Loan Market

20 Glossary. Understanding loan lingo. Basic variable rate loans - as it carries cheaper rates, this loan is the no frills option with less features than other loan packages, and is suitable for first home buyers who want to save more money. Capital gain - An increase in the value of a capital asset (investment property) that gives it a higher worth than the purchase price. Collateral - something pledged as security for repayment of a loan, to be forfeited in the event of a default. Construction lending - is a sum of money that is loaned where the proceeds are used to finance construction to your land or property. Equity - the monetary value of a property less the outstanding loan amount. Fixed interest rate - a loan where the interest rate does not change for a specified period. Interest only loans - where for a set term, you pay only the interest on the principal balance, with the principal balance unchanged. Interest rate - a percentage calculated against an amount of money that you borrow, and is paid as a fee for the use of that amount of money over time. Investment loans - an amount you borrow specifically used for investment purposes. Lenders Mortgage Insurance - a percentage against the amount you borrow if no or little deposit is paid by you (up to 20%of the property value). This amount is paid by you in order to pay for the lender’s insurance to protect them in case you falter on your repayments. Limited guarantor loan - when another person or family member puts up a property they own that they have equity in as security, allowing you to borrow up to 100% of the purchase price of a home without needing a deposit. This will also mean that you will avoid paying the LMI. Line of credit - drawn from the equity in your property or an agreed amount that your lender has approved. This means you can use just a portion of what you borrowed, and so you only pay interest on money actually withdrawn or used. Low deposit loan - when you don’t have up to 20% of the value of a property as an initial down-payment to secure the purchase of that asset. A higher interest rate is usually charged. Low doc loan - where you do not need any supporting evidence, just a declaration from yourself and your accountant that you can afford to make repayments for the duration of the loan. This type of loan is suitable for those who are self-employed or have an irregular income. Loan settlement - refers to when your debt or loan has been paid in full. Loan-to-Value Ratio (LVR) - expressed as a percentage, it refers to the amount of the loan against the value of the property purchased. Negative gearing - a tax advantage calculated as a return from an investment property after maintenance and mortgage interest costs. Non-bank lenders - are lenders who do not hold an Australian banking licence and who do not represent a mutual bank, building