Glossary

Acceptance To agree to the terms and conditions of an offer contract.
Additional Repayment Additional money paid into your loan over and above the minimum monthly repayments.
Application Fee A fee paid to the lender for setting up a home loan.
Appraisal fee A fee charged for a professional opinion about how much a property is worth.
Amortising loan The formal term for a standard principal and interest loan.
Arrears Being overdue in repayments.
Asset An item owned with a monetary value (eg. cash and/or property).
Balloon Loan A loan that has regular payments that do not cover the full loan amount by the end of the term, so a larger lump sum is due at maturity.
Basis Points Equal to 0.01% interest. (eg. 50 basis point is an interest rate of 0.5%)
Break cost Fees charged  by the lender if the loan is paid-off in full before the end of the loan term.
Bridging finance A temporary loan used as a gap measure between buying your new home and selling the old one.
Budget A detailed review of your income and expenses.
Capital gains tax Tax payable on the profit made when selling an investment property.
Cash advance

A loan on a personal line of credit, typically a credit card attracting higher-than-normal interest.

Certificate of title

Document showing who owns the property as well as all the associated details of size and whether there is a mortgage registered on the title.

Comparison rate A rate which includes fees and charges  so loans can be compared on an equal basis (eg. a loan with a low advertised rate but high fees might cost the same as a loan with a higher advertised rate but low fees).
Contract variation Any variation or alteration to the terms of a contract.
Conveyancing Legal work carried out by your legal representative to transfer ownership of a property.
Creditor A person or organisation who loans money on the expectation  it is to be repaid.
Credit An agreement whereby the borrower receives goods or money now, on the understanding it is to be repaid under set guidelines that commonly include an interest charge.
Credit / facility limit The maximum loan amount that a borrower can borrow under their home loan contract.
Credit report A report outlining an individual’s credit history, public records and any credit black spots.
Daily interest Interest calculated  on a daily basis. Most variable rate loans calculate interest on a daily basis.
Debit card A bank access card used to make withdrawals from current  funds in a bank account.
Debt An amount of money owed by one person or organisation to another.
Debt consolidation

To combine one or more debts previously held separately into one merged amount.

Debt Servicing Ratio (DSR) The Debt Servicing Ratio measures whether you can afford the mortgage payments.  To calculate the DSR, the lender uses a number of factors to work out the amount of your income that is available to repay the debt.
Default Failure to make a loan repayment by a specified date.
Deferred payment An agreement between two parties where the amount due to be paid on a given date may be postponed until a later date.
Deposit Amount given in advance to show intention to purchase a property.
Deposit bond An insurance policy to cover the deposit on a property being purchased.
Depreciation The amount claimed on an investment property for the reduction in the value of an item due to usage,  passage of time, wear and tear.
Exit Fee A fee charged by some Lenders when you decided to refinance with another lender within the first years of the loan.
Equity The difference between your mortgage and your property’s value.
Fixed interest

Your interest rate is locked in for a fixed term, you are then protected against possible interest rates rises for the selected  ‘fixed’ term period.

Foreclosure When you default on your mortgage and the Lender forces a sale on your property, with the proceeds going towards the mortgage debt.
Gearing Investment  property is negatively geared when expenses exceed  rental income. Investment  property is positively geared when the rental income received is greater than the total amount of the expenses.
Hardship variation It may be possible to vary the terms of your contract should you find yourself in a position where you are having difficulty meeting your repayment obligations.
Lender A person or organisation who provides money to another under the proviso that it will be repaid according to set guidelines and terms.
Lender’s Mortgage Insurance (LMI) Lender’s Mortgage Insurance is a one-off insurance premium that protects the lender in the event that you default on your mortgage repayments.
Liquid assets Are assets, either in cash or easily convertible to cash.
Loan to Value Ratio (LVR) The value of the loan divided by the value of the property that the loan is for (eg. if you buy a $500,000 property and need a $350,000 loan – your LVR is 70%).
Low-Doc home loan Low documentation loans designed for the self-employed who don’t have the documentation required to get traditional home loans. These usually carry higher interest rates.
Mortgage A loan for the purpose of purchasing a property, where the property is used as security.
Mortgagee The lending institution.
Mortgagor

The borrower (you).

National Consumer Credit Protection Australian legislation covering consumer protection and consumer rights.
Negative Gearing Where the income from an investment property is insufficient to meet the interest costs of the loan used to fund the investment property.
Non-conforming loans Designed for those who find it more difficult to meet the borrowing conditions of standard loans.
Offset account An offset account is an account linked to your mortgage. The balance in the account ‘offsets’ the principal of the loan. Overall interest is calculated on the principal less the offset account balance.
Ombudsman Independent body established within a particular industry to investigate and resolve disputes as an outside party to the dispute.
Overdraft An arrangement on a cheque or savings account under which a Lender extends credit up to a maximum amount and against which the customer can make withdrawals.
Pre-Approval An initial approval process that provides an estimate of how much someone can borrow before they find a property.
Principal The amount of capital borrowed.
Refinance Switching your loan from one product (or lender) to another, usually with a better interest rate or conditions. Your initial loan is paid out and your debt is transferred across to the new product or lender.
Repossess To reclaim possession of goods or assets for failure to make payments within agreed terms.
Reverse Mortgage Usually for older home owners who have already paid off their home loans and borrow against the value of their home without having to sell the property.
Revolving Line of Credit A line of credit that is secured by the value of your home. Allows you to use the funds for other purposes such as the purchase of a second property or other investments. Generally incurs a higher interest rate than a standard variable rate loan.
Security A right of a lender against the property or other assets of a borrower to guarantee or secure the repayment of a loan.
Secured loan In this type of loan, the property being purchased is held as security against the loan.
Settlement The day on which the process of changing title of a property occurs. Your legal representative will organise for the exchange of money and documents so that you become  the legal owner of the property.
Split Loan Home loans where a predetermined portion of the loan is locked in at a fixed interest rate and the rest comes with a variable rate of interest.
Unsecured loan A loan in which no property is held as security, generally attracting a higher rate of interest due to increased risk on the part of the lender.
Valuation An estimation of the value of the property prepared by an independent professional valuer.
Variable interest rate

The interest rate will vary depending on several factors, including the Reserve Bank’s current cash rate and prevailing sentiment.

Vendor

The person who is selling the property.

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