Glossary

Additional Repayments
Paying more than the contracted or agreed repayment into your home loan. Works to decrease the level of interest paid to the lender and hence reduce the cost of your loan. Most variable rate loans allow unlimited extra repayments however fixed loans usually have restrictions.

Amortisation
To pay off a loan over a period of time via principal and interest payments.

Application Fee
Also called an Establishment Fee. Fee paid to set up your loan and usually includes legal fees and property valuation charges. Usually not charged if the loan doesn't proceed or if the loan is declined but this varies between lenders.

Arrears
Being overdue in your repayments.

Auction
A public sale where the property is sold to the highest bidder.

Bridging Loan
A loan used to “bridge” the period between the purchase of a new property and sale of an existing one ie when you are swapping houses and you want to buy your new property before selling your existing one.

Certificate of Title
The certificate detailing the ownership and land dimensions of a property.

Contract Of Sale
The contract used in the transfer of property detailing the conditions relating to the purchase /sale.

Conveyancer
The person responsible for legally transferring ownership of the property from the seller’s name to the buyer’s name.

Credit Reference
or Credit Report A report usually conducted by lenders on the credit history of the borrower. Credit reports are prepared by authorised credit reporting agencies, such as Baycorp Pty Ltd (formerly Credit Reference Association of Australia or CRAA). Lenders must get the borrower’s permission in writing before obtaining a credit report.

Daily Interest
Interest calculated on a daily basis. Most variable rate loans calculate interest on a daily basis.

Default
Failure to make a loan repayment by a specified date.

Deferred establishment fee
Also called 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. Varies between lenders and between loans.

Disbursements
3rd party costs incurred when settling a loan ie solicitor costs, stamp duties, title searches, transfer of title and mortgage costs, mortgage insurance costs.

Equity
The proportion of the mortgaged property that is owned by you.
Equity Loan Also called a Line Of Credit or Revolving Line Of Credit. A loan with a continuing pre-set limit ie the limit doesn't reduce over time. Funds are generally able to be used for any purpose, including shares, renovations, personal, or an investment property. Interest rate is usually at a slight premium to the standard variable rate.

Establishment Fee
Also called an Application Fee. Charge levied by lenders to set up your loan and usually includes legal fees and property valuation charges. Usually not charged if the loan doesn't proceed or if the loan is declined but this varies between lenders.

Exchange (Of Contracts)
Date on which your conveyancer enacts the exchange of contracts committing the buyer to buy the property and the seller to sell the property. Some contracts allow a cooling off period during which time the purchaser can withdraw from the purchase.

Exit Fee
Also see deferred establishment 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. Varies between lenders and between loans.
Fixed Interest Rate An interest rate that is "locked in" for a specified 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. The period is usually between 1 and 5 years. Enables borrower to “set” their loan repayments for the period selected however rates are usually higher than the prevailing variable rates at the time of establishment. Also, lenders may charge a fee if you "break" this period ie through changing loan type or refinancing to another lender whilst still in the fixed rate period.

Genuine Savings
Genuine savings is a term given to a requirement that many lenders make on first home buyers. The lenders generally want some type of evidence that you can afford the loan they are about to give you and that you have the capacity to save money whilst maintaining your existing lifestyle. Evidence of this is called genuine savings and what it means to you is that most lenders want you to show them that you have had the ability to save at least some of your deposit over a 3 or 6 month period.

Government Charges
The various government charges levied in a property purchase ie stamp duty and mortgage stamp duty. These charges vary from state to state, and are determined by the relevant state government.

Guarantee
A promise to meet the loan obligations of another party (ie third party) if that third party defaults.

Guarantor
The person giving the guarantee. For example, parents acting as guarantor for a loan for their children. Most lenders will require the guarantor to get legal and financial advice before approving such a loan.

Honeymoon Rate
A home loan with a lower interest rate offered in the initial period (usually the first year) of the loan (= the honeymoon period). Usually reverts back to the lender’s standard variable rate loan after the honeymoon period. The honeymoon rate is usually fixed, or at a fixed discount to the standard variable rate for the duration of the honeymoon period.

Interest Only Repayments
A loan where you arrange with the lender to pay interest only (and no principle) for an agreed period (usually 1 to 5 years). Common with loans against investments for maximum negative gearing effect.

Jointly And Severally Liable
Refers to the situation in joint loans where all borrowers are fully responsible for the loan repayments ie in a joint loan with more than one borrower, if one person defaults on the loan repayments, the other borrowers are responsible for that person’s share of the loan.

Lease
A document granting tenancy of a property for a specified period.
Legal Fees Legal costs involved in arranging a loan and the loan documentation incurred by the lender. Generally, it is charged to the borrower and is usually included in most loan application fees.

