home loans, commercial Loans, investment Loans, Mortgage, Loan Services, Gold Coast

What is a principle and Interest Loan ?

A Principle and Interest Loan, or P & I loan, is where you have a set repayment for the life of the loan (usually 25 or 30 years). A portion of the repayment is Principle (or the amount you originally borrowed), and a portion is interest. For example, if you had a loan of $ 100,000 at 6%pa, then your minimum monthly repayment would be $ 644.30, of this $ 493.15 is interest, $151.15 is principle. Have you ever wondered how banks make there money, now you know. It also means that if you miss repayments, the bank can put you into default (meaning you could lose your home).

An offset account is where your savings 'offsets' your loan account interest. For example if you have $ 5,000 in savings and a $ 5,000 loan, you pay little or no interest on the loan. But be aware, some offsets are different from others and do not offer 100%.

A line of credit is a facility that allows you to withdraw and deposit money directly into your home loan. You only ever get charged the interest on the balance that you owe, not on the facility limit. For example, you may have an account or loan limit of $ 300,000, but you may only owe $ 150,000. This means, that you only get charged interest on the balance, being $ 150,000. The benefit of a line of credit is that you can have your income placed directly into your home loan, therefore reducing the interest cost on a daily basis, and you have immediate access to your funds, from the example above, it means you can access $ 150,000 however, you need to be disciplined with Line of Credit, and it pays to have a good budget.

LVR means a 'Loan to Valuation' Ratio, this is a calculation used by financial institutions to measure 'equity' in your property. For example, most banks will lend to 80% LVR without Lenders Mortgage Insurance, lets say you were buying a house for $ 100,000, a bank would lend 80% of the valuation or purchase price of this property (which ever is less), being $ 80,000. You would have to provide the difference plus any costs as funds to complete purchase.

DSR means Debt Servicing Ratio, this is a formula used for working out your affordability of the loan. This ratio measures the percentage of all your income that is used to service debt. A good ratio is that of 35% or below.

LMI or Lenders Mortgage Insurance is an insurance policy that is used by financial institutions to 'insure' your mortgage. Some financial institutions choose to insure your full loan, while others may only elect to insure your mortgage when you borrow in excess of 80% of the properties value. LMI is NOT A PROTECTION FOR YOU THE BORROWER, it is a cover for the financial institution, meaning that if you as the borrower default, the financial institution will request that your loan be paid out by the insurer and in turn the insurance company will approach the borrower for repayment. NB. LENDERS MORTGAGE INSURANCE IS AN UNNECESSARY EXPENSE AND SHOULD BE AVOIDED IF POSSIBLE.

What is default ?

Default means that you as the borrower miss repayment(s) of your home or investment loan. Default Interest is a penalty interest rate applied to those repayments that you have missed.

What is CRAA ?

CRAA, or Credit Reference Association of Australia is a centralised database that is used by financial institutions to record all credit enquires made by you the borrower. It should also be noted that if you default, it is also recorded.