While purchasing your first home may be an exciting experience, it can also be quite perplexing when presented with all the mortgage loan industry’s jargon.
Understanding how home loans work means navigating through some of the terminology presented to you by your mortgage broker.
The good news is that once you have mastered some fundamental concepts, you will be well on your way to securing your home loan and finding your dream house amongst the diverse mix of people that call the naturally beautiful Northern Rivers home.
Stamp Duty
Also known as transfer duty, this is a tax that you pay to the government of a state or territory when you purchase real estate.
Stamp duty charges are often determined according to a property’s purchase price. A higher price usually means a higher stamp duty rate.
The actual amount you will pay is determined according to the state or territory you are moving to. The NSW government will charge a percentage of the property price on top of a flat fixed rate.
Ratio Of Loan To Value (LVR)
A loan’s value is divided by the property’s value to determine LVR. For example, purchasing a $500,000 property while requiring a $350,000 loan means your LVR is 70%.
This figure is one of the primary methods lenders use to determine the risk associated with lending you money. Your lender calculates the LVR by dividing the property’s value against your deposit to determine how much money you need to borrow.
Lenders Mortgage Insurance (LMI)
Nowadays, most lenders would reject your home loan application if your deposit is less than 20% of the property’s lender-assessed value, but a Lenders Mortage Insurance is a potential way around this.
LMI protects the lender or financial institution in the event of repayment defaults, resulting in a ‘shortfall’. A shortfall occurs when the proceeds made from your house’s sale fall short of the amount owed to your lender.
If this occurs, your lender may be able to collect the difference from the LMI provider, but the LMI provider may still attempt to recover the difference from you. In other words, LMI protects the lender but not the property buyer.
Offset Account
An Offset Account is a savings account that is tied to your mortgage. The money in that account is used to offset the balance of your house loan, meaning the more money stored in your savings, the less interest you will be required to pay. However, not all house loans allow for the addition of an offset account; you will need to verify this with your lender.
A Simple Solution
There are certain terminologies and phrases associated with property ownership that may be difficult to understand, but the time and effort you put into learning these concepts can help you make sound decisions in the long run.
Once you have grasped some of these basic concepts, several key checkpoints must be met for a home loan application to be completed successfully. The first step is to find the best mortgage broker in Northern Rivers who will go above and beyond to get you the best deal possible.
At ZEP Finance, a well-renowned Northern Rivers mortgage broker, we provide easy to understand financial solutions that are tailored to your goals. By providing comprehensive advice and support, we make the journey to your dream of settling into the Northern Rivers coastal lifestyle swift and stress-free. We offer assistance before you even pick up the phone to contact us! Through a series of educational videos, we endeavour to educate prospective buyers and equip them with the fundamental knowledge of navigating the mortgage loan and real estate industries.
For any further questions, you are welcome to contact us at 1300 557 027.