All too often banks, solicitors, accountants and even your mortgage advisor will use words that are confusing! Acronyms, abbreviations and terms some long-term investors don't know the meanings of so how can you, the buyer, hope to know them all?
At Stephanie Murray Mortgages, we like to make getting a mortgage as easy as possible, and that includes using plain English. If you’re still trying to figure out the jargon your bank is using, or your real estate agent - stop panicking and enjoy our translation of mortgage terms.
Here are some common ones explained:
1. LVR
This means loan to value ratio. This is the amount of loan you have relative to the value of the property/properties. This is expressed as a percentage.
2. Mortgagor
This is the person who had borrowed the funds and given property as security.
3. Mortgagee
The Mortgagee is the lender i.e. the bank or finance company.
4. Term
The number of years that you have to repay the borrowing. This is normally a maximum of 30 years.
5. Frequency of repayments
Weekly, fortnightly or monthly payments to your loan. Best to have this aligned with your income frequency.
6. Interest only
Exactly that - you only have to make payments to cover the cost of interest. You will not be repaying the principal (loan).
7. Principal
Is the amount that you borrow.
8. Fixed interest rate
These normally range from six months and can be up to ten years at some banks. The interest rate is "fixed" for that period of time. This ensures certainty of repayments.
9. Floating interest rate
The opposite of fixed. The rate can change at any time depending on market conditions. It does mean however that you can repay/increase repayments whenever you wish without penalty.
10. Early repayment penalty or fee
This is the penalty the bank will require you to pay if you wish to repay your fixed rate loan earlier than the fixed rate expiry. The amount of this can vary and is dependent on factors such as the interest rate you are on, the amount of time you have left and the current market rate it is compared to.
11. Revolving credit
The best way to explain this is like an overdraft facility with a floating home loan rate. You have an account with a "limit". You only pay interest on what you are utilising at the time. Interest is calculated daily.
12. Offset mortgage
This is generally when you pay less interest if you have funds available in another account. It is only available at some banks.
13. Priority amount
Always confusing. Is generally set at around 150% of market value of property. It means that the first charge mortgagee will have "dibs" on that house up to that figure if things turn to custard.
14. KiwiSaver subsidy/grant
This is the amount you may be eligible to receive if you meet the criteria. This includes time in KiwiSaver, income, and purchase price caps etc.
15. Registered Valuation
The bank may require you to have a registered valuers report on the property you wish to have purchase. You may be able to choose who completes this or it may have to be ordered through the lenders ordering system.
16. LEM
Low equity margin. This is a margin added to a standard interest rate (fixed or floating) as the equity you have is less than 20%.
17. LEP
Low equity premium. This is a fee that some banks charge for borrowing more than 80% of a property's value.
18. Pre-approval
This is a conditional approval from a lender to say they will lend you a certain amount of funds if you provide/comply with the conditions laid out.
Hopefully, that explains some of the jargon surrounding mortgages that you may have heard.
At Stephanie Murray Mortgages, we speak plain English when it comes to your mortgage. We’re here to help you and our services are at no cost to you. We would love to help you on your property journey so touch base for some individualised advice. Contact Us Today For A Chat
This information is general information only and must not be relied upon as legal advice. A disclosure statement is available here.
If you are a First Home Buyer - check out our Ultimate Guide for First Home Buyers for a range of helpful tips to get you on the property ladder.