Glossary of Terms
When dealing with home loans, you may encounter unfamiliar words or phrases. If these are in information from your lender, do ask them to explain anything that may not be clear.
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A:
Amortisation Period: To pay off principal and interest under a loan over a period of time, usually by installments.
Application Fee: A fee charged to cover a lender’s internal costs of setting up a loan.
Arrears: An overdue amount that has not yet been paid.
B:
Basis Point: A term used to measure the rate of interest. For example, ten basis points equal 0.10%.
C:
Certificate of Title: A document identifying the ownership of land. It shows who owns the land and whether there are any mortgages or other restrictions on it. This document (if issued) is usually held by the lender as security for a loan.
Consumer Credit Code: The Consumer Credit Code is a law that protects individuals who are borrowing money predominantly for personal, domestic, or household purposes. The Consumer Credit Code gives borrowers certain rights and requires lenders to give borrowers information about their loan.
Conveyancing: The process of legally transferring property ownership from the seller name to the buyer.
Credit Reference or Credit Report: Before approval of a loan, most lenders will require a credit report on the borrower. Credit reports are prepared by authorised credit reporting agencies. The report sets out the credit history of the borrower.
D:
Debt Service Ratio: This is a measure of the borrower’s capacity to repay the loan.
Default: Failure to make a loan repayment by a specified date.
E:
Early Repayment Penalty: If a loan is repaid before the end of its term, lenders may charge an early repayment fee.
Equity: A home owner’s financial interest in a property. Equity is the difference between the price for which a home could be sold and the amount still owed on its mortgage.
F:
FID: (Financial Institutions Duty) State duty on payments made to financial
Fixed Interest Rate: You can choose to "lock in" your interest rate for a specific period of time. Fees may apply if you "break" this period, so ask the lender if they do.
G:
Guarantee: A promise to meet the obligations of a third party if that third party defaults.
Guarantor: This is the person giving the guarantee. Most lenders will require the guarantor to seek legal and financial advice before giving the guarantee.
H:
Honeymoon Rate: Some lenders offer a "discount" or introductory rate for a short time period. At the end of the "honeymoon" period, the interest rate normally reverts to the lender’s variable rate.
I:
Interest-Only Loan: A loan where only the interest is paid for an agreed term (usually a short period of one to five years) or during a construction period. The principle is then repaid over the remaining term of the loan by the conversion of repayments to Principle and Interest.
J:
Joint and Several Liability: When more than one person takes out a loan, most lenders require all the borrowers to be responsible for the loan if there is a default. This means that if anyone defaults the other borrowers are responsible for that person’s share of the loan.
L:
Lenders Mortgage Insurance: Insurance taken out by the lender to protect against the borrower defaulting.
Line of Credit Loan: A flexible loan arrangement with a specified limit to be used at a customer’s discretion. Lump sum and additional repayments can be made over and above your minimum repayment requirement.
Loan Agreement: The contract between the lender and the borrower which sets out the conditions that applies to the loan.
Loan Security Duty: Government stamp duty charged to register your mortgage.
Loan to Value Ratio (LVR): Measures the amount of the loan compared to the value of the property.
Lump Sum Payment: An additional payment made by the borrower to reduce the loan amount.
M:
Mortgage Duty: A government tax which is payable by the borrower on the borrower’s mortgage. The amount of the duty varies from state to state.
Mortgage Protection Insurance: Insurance taken out by a borrower to cover mortgage repayments in the event that they are not able to meet them through specific events such as serious illness or redundancy.
Mortgagee: The lender of money, and the party who has the benefit of the mortgage over your property.
Mortgagor: The borrower.
P:
Power of Attorney: A formal appointment where a person appoints another (the attorney) to act as their legal representative.
Principal: The amount outstanding on your loan. You pay the lender the interest on the principal.
Principal and Interest Loan: A loan in which both the principle and interest are repaid, over an agreed term.
Private Treaty Sale: A property sale where the buyer negotiates on a price set by the seller, rather than through the auction process.
R:
Redraw Facility: The component of your variable rate loan into which you can make extra repayments when you can afford to, and later draw on these funds if you need to.
Reserve Price: Preset minimum acceptable price of seller at auction.
S:
Search: An enquiry to confirm that a property vendor is in a position to sell that property. It also lists assigned debts against the property.
Security: An asset used to guarantee a loan, such as a house.
Settlement: The date on which loans funds are transferred from buyer to seller.
Settlement Date: Specific date at which buyer is to take possession of property upon finalising payment.
Signatory: Person authorised to access an account.
Stamp Duty: This is a State Government tax assessed on the selling price of the property. Tax varies from state to state.
Strata Title: Title that grants ownership of a section or a ‘unit’ of a larger building.
Survey: Plan that details a block of land noting the position of any buildings.
T:
Term: The length of a loan or a defined period within that loan.
Title Deed: Document disclosing the legal description and ownership of a property.
U:
Unencumbered: A property free of liabilities, encumbrances or restrictions.
V:
Vendor: The seller of a property.
Z:
Zoning: Local authority guidelines as to the permitted uses of land and buildings.
If your term or phrase is not listed, please contact us.
