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Sunday, September 19, 2010

Finance Glossary - Common Terms & Definitions

Amortising loan
An amortising loan is one in which the principal and the interest of the loan is paid down through set payments over the life of the loan. Amortising loans are the most common types of loans written in Australia.
Application fee
This fee is paid by the customer for setting up the loan.
Approval in principle
An initial step in getting a home loan where the lender estimates how much the customer can borrow based on the information they have provided. Final approval occurs after a more rigorous process is followed.
Basis points
Each basis point is equivalent to 0.01%. Therefore, a 1% increase in interest rates is equal 100 basis points.
Break cost
Fees charged by the lender if the loan is paid-off in full early by the customer.
Bridging finance
Bridging finance is a temporary loan or facility that is often used when buying a new home before selling the old home. As the name implies, bridging finance is a short term loan.
Comparison rate
A rate which includes fees and charges so loans can be compared on equal footing. For example, a loan with a low advertised rate but high fees might cost the borrower the same as a loan with a higher advertised rate but low fees. In this case, both loans would have the same comparison rate.
Conveyancing
The process of transferring the legal title of a property between the seller and the buyer. This usually requires a third party known as a conveyancer who is trained in all aspects of property law.
Credit limit
The maximum that a customer can borrow under their agreement with the credit provider.
Credit report
A report containing information relevant to the credit history of the customer.

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