Mortgages

If you want to buy a house, or some other large asset, then typically you will borrow some money from a lender (e.g. a bank) and pay it back to them over an agreed timeframe. Because you are “using” their money, they will charge you a fee – called interest. Interest paid on a mortgage can be either a fixed rate or a floating rate, which means it either stays constant for a time or moves up and down variably.


Mortgages

  • Break Fee

    If you want to buy a house, or some other large asset, then typically you will borrow some money from a lender (e.g. a bank) and pay it back to a cost charged by a lender for the early repayment of a mortgage, such as when you leave a fixed term mortgage early to move to a lower interest rate.

  • Fixed Rate

    For a fixed rate loan, the interest rate is set at the date you take out the loan and remains the same throughout the agreed term, irrespective of whether bank interest rates rise or fall.

  • Floating Rate

    For a floating rate loan, if interest rates fall, so does the interest you have to repay. Alternatively, you can choose to continue with the same level of repayment and reduce the term of your loan. However, if interest rates rise, then the opposite effect happens, and either you will need to increase your repayments or lengthen the term of your loan.

  • Interest Only

    This is when you only pay back the interest component on the loan, with no payments off the principle. It is cheaper in the beginning, but still leaves you owing the lender the full amount of the loan at the end of the interest-only period.

  • Loan

    Money borrowed to use over a set period of time. To do this, you typically pay a setup fee and an agreed rate of interest as you pay back the borrowed amount over time.

  • Loan to Value Ratio (LVR)

    LVR is the amount of your loan compared to the value of your property. LVR is calculated by dividing the amount of the loan by the value of the property. For example, if the property is worth $450,000 and you have a deposit of $90,000, the LVR will be the loan required ($360,000) divided by the property value ($450,000) – 80%.

  • Refinance

    Working with a lender to change the terms of your loan or replace your loan. This often involves switching lenders to get a better deal.

  • Secured Loan

    A loan that is secured against some, or all, of your (the borrower’s) assets, reducing the lender’s risk. If you fail to make repayments, the lender may get some, or all, of your assets in order to cover the outstanding loan amount.

  • Table Mortgage

    A loan that is paid back by making regular payments of fixed amounts. Each payment pays back part of both the interest and the principal. Initially most of your repayment goes on interest and less on principle, but as time goes on the amount of the principle you owe reduces and less of the repayment is allocated to interest.

  • Unsecured Loan

    A loan which is not secured against any of your (the borrower’s) assets. These are riskier for a lender than a secured loan. To compensate for this, the lender charges a higher interest rate.