Breaking Down Banking Jargon

BREAKING DOWN Banking Jargon Jargon Translation COMPARISON RATE The real cost of a loan, taking into consideration setup fees, introductory offers and other fees. For example, though often cheaper to buy clothes online, you must also account for shipping costs. The same goes for a loan, you need to know the total cost. DEBT CONSOLIDATION Involves taking out one loan to pay off a number of other loans. For example, if you are paying off a few high interest debts (credit card, car loan or personal loan), you could potentially cover these with one easier to manage loan. FIXED RATE Interest rates can go up or down. If they go down you pay less, if they go up you have to pay more. To avoid this, you can get a fixed rate loan for a limited period, usually 1 to 5 years. VARIABLE RATE Unlike fixed rates, variable rate loans move up and down in response to economic changes. If you have a variable rate loan, when interest rates go down you pay less, if they go up, you have to pay more. INTRODUCTORY RATE For the first 1 to 2 years, some lenders will offer low interest rates. Great at first, but you need to be aware things may change and you could end up paying more once the period ends. LENDERS' MORTGAGE Lenders need to protect themselves just in case you can't pay the loan back. For example, depending on how much you are borrowing compared to the value of the house, you'll need to take out this insurance, as lenders may see you as a higher risk loan. INSURANCE LOAN & MORTGAGE If you cannot work due to accident, illness or unemployment, these insurance schemes can cover your personal loan or mortgage repayments. This could also apply to those who pass away. Not all cover is the same. You should check with the particular cover you have or you plan to take out to see what it includes. REPAYMENT INSURANCE OFFSET ACCOUNT This account is linked to your home loan and any money you have in the account reduces the interest you pay. For example, if you have a home loan of $200,000 and you have savings of $20,000 in your offset account, you will only pay interest on $180,000. An overdraft is a credit for short-term needs only. For example, if you are short of cash and need money in your account to cover bank fees you can apply for an overdraft or receive one as part of your account. Remember, an overdraft is another form of credit, so it can attract interest, fees and charges. OVERDRAFT RANK PERIODICAL PAYMENT Can be set up if you make regular payments to someone for the same amount. For 15 example, if you have to pay rent on a fortnightly basis, you can set up a periodical payment to send the funds automatically on a specific recurring date. Heritage Bank Need help with confusing jargon? Consult with an expert at Heritage Bank today!