Quiz time! How much do you know about borrowing to buy a home?
After months of doing the weekly open-for-inspection rounds, talking-turkey with estate agents and greeting other house-hunters – you’re on first name basis with many of them by now – you’ve finally found your perfect home. That was the hard part, right?
Borrowing money is not as simple as you may think. Besides the strict regulations governing the lending industry, mortgage products are breeding grounds for industry jargon, add-ons, variations and a plethora of can- and can’t-dos.
The implications of signing up for something you don’t fully understand can be far reaching and very costly – we’re talking the years-out-of-your-life-and-thousands-of-dollars kind of costly.
So how much do you know about borrowing? Take our quiz to find out.
Q1: What is Loan Mortgage Insurance (LMI)?
- Insurance taken out by borrowers if they think the lender is insecure.
- Insurance protecting the lender from borrowers not being able to repay their loan.
- Insurance protecting the borrower in case their property decreases in value.
Q2: What is a split mortgage?
- It’s when you split the mortgage interest rate between fixed and variable.
- Used when purchasing multiple properties. The loan is split between the properties.
- There is no such thing as a split mortgage.
Q3: How much interest would you expect to pay on a $400,000 loan at 7% per annum over 30 years?
- Approximately $710,000 over 30 years
- Approximately $275,000 over 30 years
- Approximately $550,000 over 30 years
Q4: What is a secured loan?
- When the borrower’s loan application has been approved (secured) and the contract can proceed.
- When the borrower puts up an asset as security over the loan.
- A loan is considered ‘secured’ when all parties involved have signed the contract.
Q5: The lender is only interested in how much you have owing on your credit cards when applying for a loan.
Q6: What is an offset account?
- An account linked to your mortgage to help reduce the amount of interest payable.
- An account that enables you to consolidate credit cards and personal loans with your mortgage.
- A partitioned account used for loan-splitting. One part is the inset, the remaining part is the offset.
Q7: Can you repay your mortgage earlier?
- No, never. In this competitive world, lenders want to keep your business as long as possible.
- Yes, always. Lenders prefer you to clear your debt as soon as possible.
- Generally yes, but conditions may apply.
Q8: Your first loan application has been rejected due to insufficient deposit, what should you do?
- Try a smaller lender; their rules are more flexible, and if costs are higher it’s worth it in the end.
- Reconsider how much you want to borrow or wait until you’ve saved a better deposit.
- Ask a relative or friend for a loan to increase your deposit.
See tomorrow’s article for answers