Its My Home : 2017
34 IT’S MY HOME LOAN-TO-VALUE RATIO The Loan-to-Value Ratio (LVR) is the proportion of the loan amount to the lender’s valuation of your property. If your property is valued at $500,000, you put down a deposit of $50,000 and require a loan of $450,000, the LVR will be 90 per cent (calculated as $450,000 ÷ $500,000 x 100). If your LVR is higher than 80 per cent, your lender will usually require that LMI be obtained for the loan. MORTGAGE A legal document between a borrower and a lender. A mortgage gives the lender a conditional right to the property that is held as security for the repayment of the money that has been lent. MORTGAGOR The person who owns the property and gives the property to a lender as security for a loan. MORTGAGE DUTY Mortgages may attract duty based on the amount secured by the mortgage. This duty is usually paid to the applicable state authority on your behalf by your lender and added to your loan. The rate and amount of duty payable varies in each state and territory. MORTGAGE PROTECTION INSURANCE This covers your loan repayments if you fall sick, suffer an injury or lose your job. If you die prematurely, the loan will generally be paid off. Policies differ widely and can be a combination of life insurance, income protection and permanent disability insurance. This is not the same as LMI. NEGATIVE GEARING Borrowing money to invest where the return from the investment is less than the borrowing costs. For example, the rental income from your investment property is less than the interest payments on the loan used to purchase the property. OFFSET ACCOUNT A mortgage offset account is a bank account that is linked to your home loan. The savings in your bank account reduces the balance of your loan on which interest is calculated. This reduces the amount of interest you will be charged and can assist you to pay your loan off sooner. OFF-THE-PLAN Buying a property off-the-plan means signing a contract to purchase an apartment that has not yet been built. You will be able to view building and design plans but there is no physical property to inspect. PRINCIPAL This is the outstanding balance owing on your loan on which interest is typically calculated and charged. Generally, your regular home loan repayments will consist of principal and interest components, gradually reducing the amount owing on your loan. With interest-only loans, only the interest is paid each month, leaving the original principal outstanding at the end of the loan term. REDRAW This is an optional feature on certain home loans that allows access to any additional repayments made on your home loan. If you redraw funds from your home loan, your outstanding balance will increase. REPAYMENT FREQUENCY Refers to the regularity of loan repayments over a period of time which you must make as indicated in your loan agreement. Repayment frequencies are generally weekly, fortnightly or monthly. REVOLVING CREDIT OR LINE OF CREDIT A flexible ongoing loan arrangement that allows you to borrow within a specified and agreed credit limit. Typically, the line of credit account will also be used for everyday transactions. Interest is added to the loan each month, and repayments are not necessary while the loan is within its credit limit. SECURITY Security for a loan refers to the asset(s) a lender can claim against if you default on your loan. For home loans, it usually includes the property being purchased. SERVICEABILITY Your capacity to meet loan repayments based on your income and expenses. Genworth’s Servicing Estimator (genworth.com.au/servicingestimator) can provide you with a guide as to whether you may be able to meet future mortgage repayments. STAMP DUTY (ON A PROPERTY PURCHASE) When you buy property in Australia, you are generally required to pay stamp duty to the relevant state or territory government. The amount varies between each state and territory, and is based on the market value of the property or the purchase price. Exemptions and concessions may apply in some circumstances. Check with your solicitor or conveyancer to see if you are eligible. VARIABLE INTEREST RATE If your loan has a variable interest rate, the interest charged on the outstanding balance of your loan may increase or decrease in line with the official cash rate set by the Reserve Bank of Australia. Lenders may also change your regular loan repayment amount based on changes in the interest rate. Lenders do not have to track changes in the cash rate and you should make allowances for higher-than expected increases. IT’S MY HOME 35 IT IS IMPORTANT TO UNDERSTAND ALL OF THE TERMS RELATING TO YOUR LOAN. MAKING CHANGES DOWN THE TRACK CAN BE EXPENSIVE Pictures:Shutterstock.