Loan Terms Explained. Here are some answers to some commonly asked questions and definitions to help expand your understanding of the terms you may hear in your search for the best loan product.
What is a Credit Advisor?
A credit advisor is licensed by the Commonwealth government to advise Australians on their debt. We cannot advise you on investments, superannuation or financial planning, just your debt.
What is a Broker?
A broker is someone who offers a service to their clients. A Mortgage Broker is someone who is licensed to ‘Broker the Deal’ between a borrower and a lender. The mortgage broker will receive a commission from the lender once the loan has settled.
A mortgage broker serves as a financial expert to explore financing options for new loans or refinancing, and to take care of the loan origination process up to the point of disbursing the funds. Armed with credit and financial information from the potential borrower, a mortgage broker uses a network of lenders and institutions to find a loan that suits the needs and desires of the buyer, then negotiates with the lender to secure terms and options for the buyer. When the application is approved, the mortgage broker oversees the signing of the loan documents.
What is IO and P&I?
IO stands for interest only. This means you pay the lender interest payments. At the end of the term (from 1-5 years) you will not have paid off any of the loan amounts. (However, in this time your property may have increased in value.) These rates are lower than P&I
P&I stands for Principal and Interest. These payments include part interest to the lender and part repayment of your loan amount.
The lender will want you to pay off your loan, so an interest only option won’t be available for the life of your loan (between 20 and 30 years).
How do I calculate my Loan Repayments?
It is easy when you know how… The table below is an easy guide. You need to know the rate and the loan amount. Multiple the rate of the loan amount to get the annual repayment amount, then divide that amount by 12 to get your monthly repayment. (Even if you don’t know the rate, but do know the loan amount, as a guide for a home/investment loan use 4% (this will leave you with a buffer if you go below)
Lower rates are approved when the borrower has two years financial information, has employment PAYG slips and a very good credit report score.
Higher rates are when the LVR is higher (Like a home loan where you don’t have a deposit) when you have not been employed for more than one year, etc.
Each lender has different criterion for lending.
What is an LVR?
LVR stands for Loan to Value Ratio and is also sometimes referred to as ‘LTV’. It refers to how much can be borrowed as a percentage of the value of a project. Higher LVRs tend to require more documentation and charge higher interest rates.Lenders place a large emphasis on the LVR when assessing your loan application.)
What is GR?
Gross Realisation (GR) is the figure that is necessary to have when doing a feasibility for a construction loan. It is the amount of the total sales of the project and generally, it does not include GST.
What do I need to provide a Lo-Doc loan?
First, Lo-doc means low documents or fewer documents required in order to secure your loan than a Full doc loan.
Some Lo-doc applications do not require financials or tax returns.
Instead, you may be required to supply the last six months trading bank statements for the business, copies of loan statements for any other debt, identification, personal asset and liability statement and a signed privacy consent form. In some cases, pending your circumstances we might request the last 12 months BAS statements.
An alternative to confirm serviceability would be a letter from your accountant to confirm your ability to service the loan.
NO doc loans are commonly called an asset loan but they now do require a letter from your accountant to confirm your ability to make the repayments
What information do I need to supply a commercial loan?
- Your latest BAS is all that is required for a lo doc loan.
- Latest 2 years financials for the business
- Latest 2 years tax returns for the business
- Latest 2 years personal tax returns for the directors/guarantors together with the assessment notices.
- Signed personal asset and liability statement. (Use this Form)
- Signed privacy consent form (Use this Form)
If you’re refinancing we require last six months loan statements and the most recent rates notice.
If you are purchasing a property we require a copy of the contract of sale and lease, if applicable. This is where a pre-approved loan will come in handy. (See Home Loans)
What is a Lease Doc loan?
A lease doc is an income producing commercial property that can be approved based on the rental income. No financials necessary.