Glossary

 

Appraisal – A written estimate of a property’s current market value prepared by an appraiser.

Approval – Acceptance of the borrower’s loan application. Approval means that the borrower meets the lender’s qualification requirements. It’s advised that you seek loan approval before looking to buy your first house so you know how much you can afford and so that you can act quickly at purchase time.

Approved Lenders – iRefi works with the following lenders: ANZ, ASB, The Cooperative Bank, Sovereign and Westpac.

Balance – The amount of the original loan remaining to be paid. It is equal to the loan amount less the sum of all prior payments of principal.

Bridge Loan – A bridge loan usually applies where you’re selling your house after you purchase a new property and rely on the sale of your old house to ensure you’ve got money for the new house. Sometimes the banks won’t lend and non-bank lending (at a higher interest rate because of the risk) applies.

Collateral – Assets pledged as security for the repayment of a loan incase you default on your payments.

Credit score – A number that represents an individual’s credit worthiness.

Debt consolidation – Rolling short-term debt like credit card debt or personal loans into a home loan.

Default – Failure of the borrower to honour the terms of the loan agreement by making mortgage repayments.

Deposit – The difference between the value of the property and the loan amount. For example, if the house sells for $100,000 and the loan is for $80,000, the deposit is $20,000 or 20%.

Equity – The difference between the value of the home and the balance of outstanding mortgage loans on the home.

Floating Interest Rate – The rate of interest charged based on market conditions and is susceptible to change. This is closely tied to the Official Cash Rate (OCR) set by the Reserve Bank.

Fixed Interest Rate – This is a pre-agreed interest rate that is “fixed” for a given period of time, giving the borrower certainty around what they will be paying in interest.

Interest – The cost of borrowing money charged to the borrower.

Loan to Value Ratio (LVR) – LVR is the loan to value ratio and relates to the percentage of the loan your require to the deposit you have. For example if your want to buy a $500,000 property and require a 20% you will need $100,000 deposit. In New Zealand the LVR is a guideline from the Reserve Bank of New Zealand (RBNZ), many think the Government influences the RBNZ but they do not as the it is run separately. Banks have to follow RBNZ guidelines.

Loan Amount – The amount the borrower promises to repay to the lender.

Maturity – The period until the last payment is due. This is usually but not always the term, which is the period used to calculate the mortgage payment.

Mortgage – A written document outlining the amount to be paid to the lender and details of the property taken by a lender as security for the repayment of a loan.

Mortgage Broker – An independent contractor who offers the loan products of multiple lenders. A mortgage broker counsels on the loans available from different lenders, takes the application, and usually processes the loan.

Mortgage Insurance – Insurance against loss provided to a mortgage lender in the event of borrower default.

Mortgage Payment – The monthly payment of interest and principal made by the borrower.

Payment Period – The period over which the borrower is obliged to make payments. On most mortgages, the payment period is a month, but on some it is biweekly.

Pre-Approval – A commitment by a lender to make a mortgage loan to a specified borrower, prior to the identification of a specific property. It is designed to make it easier to shop for a house.

Principal – The portion of the monthly payment that is used to reduce the loan balance.

Product Providers – iRefi works with the following product providers: ANZ, ASB, The Cooperative Bank, Sovereign and Westpac.

Refinance – Paying off an old loan while simultaneously taking a new one. This may be done to reduce borrowing costs under conditions where the borrower can obtain a new loan at an interest rate below the rate on the existing loan. It may be done to raise cash, as an alternative to a home equity loan. Or it may be done to reduce the monthly payment.

Refixing – Re-fixing your mortgage refers to a new loan with the same bank you’re already with at a new interest rate.

Security – The value of a property if it were sold in the near future.

Term – The period used to calculate the monthly mortgage payment. The term is usually but not always the same as the maturity.

Underwriting – The process of examining all the data about a borrower’s property and transaction to determine whether the mortgage applied for by the borrower should be issued. The person who does this is called an underwriter.

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