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Home Loan Dictionary

Aug 25, 2021 | Uncategorized
The world of mortgages can be a confusing place, with confusing terminology and complicated jargon. We’ve brought together definitions of a few key words and terms to help you navigate through the home loan maze.

Bridging Finance or Bridging Loan

This specialist loan provides funds to buy your next home before you’ve sold your current one. It covers the deposit and other buying costs, such as Stamp Duty. Once you settle on your old home, the proceeds of the sale are paid as a lump sum to reduce your interest repayments on the bridging loan.

Find out more

Capital Gains Tax

Capital gain on an asset is the difference between how much it cost you and how much you sell it for. Tax is payable on the price difference, or capital gains. Personal assets, such as your home, car and furnishings are exempt from capital gains tax. Depreciating assets – such as business equipment or fittings in a rental property – are also exempt from capital gains tax. Capital loss on a taxable asset can be used to reduce any capital gain in the following year.

Comparison rate

This reveals the total cost of a loan, allowing you to compare ‘apples with apples’ when choosing a loan. The comparison rate takes into consideration the costs associated with setting up a loan, including the interest rate, the loan approval fee and any other upfront or ongoing fees. It excludes government fees and charges because they are standard across all loans.

It is also important to consider the features of a loan rather than just the interest rate when comparing loans. No monthly fee, repayment flexibility and money saving features such as 100% mortgage offset, can make a huge difference to the final cost of a loan.

Deposit Bond

A deposit bond is an alternative way to pay the deposit for your new home, rather than using your own immediate funds. Deposit bonds can be issued for all or part of your deposit, usually up to 10% of the home purchase price. Once you’ve settled, the deposit bond amount is paid back to the lender. The fee for a deposit bond is usually less than the fees for breaking a fixed-term or similar to get access to the cash you need.

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Equity

Equity is the difference between the value of your home and the amount you owe on it. For example, if your home is worth $900,000 and you owe $500,000, your equity is $400,000.  As you pay off your home loan, your equity increases. You can borrow against the equity in your home to buy an investment property.

First Home Loan Deposit Scheme 

The Australian Government offers the First Home Loan Deposit Scheme whereby first-time home buyers who meet the eligibility criteria can borrow up to 95% of the value of a home without having to pay mortgage insurance (LMI). Mortgageport is the only non-ADI institution to be selected as an approved FHLDS scheme lender by NHFIC

The scheme is to help first time buyers move into their homes faster. The scheme reduces the deposit amount first time buyers must pay to 5%. You can only apply for this scheme through an approved lender like Mortgageport.  

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First Home Buyers Assistance Scheme (FHBAS)

Eligible first homebuyers may be entitled to full or partial exemptions on transfer duty, if the property they are purchasing is valued less than $1,000,000 and they are Australian Citizens or permanent resident of Australia over the age of 18 years. 

As of 1st August 2021 the following Stamp Duty thresholds will apply to homes purchased in NSW under the FHBAS. Please refer to the Revenue NSW website for more information.

  • Stamp Duty exemptions for new homes valued less than $800,000
  • Stamp Duty concessions for homes valued between $800,000 and $1,000,000
  • Stamp Duty exemptions for existing homes valued less than $650,000
  • Stamp Duty concessions for existing homes valued between $650,000 and $800,000
  • Stamp Duty exemptions for a vacant block of residential land to build your home if valued less than $400,000
  • Stamp Duty concessions for vacant land valued between $400,000 and $500,000

Fixed-rate Interest

In a fixed-rate home loan the interest rate is locked-in for a specified period, often over several years, regardless of changes to interest rates.

Interest Only 

This type of home loan means a borrower only pays the interest component of the loan. This structure requires the repayment of the original borrowed amount in a lump sum when the home loan period is complete, or the property is sold. Most interest-only home loans revert to a principal and interest loan after a set initial period.

‘Interest-only’ and ‘principal and interest’ (see below for more details) home loans are designed to give borrowers a choice in the way they make their repayments, and how much and when they repay. Both will suit different borrowers’ needs and circumstances.

Interest-only home loans are more widely used by property investors, who are attracted by the tax saving aspects and are usually not likely to hold the property for the term of the home loan. An interest-only home loan works well for investors who want to use the property to generate rental income and capital gains.

