A large number of home buyers do not know the meaning of basic real estate and home loan terms, Westpac research has shown.
The study, which interviewed 1,479 Australians, showed 7 out of 10 didn't know exactly what comparison rates are.
And 49 per cent had no idea what "equity" meant, 48 per cent didn't know what an "offset account" is and 41 per cent couldn't explain "refinancing".
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This is despite 43 per cent considering themselves as "financially confident".
If you're about to buy a home and you don't know what these terms mean, Westpac has helpfully explained them so that you can dive in informed:
Appraised value is the estimate of the value of a property which is being used as security for a loan.
If this option is available on your home loan, it means that the money you have in your transaction account acts the same as if it was in your mortgage account.
It reduces the balance of your loan on which interest is calculated, which in turn reduces your interest repayments allowing you to pay your loan off sooner.
A bridging loan lets you finance the purchase of a new home while your current property sells.
It is usually a short-term loan (usually up to 12 months) that is closed when your existing property is sold. The size of the bridging loan is calculated on the available equity in your current home.
A comparison rate is designed to help you understand the overall cost of a loan based on several relevant factors, rather than just the interest rate.
Each comparison rate accounts for the amount of the loan, loan term, repayment frequency, interest rate, fees and charges.
Equity indicates your financial interest in a property or business enterprise. For example, your equity in your house is the difference between its value and the amount you owe on the house.
Loan portability is a feature that could be available on your home loan, enabling you to ‘take your home loan with you’ when you move to another property.
This means you could save the cost and inconvenience of having to establish a new loan, or refinancing, if you decide to move.
Principal is the amount of the loan upon which interest is calculated and charged.
Refinancing is the process of taking out a new mortgage to repay an existing loan.
There are a number of reasons you may want to refinance your home loan, for example, to shorten your loan term and reduce repayments so you can own your home sooner.
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