Mortgage broking terms 3

Question 1

Cash flow forecast

Answer 1

A financial forecast which outlines the expected financial inflows and outflows of a business, over a certain period of time.

Question 2

Cash flow statement

Answer 2

A cash flow statement is a financial statement which summaries the historical financial inflows and outflows of a business over a certain period of time.

Question 3

Conditions precedent

Answer 3

Conditions that must be met prior to a loan or formal loan approval being given.

Question 4

Contract of sale (COS)

Answer 4

A written agreement outlining the terms and conditions of the sale.

Question 5

Comparison rate

Answer 5

The comparison rate is an effective interest rate that takes into account the true cost of the loan as well as fees and charges.

Under the NCCP, comparison rates must be displayed when an interest rate is advertised.

Question 6

Effective interest rate

Answer 6

The effective interest rate is the true rate of interest, fees and charges incurred over the life of a loan.

Question 7

Foreclosure

Answer 7

Foreclosure is where the bank attempts to recover the amount owed on a defaulted loan by taking ownership of the property and selling it.

Question 8

Equity

Answer 8

The difference between the value of an asset and any debt owing on the asset.

For e.g. If you own a house that is worth $500,000 and you owe $300,000 on that property, you have an equity of $200,000.

Question 9

Floating charge

Answer 9

A floating charge is a security interest over a group of assets, which change in quantity and value such as stocks and inventory.

Floating charges support companies by allowing them to use current assets to finance business operations.

When a company fails to repay the security interest or enters liquidation, the floating charge converts to a fixed charge, after which the company is not allowed to use or sell the asset.

Question 10

fixed charge

Answer 10

A fixed charge is a security interest over fixed assets, such as land, machinery, vehicles, etc.

If the business isn’t able to stick to the terms of the agreement, then the lender will take control of these assets to recover the money that it’s owed.

If a lender has a fixed charge, they’ll also have a high level of control over the asset. In fact, the business won’t be able to sell, dispose, or transfer the asset unless they have permission from the lender.