They are not ideal for owner occupiers who are more focused on building equity in their property, as the underlying home loan debt is not reduced.

Loan Portability

Loan portability means transferring the loan on your current home to a new property. Some home loans offer this as a feature, so you don’t need to refinance when you upgrade to your next home. Bringing your old home loan with you works if you’re selling and buying at the same time. While you have the convenience of staying with your current home loan, and you don’t need to pay for bridging or refinancing, which normally incurs fees. If you’re sure the home loan you already have is the best deal for you, then loan portability may be worth exploring.

Mortgage Broker 

A mortgage broker acts an intermediary between you as a borrower and specific lenders. The broker’s role is to assess your personal circumstances, find a suitable loan product for you and then negotiate the successful approval and settlement of the loan. A mortgage broker often cannot access the entire mortgage market and offers a more limited selection of products. 

Mortgage Insurance (LMI)

Mortgage insurance covers the lender in the unlikely event that you default on your loan. It does not cover you, the borrower. Your mortgage consultant can advise you about the costs involved. Mortgageport may be able to structure your loan to avoid, or minimise, the need for mortgage insurance.

Mortgage Manager

A mortgage manager can offer clients custom-designed loans to suit their individual needs.  A mortgage manager can approve your loan in-house, manage every aspect of your loan throughout the term and provide wholesale interest rates to save you money.

Mortgage Offset Account

Mortgage offset accounts allow borrowers to use their savings and income to reduce the amount of interest they pay on their mortgage. This works by using the interest that would usually be paid on your savings to be deducted from (or ‘offset’ against) the amount of interest you owe on your mortgage. 

Because you don’t actually receive any interest on your savings directly (interest is offset against your home loan debt, rather than being credited to your savings account), no tax is payable on it. You get the full, tax-free benefit of the savings interest to reduce your home loan debt.

This often operates best when your mortgage offset account is used as your primary bank account – for savings, lump-sum payments and salary payments.

Offset accounts are more common with variable rate home loans and are not always available on fixed-rate home loans.

Example

You have a $200,000 mortgage, on which you pay interest. You also have $20,000 savings in an offset account, earning interest. When the $20,000 in the savings account is offset against the $200,000 owing on the mortgage, you will only be charged interest on a home loan debt of $180,000 ($200,000 – $20,000 = $180,000).

This type of account particularly suits property investors and self-employed people. It’s important to check the interest rates for both your mortgage and the offset account – they can be different (the interest rate you earn on your savings can often be less than the interest rate you pay on your home loan). Some home loans will offer the same rate of interest on the mortgage and the offset account, and these are known as full offsets.

Mortgage offsets can be very effective if used correctly, but lenders often charge a higher-than-average rate on the mortgage, usually up to about 0.15 per cent. They may charge additional monthly fees, for having this feature. It is important to do your sums, as it might not suit your circumstances, especially if you have a large mortgage and little savings to put in the offset account.

Find out more

Non-Bank lender

A non-bank lender is a finance provider that offers loans and other types of banking services. Mortgageport is a privately-owned, family-run business that operates as a non-bank lender, mortgage manager, and mortgage broker. 

Principal and Interest (P&I)

A principal and interest home loan means borrowers pay the interest accrued on the mortgage and also repay a part of the principal. Repayments on principal and interest home loans reduce your debt by reducing the size of your home loan. Repayments are calculated and spread out so that the last scheduled payment fully pays out the home loan.

 ‘Principal and interest’ and ‘interest-only’ (see above for details) home loans are designed to give borrowers a choice in the way they make their repayments, and how much and when they repay. Both will suit different borrowers’ needs and circumstances.

If you are planning to buy a property to live in long-term, a principal and interest loan will probably better suit your needs. Repaying both interest and the principal will allow you to gradually increase your equity in the property by reducing the size of your mortgage, and at the end of the loan term, you will be the sole owner of your home.

Redraw

Redraw facilities on a home loan allow you to make extra repayments into the mortgage and help borrowers reduce the interest on their home loan, which in turn helps reduce the term of the loan.

It also provides borrowers with a safety net, as they can access the extra payments if required, down the track. This is particularly suited to first home buyers who are not likely to have extra funds in the early stages of their home loan but may in the future.

