Loan Jargon Buster
There are lots of terms that lenders use, which can be quite confusing. In fact, if we are not careful, we can find ourselves negotiating very poor deals with a lender, simply because we were not on the same page when they began throwing their jargon around at the bargaining table.
So here’s a quick guide to a few of the most common terms that lenders use and what they can mean to your wallet.
APR – The APR is a compound interest rate figure that is used to compare different mortgages offered by different lenders. In other words, it represents the actual cost of the loan over its entire term and takes into account the upfront costs that may be included, such as settlement expenses, as well as the actual interest and principal payments made over the life of the loan.
Base Rate – This is the rate of interest set by the Reserve Bank of Australia. It’s similar to the prime rate set by the Federal Reserve in the United States.
Bridge Loan – this is a short-term loan that a lender will generally make to cover the buyer’s purchase of a new property and the sale of his old one. He’ll pay interest, at what will probably be a premium rate, until his old house is sold and he can pay off the bridge loan.
Broker’s Fee – This is a finder’s fee that you will pay to your mortgage broker for his time and trouble in locating you the best rate possible on your mortgage.
Early Repayment Charge (ERC) – This is a charge that may be levied by the mortgage company as a penalty, should you decide to pay your mortgage off in a shorter time period than was originally agreed on. Never accept a mortgage loan if it includes this penalty.
Equity – Is the amount of money that you paid upfront for a property, in the form of a deposit or the amount of value you’ve built up in the property (value over mortgage amount still due) over the time you’ve owned it.
There are lots of other terms and bits of jargon that lenders will use. Never hesitate to ask for an explanation of anything you are not sure of or better still, retain an attorney to represent your interests in such negotiations.
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