Buying a home can be both exciting but a little daunting, especially if you are not familiar with terminology used in lending and finance.
Following research into home ownership, Westpac has put together a glossary of terms they have found people were unfamiliar with.
Appraised value: this is the estimate of the value of a property which is being used as security for a loan.
100 per cent offset: if this option is available on your home loan, it means that the money you have in your transaction account acts the same as if it was in your mortgage account – it reduces the balance of the loan on which interest is calculated, which in turn reduces interest repayments allowing you to pay your loan off sooner.
Bridging loan: a bridging loan lets you finance the purchase of a new home while your current property sells. It is usually a short-term loan (usually up to 12 months) that is closed when your existing property is sold. The size of the bridging loan is calculated on the available equity in your current home.
Comparison rates: are designed to help borrowers understand the overall cost of a loan based on several relevant factors, rather than just the interest rate. Each comparison rate accounts for the amount of the loan, term, repayment frequency, interest rate and fees and charges.
Equity: indicates your financial interest in a property or business enterprise, e.g. the equity in your house is the difference between its value and the amount you owe on the house.
Portability: loan portability is a feature that could be available on your home loan, enabling you to ‘take your home loan with you’ when you move to another property. This means you could save the cost and inconvenience of having to establish a new loan, or refinancing, if you decide to move.
Principal: is the amount of the loan upon which interest is calculated and charged.
Refinancing: the process of taking out a new mortgage to repay an existing loan. There are several reasons you may want to refinance your home loan, such as to shorten the term and reduce repayments so you can own your home sooner.