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Common Terms Explained
Following deregulation of the banking industry in the mid 1980’s, loan features which make the loan more flexible in the hands of the consumer are now an every day part of life. A couple of these features togetherwith the relevant code are explained below.
• Comparison Rate |
Comparison rate: | back to top
All lenders must disclose a benchmark comparison rate in their advertising of home loans and personal loans since July 2003. This Comparison Rate is designed to reflect the total annual cost to a borrower of a loan. It wraps up interest payments and fees and expresses all these costs in one rate, or the average annual percentage rate (AAPR).
Consumer Credit Code : | back to top
An Act of Parliament governing the relationship between borrowers and lenders. The legislation is designed to protect the rights of the individual by ensuring finance institutions all adhere to the same rules when providing personal, domestic or household credit. It should provide borrowers with complete and honest information.
Mortgage Offset: | back to top
Mortgage Offset is a way to reduce the interest costs on you home loan. By opening a savings account and linking it to your loan account, the balance of the savings account offsets or reduces the balance of the loan for interest calculation purposes. For example, if your loan balance was $165.000-00 and your saving account balance was $8.000-00, you would pay interest on your loan as though the balance was $157.000-00. These interest savings can be quite substantial over time. The savings account is usually a fully featured account with ATM, Eftpos, Telephone, Internet access and cheque book access if required.
Redraw Facility: | back to top
A redraw facility allows you to redraw or reuse additional monies you have paid to you account. If you had made additional payments of $5000-00 to your loan, i.e. you were $5.000-00 ahead on your repayments, you could redraw this for any purpose.
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