Lender’s Mortgage Insurance
Also called LMI or Mortgage Insurance. It is an insurance policy designed to protect the lender against you defaulting on your loan repayments. It is protection for the lender, not the borrower. If you default on your loan and the lender is forced to sell the property to retrieve its funds, the insurance pays the balance if the amount of funds received is less than the original loan amount. The insurance company then has legal right pursue the borrower to recoup these funds. Usually, in loans greater than 80% of the value of the security, the borrower pays the mortgage insurance premium.

Liabilities
Loans, debts, or other obligations ie a car loan, personal loan, child maintenance payments etc with a regular (usually monthly) payment.

Line of Credit
Also called a Revolving Line Of Credit or an Equity Loan. A loan with a continuing pre-set limit ie the limit doesn't reduce over time. Funds are generally able to be used for any purpose, including shares, renovations, personal, or an investment property. Interest rate is usually at a slight premium to the standard variable rate.

LMI
See Lender's Mortgage Insurance

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

Loan Stamp Duty
Also called mortgage stamp duty. A stamp duty charged by the State Government on the mortgage. Differs in rate in each state and the borrower may be partially exempt if refinancing a loan of a particular property. First home buyers may receive an exemption dependent on property value and other criteria.

Loan to Value Ratio
Also called the LVR. This is the measure of the amount of the loan compared to the value of the property. For example, if you have borrowed $380,000 and your property is valued at $400,000, your loan to value ratio would be 95%.

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

LVR
Also called the Loan To Value Ratio.
Is the ratio of the value of your loan to the value of the security you provide to the lender. A term used by lenders when describing the maximum amount the lender will approve against the value of any property taken as security for the loan.

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

Mortgage Stamp Duty
Also called Loan Stamp Duty. A stamp duty charged by the State Government on the mortgage. Differs in rate in each state and the borrower may be partially exempt if refinancing a loan of a particular property. First home buyers may receive an exemption dependent on property value and other criteria.

Mortgagee
The lender ie the institution lending you the money.

Mortgagor
You ie the borrower of the funds.

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. For example, if your loan account balance is $100,000 and your savings account is $10,000, you only pay interest on $90,000.

Ongoing Fees
The ongoing account keeping fees (usually monthly) charged by the lender to the borrower. Differs between lenders and between loans.

Power of attorney
A legal appointment where a person nominates another (called the attorney) to act as their legal representative.

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 principal repayment and a proportion of interest charged.

Principal & Interest Repayments
As opposed to interest only repayments. It is the most common type of loan where the repayments are made up of a principal component and an interest component. Commonly referred to as a P&I loan.

Private Sale
Sale of a property done privately between buyer and seller without the involvement of a real estate agent.

Private Treaty Sale As opposed to sale by Auction.
A property sale where the buyer and seller negotiate a price privately rather than through the auction process.

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 have made over and above your contracted loan repayments. Not available on all loan types however generally available on most variable rate loans.

Refinance
Switching your loan from one lender to another.
Reserve Price Pre-determined minimum acceptable property price, set by the seller, at auction.

Searches
Enquiries usually conducted by your conveyancer to confirm that the property vendor is in a position to sell the property ie detailing any encumbrances listed against the property.

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.

Settlement
The day on which the property settles. The day on which your conveyancer conducts the actual payment for your property by combining the lenders funds with your funds and making payment to the property vendor. Settlement date is also called the "Draw down" date, as this is the date the loan is usually fully drawn. It is also the date the keys to the property a handed over to the buyer.

Split Loan
A loan which is divided into a number of loan splits for the purpose of allowing the borrower greater loan flexibility. For example, a borrower can have one split at a variable rate, and the remainder at a fixed rate. Alternatively a borrower can arrange one split as principle and interest repayments and another as interest only repayments to separate out borrowings for owner occupied purposes and borrowings for investment purposes.

Stamp Duty
A tax charged by the state government when a property is purchased. Stamp duty is calculated on the purchase price of the property and is paid by the buyer. Each state and territory has a different rate of duty.

Strata Title
Common type of title for unit or apartment developments. Confers ownership of a section or a unit of a building and can be sold by the owner.

Term
The designated period a loan runs for, or a designated period within the loan.

Transfer
A document noting the change of ownership registered with the Land Titles Office.

Valuation
An estimation of the value of the security you are providing to the bank done by a independent professional valuer. The valuer is commissioned by the bank to conduct the valuation. The valuer takes into account the nature of the property being valued and recent sales of similar properties in the same area. Some lenders may not require valuations in certain circumstances.

Value
A professional who's job is to understand the local real estate market enabling them to give accurate estimations of the value of individual properties within that market.

Variable Interest Rate
The most common type of interest rate selected. An interest rate that can vary inline with the market. Usually linked to the official market interest rate which is set by the Reserve Bank of Australia and is influenced by the general state of the economy. As a general rule, the Reserve Bank of Australia increases the official market interest rate when it wants to slow down the economy, and decreases it when it wants to stimulate the economy.

Vendor
The seller of a property.

Zoning
The local council’s outline on the permitted uses of land and buildings.