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investment property mortgage loan
Below, you'll find extensive information on leading
investment property mortgage loan articles and products to help you on your way
to success.
The Australian Mortgage Jargon
By Maya Pavlovski
Your Mortgage is probably the most significant financial commitment you will
ever make. To ensure that you make the right decision and can communicate with
your lender or broker it is essential for all Australian borrowers to understand
the Australian mortgage jargon.
Attached are some of the most common Aussie lending terms in circulation:
Comparison Rate
Also referred to as AAPR, the Comparison rate reflects the total cost of your
loan by taking into account other costs other than the advertised interest rate.
This is then expressed as a total interest rate cost to you over an average loan
term.
Loan-to-Value Ratio (LVR)
This is the ratio of the loan required over the security value property. With
a mortgage of $80,000 and the security property value of $100,000 – your LVR is
80%. With such an LVR you will generally not have to pay mortgage insurance.
Generally mortgage insurance charges are levied on the borrower once his
mortgage LVR is greater than 80%.
No Doc Mortgage
A No Doc Mortgage does not require the borrowers to provide details of their
financial position in order to qualify for the loan. No Doc Mortgages were
introduced to assist older Australians as well as business people and
professional investors borrow money. Such borrowers are usually asset rich but
may not have the financials requested by traditional lenders. No Doc Mortgages
are also known as “Asset Lending” because the decision to lend is made based on
the strength of the borrower asset position.
Lenders Mortgage Insurance (LMI)
LMI protects the lender against potential loss in the event of default and
mortgagee sale. If the subsequent sale of the lender’s security fails to repay
the outstanding loan in full the mortgage insurance policy will repay the
shortfall. The insurance protects the lender, not the borrower. In the case of
an ultimate loss (shortfall), an insurer may take action against the borrower to
recover the loss. LMI is usually required where a loan to value ratio exceeds
80%.
Bridging Finance: A loan taken where the purchaser wishes to buy a new
property before selling their existing property. The lender will take security
over both properties until the initial property is sold.
Reverse Mortgage
Reverse Mortgages are Home Loans for borrowers over 60 years old. Reverse
mortgages allow the borrower to draw cash against the value of their home. The
main difference between a Reverse Mortgage and a normal mortgage is that with a
Reverse Mortgage the borrower does not have to make regular repayments until
they move into care, sell their home or die. When the loan ends the borrower or
their estate, must repay what's owing, usually out of the proceeds of the sale
of the home.
Home Equity
Home Equity refers to the difference between the value of your home and your
outstanding mortgage. For example if your home is worth $300,000 and your
outstanding mortgage is $150,000, your available equity in your home is
$150,000. You may wish to access the home equity in your home for a number of
purposes such as :
- Debt Consolidation;
- Home Renovation;
- Holiday;
- Investment etc.
To do this most borrowers refinance their home and obtain what is known as a
Line of Credit.
Line of Credit
A Line of Credit is a Mortgage facility which operates like a credit card
secured by the equity in your home. You may use these funds for any purpose. The
main advantage of a Line of Credit is that the funds are available to you at the
cost of a home loan interest rate – much lower than the cost of a personal loan
or credit card debt.
Mortgage Broker
Mortgage Brokers are intermediaries between the lender and the consumer. They
promote the loan products of various lenders, can assist the borrower find the
loan that suits them best, help pre-qualify the borrower, complete a loan
application and submit the application to one or more lenders. If the loan
proceeds to settlement most brokers will receive a commission from the lender
for the new loan they introduce. Some brokers also charge the borrower for the
job they do – others provide a free service. In Australia, to ensure that you
are dealing with a reputable broker, check if they are members of MIAA (Mortgage
Industry Association of Australia) or FBAA (Finance Brokers Association of
Australia).
Mortgage Manager
Mortgage managers are lending specialists who arrange funding for home and
investment loans. Mortgage Managers source their funds via a process known as
securitisation. The mortgage manager’s job is to set up the loan and perform a
liaison role with all parties involved, such as originators, trustees, credit
assessors and, of course, borrowers. They provide the customer service role and
are there to prudently manage your loan throughout its term.
Mortgage Calculator
Mortgage Calculators are provided by most lenders to assist the borrower in
working out what their repayments would be and whether they would be able to
afford the mortgage they are seeking.
Second Mortgage
A second mortgage is an additional loan secured by a property that already
has a mortgage attached to it. Second mortgages usually carry a higher interest
charge as the first mortgage carries first priority in the case of default. The
second mortgage also carries rights to the property, but these are subordinate
to those of the first mortgage.
Credit Report
Every credit transaction performed in your name in Australia is recorded on
your credit report. This will include applications for loans, telephone
contracts and credit cards. In order to approve a loan, a lender will require a
credit report on the borrower to confirm previous loans applied for or credit
difficulties recorded. Credit reports are prepared by authorised credit
reporting agencies, such as the Credit Reference Association of Australia. The
Lender obtains the borrower's permission in writing to proceed with a credit
report.
Maya Pavlovski holds a Bachelor of Commerce Degree from Melbourne University and is a qualified CPA
If you would like to learn more about the Australian Mortgage Market terminology please visit www.webdeal.com.au or www.honeyloans.com.au
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