Redraw deals vary between lenders. It is important to be aware of the costs involved, which may include set up, activation fees and redraw fees. There may also be limits on redraw withdrawal amounts (both maximum and minimum).

Refinancing

Refinancing means breaking your current home loan contract to take on a new loan. It’s important to understand what’s involved because the costs of switching home loans can sometimes outweigh the benefits. 

Find out more

Settlement

Settlement is the official exchange of contracts for the sale of a house, conducted between legal and/or financial representatives of both the buyer and the vendor. Settlement takes place on a day and time agreed by both parties. The average settlement is four to six weeks but both parties can negotiate a shorter or longer settlement period, depending on their needs.

SMSF

An SMSF is a Self-Managed Superannuation Fund. It allows you to take complete control of building your retirement wealth. The key difference between an SMSF and a standard superannuation funds is that SMSF members are also the SMSF trustees. As SMSF member/trustee you manage the fund for your own retirement benefit, and you are fully responsible for complying with superannuation and tax laws.

Although the rules and regulations for SMSFs make them complex to set up, the control and flexibility of investment make them very attractive to many people. It’s a major financial decision and you need the time and skills to manage your own super fund effectively.

Mortgageport can help you understand (contact us) the benefits and disadvantages.

Split Loan

A home loan can be split to have one part at a variable rate, and the remainder at a fixed-rate. It may be split 50% variable / 50% fixed, or some other ratio such as 60% / 40%. A split loan allows you to take an ‘each way bet’ on future interest rates.

Stamp Duty

Stamp duty is a State Government charge that relates to the transfer of property. The amount varies between the states. Use our handy Stamp Duty Calculator to estimate your stamp duty.

Stamp Duty exemptions

Stamp Duty exemptions for new homes valued less than $800,000

Stamp Duty concessions for homes valued between $800,000 and $1,000,000

Stamp Duty exemptions for existing homes valued less than $650,000

Stamp Duty concessions for existing homes valued between $650,000 and $800,000

Stamp Duty exemptions for a vacant block of residential land to build your home if valued less than $400,000

Stamp Duty concessions for vacant land valued between $400,000 and $500,000

Calculator

Variable Rate

The interest rate on a variable rate home loan can change at any time, either up or down, in line with official interest rates set by the Reserve Bank of Australia. Market circumstances and competition between lenders can also lead to interest rate changes, which can affect the interest rate of your loan.

