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Lending terminology can be confusing. So, if you are in the market for a loan it’s important to know exactly what everything means.  Here are some of the most common lending terms, outlined and defined to make your life a little bit easier:

Variable rate: A ‘variable rate’ is an interest rate that can change over time, usually according to market fluctuations. Variable rate loans can offer greater flexibility to borrowers.

Fixed rate: This refers to an interest rate that stays the same for a set period of time, typically between 1 year to 5 years. Fixed interest rates gives borrowers certainty as to their repayment amounts during the fixed rate period.

Comparison rates: A ‘comparison rate’ helps borrowers find out the true cost of a loan in the form of a single rate that includes the loan’s interest rate and applicable fees or charges. This single rate can be easily compared against comparison rates for all loans.

Lenders mortgage insurance (LMI): Lenders Mortgage Insurance protects the lender in the event that a borrower defaults on a loan and the sale of the property does not recover the full amount of the loan and the related costs.

Redraw facility: Having a ‘redraw facility’ on a mortgage allows you to access any additional repayments that you make that are over your minimum required repayments. The benefit is that your additional repayments reduce the interest charged on the loan but this amount is still accessible should you need it.

Pre-approval: A pre-approval allows your lender to assess your financial situation and provide you with some guidance about their willingness to lend to you and the associated loan limit. Pre-approvals can give you more peace of mind before you make an offer on a property, however they are usually only valid for a limited period of time and will be subject to the lender conducting a satisfactory valuation on the property that you wish to buy as well as other conditions.

Credit history: To assess your creditworthiness, lenders will review the conduct on your existing and past loans, such as credit cards, car loans, home loans or personal loans. This information is accessed with a credit check via a credit reporting agency. Adverse credit listings such as defaults, bankruptcies or court judgements may negatively impact your credit history and a lender’s assessment.

Income Documentation: Lenders are required to verify your level of income and expenses as part of their assessment. Traditionally this involves, at least two recent payslips (and a Group Certificate in some instances) if you are an employee or two years of completed tax returns and accompanying financial statements if you are self-employed (Full Doc). Some self-employed borrowers can use alternative documentation to verify their income such as BAS, bank statements or accountant’s declarations (Low Doc).

Still unsure of anything discussed above? If you want more information about your borrowing options or if you’d like to discuss your current situation please contact one of our team here:

Post Author: wwweazywayfinanc

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