They spend time analysing the applicant’s situation and, using their experience and market knowledge, provide the appropriate lending solution.
- Split loans: If the applicant is unsure about locking in their interest rate, or going variable, and/or desire flexible repayments, they can ‘split’ it using both options.
- Stamp duty: State and territory governments place this fee on any property transaction. However, if the client is a first home buyer, there may be concessions available. The applicant should refer to their local government website for details.
- Pro-pack loan: Designed specifically for high income earners that present low risk. The interest rates are usually attractive and there is the opportunity to bundle with other services.
- Low doc/no doc loans: Loans that don’t require as much paperwork as regular loans. Designed for people who might have trouble getting such documentation together and as such are popular with self-employed people, tradespeople or those with irregular patterns of income.
- Non-conforming loans: Loans provided to applicants who have a poor credit status or limited information on their income.
Terms about the loan
- LVR: Loan-to-value ratio – refers to the percentage of the loan compared to the home’s value. If a property is worth $600,000 and the loan is $480,000 then the LVR is 80%, as $480,000 is 80% of $600,000.
- ‘Pre-approved’ or ‘approval in principle’ loan: This is an indication from the lender that they are happy with your application; however, even though they would consider providing you with finance, it is not approval of a loan.
- Offset account: A savings account linked to your mortgage, it allows lower interest to be paid. For example, if your mortgage balance is $500,000 and you have $50,000 in your offset account, you only pay interest on $450,000.
- Private treaty: This is when the sale is privately negotiated – as opposed to an auction.
Terms relating to things that might happen
- Portability: This allows flexibility of the loan to move over to another property; however, there are usually additional charges, including valuation fee, registration fee and lender’s fee.
- Redraw: Allows a borrower to access extra repayments they have already made on their mortgage, that are above their required minimum repayment.
- Break costs for a fixed rate: Only affects fixed-rate home loans. This is an agreed charge for paying out your loan, or breaking the loan agreement, early.
Hopefully, this has been helpful in allowing the soon-to-be property owner to spend time at their new address, rather than poring over loan paperwork.
For more assistance with translating mortgage loan terminology for your clients, please contact us.