Home loan glossary

Accelerated payments
The option to make higher payments to pay off the loan faster.

Accrued interest
Interest accounted for but not yet due for payment.

Add securities
An asset that guarantees the lender their loan until the loan is repaid in full. Usually the property is offered to secure the loan.

Adjustments
The process of allocating expenses (Council, electricity, water) on settlement day that the seller has paid for but not used, and which the buyer has not used but will be billed for.

Agent
A person or body authorized to act on behalf of a client in the sale, purchase or management of property.

Amortisation period
The period of time one has to repay a loan at the arranged terms.

Application fee
Fees charged to cover or partially cover the lender’s costs of processing a loan approval for a home buyer.

Appraised value
The estimate of the value of a property being used as a security for a loan.

Arrears
An overdue amount yet to be paid.

Assets
Any money, property or goods of economic value owned.

Balloon payment
A large loan repayment, typically towards the end of the loan term, to clear a debt.

Basis points
A basis point is a unit of measure used for calculating changes in interest rates, equity indexes and the yield of a fixed-income security.

Break costs
Cost levied by the lender for breaking out of a fixed loan before the completion of the contracted term.

Bridging finance
A short-term loan taken out by those who are buying a new property and need finance for settlement while they’re waiting for their existing property to be sold.

Building insurance
Insurance that covers the cost of rebuilding or repairing a property following structural damage, for example by flood, fire, and storm.

Capital gain
The monetary gain earned when you sell an asset for more than you paid for it.

Capital gains tax
A Federal tax on the monetary gain made on the sale of an asset bought and sold.

Cash rate
The term used for the bank rate and the rate of interest that the central bank charges on overnight loans to commercial banks.

Certificate of title
A document that details the title or ownership details of a property and whether there are any encumbrances on the title. (Not all states have them.)

Chattels
Any property other than freehold land. Personal chattels are movable, tangible articles of property such as clothes and furniture. Real chattels included leasehold interest in land.

Comparison rate
A nominal rate per annum calculated based on certain fees and charges together with the compounding frequency as outlined in the Consumer Credit Code.

Compound interest
Interest that is paid on both the accumulated interest as well as on the original principal.

Contract of Sale
A written agreement outlining the terms and conditions for the purchase or sale of property.

Conveyancer
A person qualified and licensed to handle all documentation for the sale and or purchase of a property.

Conveyancing
The legal process for the transferring ownership of property from one person to another.

Cooling off period
The legal entitlement of a property purchaser to withdraw from a contract by giving written notice within two clear business days after the Contract of Sale is signed and the appropriate forms have been served on the purchaser.

Cover note
A note of temporary property insurance before the implementation of a formal policy.

Covenant
Terms and conditions that specify the usage of a block of land or the buildings on it.

CRAA
Credit Reference Association of Australia. The body that holds credit details on all people who have established a credit history.

Credit History
A record of an individual’s current and repaid debts that is usually used by a lender to assess the risk of a potential borrower.

Deed
A legal document that states an agreement or obligation regarding a property.

Default
The failure to meet a debt payment by a due date.

Deposit
Usually 10% of the purchase price of a property used to indicate an intention to buy. It is non-refundable after the exchange of contracts.

Disbursements
The costs your solicitor or conveyancer has to pay to other organizations and bodies on your behalf, for example, search fees and stamp duty/land tax.

Drawdown date
Also known as settlement date as this is the day when the loan is fully drawn down.

Early termination payment
The cost of winding up a loan early, also known as an early repayment fee.

Easement
A right to use a corridor or passage of land that is owned by another.

Encumbrance
An outstanding liability or charge on a property.

Equity
The difference between the amount you owe on your home loan and the current value of your property. Generally the equity increases as the outstanding principle of a mortgage is repaid and as the property appreciates in value.

Establishment fees
The fees charged by a lender for setting up a loan.

Equity loan
A loan usually secured by the proportion of the value of your house.

Exchange of contracts
The legal point of time when the vendor and purchaser swap documentation and start enquiries with a view to settlement.

Exit fee
A fee charged by the lender when a borrower refinances out of the lender’s loan within the first few years of the loan.

First Home Owner Grant
A national government scheme to assist first home buyers that satisfy specific eligibility criteria.

Fixed interest loan
An interest rate that is ‘locked in’ for a specific period. Usually 1,2,3,4 or 5 years.

Fixed rate loan
Where a borrower elects to fix the interest rate of their loan – or part of it – at a set level for a set duration.

Guarantor
The person giving a promise to meet the loan obligations of another party if that third party defaults i.e. parents act as guarantors for their children.

Honeymoon period
The initial period in which a lower interest rate is offered on a home loan.