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Frances, Barton, ACT
“Dear Col, Well the house has exchanged!! I would like to thank you for all your dedication and persistence in order for this to happen. I know you said that you were only doing your job but your efforts were above and beyond the normal call of duty. Thank you”
Kim & Paul, Dee Why, NSW
“Mortgageport was originally recommended to us by our financial adviser. We are very busy people and don’t have the time to dedicate to finding the best home loan for our needs. We were glad that Mortgageport stepped in to help us. We found that they were pleasant and thorough and really knew what they were doing, this gave us a lot of confidence. We would recommend them to anyone looking for a home loan.”
Jessica, Seven Hills, NSW
“Thank you for the excellent service your company provided us with our recent refinancing of our loan. The speed you executed all correspondence with us, either with fax, phone or post was outstanding. It was so good to just sit back and feel everything just fall into place. All your staff were courteous, friendly and understanding of our needs. In particular Gloria who looked after us from start to end. Please thank all your staff involved with our financial needs.”
Marisa, Isaacs, ACT
“We are a boutique accounting practice in Canberra with a focus on property investors. Our clients are delighted with the incredible research and effort that Mortgageport make, the feedback is always so positive. Of course with this type of feedback, without reservation, we recommend Mortgageport to anyone that needs a loan. I personally always use Mortgageport for my own personal financing needs; they are knowledgeable and always have my best interests at heart. Every team member at Mortgageport goes the extra mile, I am not just a number but a client that is well looked after and my concerns always matter.”
Susie, Sydney, NSW
“Dear Glen, I would just like to express how impressed I have been with Beth, she has been a great support and her assistance has been invaluable, I could not have done without her advice; being rather a novice at all this it has been so good to have her advice and backup which she does in both a professional and empathetic manner.“
Linda, Chatswood, NSW
“Mortgageport did a brilliant job! I never ceased to be amazed at your patience and perseverance, not to mention efficiency, while organising the refinancing of our existing loans and financing the new property at Wobby Beach. We are very pleased with the way you set up the loans with St George and have found them extremely efficient and helpful.”
Fay, Boonah, QLD
“We were initially referred to Michael McKelvie at Mortgageport in early 2005 when we wanted to begin to put together a portfolio in Queensland. Our dealings with Michael went so smoothly, that we have continued to deal with him through multiple transactions to the present day. In our experience Mortgageport has a great team, they are professional and timely and have been able to provide exactly the right product for our needs. We have even utilised Mortgageport for personal real estate purchases as well. We continue to use Michael McKelvie and Mortgageport and will continue to do so, and have recommended Mortgageport to others and have absolutely no hesitation in doing so.”
Michael, Sydney, NSW
“I had an investment loan with a major lender for a holiday rental property in Culburra Beach. Unfortunately, I was not given a very good deal and I was also disappointed with the level of customer service. After investigating my refinancing options, I found that Mortgageport offered the tailored approach I was after. I wanted the process to be simple, streamlined and above all personalised. Glen Spratt, Mortgageport Managing Director, took the hassle out of the process by dealing directly with my accountant and the bank, briefing me when necessary. Glen secured a competitive rate and managed my expectations about dealing with the Bank of South Australia, a lender I hadn’t dealt with previously. I have been extremely satisfied with the outcome and have already recommended Mortgageport to five other colleagues.”
Loli, West Hoxton, NSW
“I am overwhelmed with how efficient you and your office are. I was advised by a friend that these things take weeks to put together. Well wait till I tell her it only took 24 hours. Once again, thank you for all your help.”
Jane, Rosebery, NSW
“Dear Michael, We remember you well from a few years back. We know we are in capable hands and all our contacts with Mortgageport consultants have been highly professional and positive.”
Chris, Canberra, ACT
“I have dealt with Mortgageport on two occasions now (specifically with Michael McKelvie) and have found not only their service to be of the highest professional standard, but they are also such a lovely friendly team to deal with. In a country where I feel the service industry has to a large degree fallen apart, the team at Mortgageport have always gone above and beyond the call of duty to address and guide me and my young family with time, patience and a really easy-going approach with all our mortgage related endeavors. I am not an investment banker or necessarily fabulous with facts and figures but still believe in equity and sustainable growth. I look forward to working with Mortgageport to develop a property portfolio now and well into the future.”
Tim, Maroubra, NSW
“I was introduced to Mortgageport by my father (one of Mortgageport’s first customers), back in late 2002 when I bought my first home. Since then, I have transacted four additional mortgages using their services. Each time I have found the advice to be professional, accurate and insightful as the staff draw from their considerable experience base. I am repeatedly delighted by their friendly personable approach, and the efficiency and speed of the way they do business.”
Kim & Paul, Dee Why, NSW
“Mortgageport was originally recommended to us by our financial adviser. We are very busy people and don’t have the time to dedicate to finding the best home loan for our needs. We were glad that Mortgageport stepped in to help us. We found that they were pleasant and thorough and really knew what they were doing, this gave us a lot of confidence. We would recommend them to anyone looking for a home loan.”
Liz, Pyrmont, NSW
Recently I had my loan re-financed through your organisation. I had the pleasure of being looked after by Chris Auton. Chris was absolutely fantastic in the way he explained everything in easy to understand terms, kept me up to date with regular progress reports and gave clear advice on exactly what was needed. Chris’ professionalism and attention to detail were outstanding. It is not often you get such great customer service, hence why I decided to give this feedback.
Robbie and Sallie Newson, Southport Qld
Michelle is the ultimate professional! From the first phone call right through to well past the actual settlement of the property we could not be more impressed with Michelle. We found Michelle to be friendly, extremely approachable and most of all professional. Michelle was more than happy to answer any question we had and her willingness to fit in with our busy work/life schedules was amazing and very much appreciated. The ease at which Michelle obtained approval for our loan and the way in which she conveyed information either in person, by phone, email or text was exceptional. Michelle definitely takes pride in her work and that is 100% evident in the way she conducts herself and business matters she completes. Michelle is a huge asset to Morgageport but most of all she is a true godsend for her clients. We are thrilled to recommend Michelle to the highest degree.
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