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Finance Terminology

Conveyancing
The term used to describe the legal work conducted by a solicitor on your behalf when purchasing or selling a property.

Conditional approval
Loan has been assessed and is approved subject to certain conditions being satisfied.

Formal approval
Loan has been approved with no conditions.

LMI (Lender's Mortgage Insurance)
LMI is insurance to cover the lender against the risk of losses that may occur when the borrower defaults and the property sells with a short fall. LMI is generally only required when the LVR is high making the loan a higher risk to the lender.

Low Doc (Low Documentation)
The term used to describe loans that do not require your financial documentation for approval.

LVR (Loan to Value Ratio)
The loan amount shown as a percentage of the property value.

Principal & Interest vs Interest Only
The word Principal, in a Principal & Interest loan, refers to the sum borrowed, on which interest is paid.  A loan in which both the Principal and the Interest are paid during the term of the loan, is a Principal & Interest loan, sometimes referred to as a P&I loan. The end result of taking out a P&I loan is that the original, borrowed amount slowly reduces as the Principal is paid off with each P&I repayment. 

An Interest Only loan would be a loan where the borrower only makes interest repayments.  The term is initially for a period of between one to five years, but some lenders offer longer terms.  During the Interest Only term, the borrower will not need to reduce the amount they borrowed (the Principal).  Some lenders do allow additional payments to be made, to reduce the principal borrowed amount, but it is not essential during the Interest Only term. After the end of the Interest Only term the loan will typically "roll over" to become a Principal & Interest loan so the borrower's repayments would then increase and the original borrowed sum would gradually decrease. 

Offset account
A transaction account that is connected to the home loan and reduces the interest payable on the home loan by offsetting the loan balance dollar for dollar.

Pro Pack (Professional Package)
The type of loan that offers maximum features with minimum interest. Applicants have to meet a minimum loan amount qualification.

Refinance
The process of taking on a new home loan. The new lender pays out the old lender and therefore obtains the mortgage over the property.

Settlement
The final event in refinancing or purchasing a property. It is the actual point of transaction with all parties involved.