Home Loans Glossary

Making sense of the language of home loans.

Sometimes half the battle in taking out a home loan is understanding what you are being offered. What does an offset account do? Do I really need a redraw facility? Should my home loan be portable?

The glossary below outlines some of the more common terms you will come across.  If you are ever in doubt over any term used by your lender or mortgage broker always ask for clarification.

 

Application fees

Are the fees you pay when you set up your loan which are generally for the lenders (banks or others) internal administration costs.

Appraised value

Appraised refers to an appraisal, or value, that has been placed on a property being used as security for a loan.

Arrears

An outstanding or overdue amount generally on a loan.

 

Basis points

You will hear this across the financial world and markets. One basis point equals 0.01% interest.

Breach of contract

Refers to the beaching or breaking, not adhering to, the conditions of a contract.

Break costs

The costs you will incur if you ‘break’ or end a fixed term loan before the agreed date. These are sometimes referred to as ‘economic costs’.

Bridging finance

Is generally a short term loan used between purchasing a new property before selling an old one. Higher interest rates are usually charged for this form of loan.

Building inspection

As it sounds, a building inspection is an inspection carried out before the purchase of a property to ensure the building is structurally sound. It is possible that contracts of sale can be made subject to the satisfactory building inspection.

 

Capital gains

The gain above the purchase price and costs obtained when an asset is sold for more than its original price.

Capital gains tax

A federal tax on the capital gains made on the sale of an asset bought after September 1985. This does not apply to your home, generally only investment properties.

Capped loan

Interest rates on this type of loan cannot exceed a prescribed level for a period of time. Unlike fixed rate loans the interest rate may fall.
Commission

The fee or payment made to a real estate agent for services.

Comparison rate

Comparison rates are designed to give consumers an indication of the true cost of the loan.

They include both the interest rate and most of the fees and charges that are payable over the life of the loan. It is designed to reflect the total annual cost to a consumer of a loan.

It’s especially useful to compare the comparison rate between different lenders. (Note: redraw and early repayment fees, or fee waivers are not included and may affect the cost of your loan).

Conditional approval

Is an approval in principle based on information you have provided and is a useful pre-purchase exercise that gives you an indication of how much you can borrow.

Conveyancing

The legal process for the transfer of ownership of real estate from one owner to another.

Credit limit

The maximum amount you can borrow under your home loan or loan agreement.

Credit reference or credit report

A report from an authorised credit reporting agency that assists in determining what loan products might be available to you. It  shows your credit history and we need your permission to obtain this

 

Default

A default occurs when a borrower does not adhere to the terms of a mortgage or loan agreement. Generally this this may be not making minimum required loan repayments. Defaulting on a loan incurs penalties.

Deposit

Is the amount paid by the buyer at the time of exchanging the contract for sale. It acts as a commitment to buy prior to the actual settlement date.

Deposit bond or guarantee

A guarantee from a financial institution that a deposit will be paid to a seller in place of actual cash. It can be useful for buyers with savings in a term deposit because it can be offered at the time of exchange without having to break the deposit and lose interest.

Disbursements

Various fees and charges incurred during the conveyancing process which may include search fees and charges paid to government authorities.

Discharge fee

An administration fee to cover the lender’s’ costs incurred in terminating a loan account.

Discharge of mortgage

A document provided by the lender a when a mortgage loan has been repaid in full.

Disposable income

Refers to your remaining funds after all your expenses, such as loan payments, bills and living costs, have been met.

Drawdown date

When you actually use your loan funds for the first time, they may be available but up to that date you hadn’t used them.

 

Economic costs

See ‘Break costs’.

Equity

The amount of a property actually ‘owned’ by the owner. It’s the current value of a property less the amount still owed on the loan or mortgage.

Establishment fees

Are fees charged by a lender to cover the administrative costs of setting up a loan and passed onto the borrower.

Exit or early repayment fees

Fees that may be charged by some lenders when a loan is paid off prior to the end of its term.

Extra repayments

These are additional repayments on a mortgage or home loan that are above the minimum required repayment.

 

First Home Owners Grant

A grant from the Federal and State Governments that is only available to first home buyers that have not previously bought a property in Australia.

Fixed rate

Both your interest rate and repayments will stay at a fixed level for an agreed period of time.

Guarantor

A third person (usually family or friends) who agree to be responsible for the payment of a loan if you default and are unable to.

 

Home equity

See ‘Equity’.

Home loan

The home loan are the physical funds borrowed to purchase your home. The property acts as security for repayment of the loan and the lender holds the title to the property.

Honeymoon rate

Is a reference to a lower interest rate that is in place at the early stages of your loan (ie. the ‘honeymoon period’). This then reverts to a standard variable rate after the specified period ends.

 

Instalment

The regular payments on your home loan or mortgage that you agree to pay the lender.

Interest

The amount charged by the lender on the money you have borrowed.

