Glossary of useful terms and definitions
A State Government tax charged to the owners of any property based on a stipulated value of the land, other than a principal place of residence. Land Tax is not applicable in the Northern Territory.
An agreement between two parties under which one (the lessee) is granted the right to use the property of another (the lessor) for a specified period under specific terms and conditions.
A person's debts or obligations.
The right to hold property as security against a debt or loan.
A form of insurance by which someone's life is insured.
A flexible loan arrangement with a specified ceiling (the credit limit) to be used at a customer's discretion.
The loan is approved before the borrower bids on or offers for the property and is dependant on the borrowers satisfying the Lender’s lending criteria in principle. It is also subject to a satisfactory valuation.
Stamp duty on loan security documentation.
Period over which a loan agreement is in force, and before or at the end of which the loan should either be repaid or renegotiated for another term. See also loan terms.
The ratio of the amount lent to the valuation of the security (usually the house).
The LVR measures the amount of the loan compared to the value of the property being used as security for the loan, expressed as a percentage figure. From a lender’s perspective, the higher the LVR, the higher the risk to the lender.
The LVR is calculated by dividing the loan amount by the value of the property, then multiplying it by 100. The value of the property is determined by the lender’s valuer, and it may be different to the price actually paid for the property. As an example, if your property is valued at $250,000 and you borrow $200,000, the LVR would be 80% (200000 / 250000 x 100 = 80).
The maximum LVR that you can borrow up to depends on several factors including the type of loan, the loan amount that you’re applying for and your capacity to make repayments. Generally, full doc loan applicants may be able to borrow up to 90% or 95% of the property’s value (ie. 90% or 95% LVR). Low doc loan applicants, typically self employed people can usually only borrow up to 80% of the property’s value. Lenders consider loans with an LVR over 80% to be of higher risk and borrowers will generally need to pay for Lender’s Mortgage Insurance. This protects the lender against any loss incurred if you default on the loan and the proceeds of an enforced sale are insufficient to clear the debt.
Some people are keen to buy a home but do not have a 20% deposit. If you do not have a 20% deposit, you will generally have to pay Lender’s Mortgage Insurance. It may be possible to avoid paying lender’s mortgage insurance, provided you can find an eligible guarantor who is prepared to provide a limited guarantee, secured by a mortgage over their property. A guarantor is typically a family member who offers their own property as security for the new loan. Eventually, if the LVR reduces due to rising property values or extra repayments, and the borrower meets credit guidelines, the guarantor may apply to be released. For more information on this home loan option, check out RAMS Fast Track. This is subject to approval by the lender.
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