Honeymoon rate
A home loan with a lower interest rate offered in the initial period (honeymoon period) of the loan. Usually reverts to the lender’s standard variable rate loan after this period.

Interest-only loans
A repayment option where you arrange with the lender to pay interest only (and no principle) for an agreed period (usually 1 to 5 years). This normally converts to Principal and Interest repayments at the end of Interest Only term.

Introductory rate
An interest rate charged to a customer during the initial stages of a loan.

Land tax
A state tax based on the value of a property (not the principal place of residence) that is paid by the owner.

Lenders Mortgage Insurance (LMI)
An insurance policy designed to protect the lender against you defaulting on your loan repayments. (Protection for the lender not the borrower).

Leveraging
Using an asset as security for borrowing.

Line of credit
Also called Equity Loan this is a loan with a continuing pre-set limit. Funds are generally usable for any purpose including shares, renovations, repairs or an investment property. Interest rate is usually higher than the standard variable rate.

Loan agreement
The contract between the lender and the borrower. The loan agreement states all the conditions that apply to your loan.

Loan to Value Ratio (LVR)
A measure of the amount of the loan compared to the value of the property. For example, if you borrow $380,000 and your property is valued at $400,000, your LVR is 95%.

Lump sum payment
Any additional loan repayments made by the borrower over and above the contracted periodical repayment amount.

Market Value
The price at which a seller is happy to sell and a buyer is willing to buy.

Mortgage
Security over property given to the lender for the repayment of the loan.

Mortgagee
The lender i.e. the institution lending the money.

Mortgagor
The borrower i.e. the person borrowing funds for a property purchase.

Negative Gearing
Where the return on an investment is not sufficient to cover the costs on the investment, e.g. property maintenance and interest on the loan providing the owner with a tax offset to their taxable income

Notice of Default
A formal written notice to a borrower that a default has occurred and that legal action may be taken.

Offset Account
A bank savings account that is offset against your home loan account thereby reducing the amount of interest on your home loan each month. The lender charges interest on your loan balance after deducting the balance in your savings account. E.g. if your loan account balance is $100,000 and your savings account is $10,000, you only pay interest on $90,000.

Portability
A portable loan means you can keep the loan when you sell your home or investment property and purchase another.

Pre-approval
An evaluation of a potential borrower by a lender that determines whether the borrower qualifies for a loan from the lender, or the maximum amount the lender would be willing to lend.

Prepayment
The payment of a debt or installment before its official due date.

Principal
The amount of capital borrowed. You pay the lender interest on the principle and your loan repayments are usually made up of a proportion of the interest charged.

Principal and interest loan
As opposed to an interest only loan, this is where repayments are made up of a principle component and an interest component. The loan will then be repaid over the principal and interest terms, which is often 30 years.

Property value
An estimate of what a home or piece of land is actually worth (as opposed to the price).

Rate lock
An agreement between a borrower and a lender that allows the borrower to lock in the interest rate on a mortgage over a specific time period at the prevailing market interest rate.

Redraw
The amount of funds available to you to withdraw from your home loan and is equal to the amount of extra lump sum repayments you’ve made over and above your contracted loan repayments.

Refinancing
Switching your loan from one lender to another.

Repayments
Periodic payments that normally include part principal plus interest.

Repayment holiday
Enables you to take a break from your loan repayments.

Reserve Price
The minimum price that a seller will accept at auction.

Security
The asset supplied by the borrower to the lender as the lender’s security for lending the funds. The lender will maintain control over this security until their funds are fully repaid. Usually real estate is offered as security. The lender will secure their security by registering a mortgage over the property.

Settlement
The day on which the property settles and the conveyancer conducts the actual payment for your property by combining the lenders funds with your funds and making a payment to the vendor. Also known as ‘draw down’ date as this is the date the loan is fully drawn. Also the date the keys are handed over to the buyer.

Split loans
A loan which is divided into more than one loan. For example, split into a fixed loan and a variable loan

Stamp duty
A duty (like a tax) charged by Australian states on certain transactions.

Tenants in common
A type of joint tenancy in a property where two or more purchasers own a property in unequal shares.

Term
A period of time. For example, the length of time in which a loan must be repaid.

Torrens Title
A system of recording property ownership where registration on the Certificate of Title guarantees ownership.

Transfer
A document registered at the Land Titles Office and noted on the Certificate of Title, which verifies the change of ownership of a property.

Valuation
A written analysis of the estimated value of a property prepared by a qualified valuer.

Variable interest rate
A type of interest where the rate may go up and/or down during the term of the loan.

Valuation fee
An amount paid by a borrower to cover a lender’s costs for obtaining an inspection.

Yield
The interest earned or return by an investor on an investment, stated as a percentage of the amount invested.