Interest only loan

A loan where only the interest is paid for an agreed term, usually 1 to 5 years. The principal is then repaid over the remaining term of the loan by the conversion of repayments to principal and interest.

Interest rate

The percentage of the loan amount, used to calculate the interest to be paid for a loan.

Introductory loan or rate

See ‘Honeymoon rate’.

Investment property

A property purchased for the sole purpose of earning a return either via rent or capital gain over a period.

Investment loans

Loans used for investment purposes only. These loans normally attract a higher rate of interest.

 

Joint tenants

Equal holding of a property between two or more people. If one party dies, their share passes to the survivor or survivors.

 

Lender’s mortgage insurance (LMI)

Is an insurance which covers the lender if the borrower defaults on the loan. Lenders will generally ask for this where the LVR is over 80%.

Line of credit

Is a loan arrangement with a specified credit limit that you can use at your discretion when you need funds.

Loan agreement

Is the agreement between the lender and the borrower which sets out the conditions of the loan.

Lump sum repayments

Are unscheduled extra repayments made above your normal repayments.

Loan to value ratio or LVR

Is the ratio of your loan amount to the value of the property. If your house is worth $200,000 and you loan is $100,000 then the LVR is 50%.

 

Maturity

The date when the loan is to be paid back in full.

Maximum loan amount

The maximum amount that can be borrowed based on your capacity for repaying the loan.

Minimum loan amount

The minimum amount that can be borrowed for a loan.

Minimum repayment

The amount you are required to pay a borrower each month in order to repay a loan within an agreed term.

Monthly service fee

A fee you pay each month to your lender on your loan account.

Mortgage

Or home loan, are the funds borrowed to purchase a property. The property acts as security for repayment of the loan. The lender holds the title or deed to the property. See ‘Home loan’.

Mortgage broker

A person or organisation that can assist in identifying your mortgage needs then dealing directly with lenders to find the best mortgage for you.

Mortgage offset account

A savings account linked to your home loan. The interest earned by the money in the savings account offsets (or reduces) the interest due on the home. Not all offset accounts are equal, with many not paying the same interest as you are charged on your mortgage. See ‘100% offset’, and ‘Partial offset’.

Mortgage protection insurance

This insurance will cover your loan repayments should you become sick, injured or redundant and unable to work. It is also referred to as income protection insurance.

Mortgage registration fee

A State Government charge for the registration of a loan so that all claims on a property can be verified.

Mortgagee

The lender of funds for your home loan or property.

Mortgagor

The owner or owners of the property offered as security for a loan to the mortgagee.

 

100% offset account

A 100% offset account is a transaction or deposit account that’s linked to your loan so that the funds you have in this account ‘offsets’ the loan principal. If you loan was $100,000 and you had $80,000 in your offset account interest would only be applied to the difference, $20,000 rather than the entire loan amount of $100,000.

 

Partial offset

Is where the interest you pay is partially offset by the interest held in a linked savings account.

Portability

Gives you the ability to substitute a new property as security for an existing loan. This may be a good feature if you are buying buying a new home but don’t want to go through the process of setting up a new mortgage.

Principal

The total amount that is still owing on your loan.

Principal and interest loan repayments

Repayments on your loan where both the principal and interest are repaid.

 

Re-amortise

Is where the minimum repayment required to repay the outstanding balance of a loan over the remaining period is recalculated This may usually occur when the term is extended or the loan amount has increased or decreased.

Redraw facility

A feature of some loans that allows you to redraw any extra repayments you have previously made on your home loan.

Refinance

Is where you pay off an existing loan with a new one, which may or may not mean moving providers.

 

Security

Is an asset that secures your loan which may be your home, an investment property or a term deposit.

Settlement

Is the last of the process where you are either selling or buying a property, generally when the balance of the purchase price is paid.

Split loans

Refers to splitting your loan into more than one loan account. One could be fixed rate, the other, variable.

Stamp duty

A State Government tax based on the purchase price of the property which you pay to the relevant state or territory. See our stamp duty calculator here.

Switching fee

A fee charged by lenders in case an existing borrower wishes to change from one loan type to another.

 

Term

The length of your loan, or a specific period within that loan. Normally 15, 20, or 30 years.

Title deed

The document that sets out the legal description of a property and who owns it.

Title fees

Are fees charged by the various state Titles Office for title searches, property ownership transfers, the registration of new mortgages and the discharge of old ones.

Transfer

Is a document that is lodged and registered with the Titles Office that confirms the change of ownership or a property when bought and sold.

 

Valuation

A professional opinion of a property’s value conducted by a registered valuer.

Variable rate

Is an interest rate that can move up or down. Increases and decreases in your minimum payments may be affected.

Variation

Is where a term or any any part of a loan contract changes.

 

We’re happy to chat with you, obligation free,
about your future financial freedom.

  • This field is for validation purposes and should be left unchanged.