Home Loan Glossary.

Terms relating to home loans, property purchases and the mortgage industry.

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

A

Australian business number (ABN) A unique identifying number for all businesses in Australia that contains 11 digits.

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

Application fee A fee charged to cover or partially cover a lender’s internal costs of considering and processing a loan application. This fee sometimes needs to be paid upfront, however is generally paid from the loan funds at settlement. The fee is generally not refundable unless the loan is refused.

Arrears A payment which is overdue, that is, it has not been made by the due date.

Assets What an individual currently owns, such as real estate, savings accounts, cars, home contents, superannuation and shares.v

B

Balance sheet  A financial statement outlining the assets, liabilities and owner’s equity position can also be known as a ‘statement of financial position’.

Bankruptcy  Formal legal proceedings instigated to relieve a party unable to pay their debts of unpaid liabilities. You are declared bankrupt and can release you from most unsecured debts.

Basic variable rate loan  A loan with an interest rate that varies according to market forces. The interest rate charged is lower than a standard variable rate loan, but the loan may have fewer features.

Beneficiaries  A person (or entity) who is designated to receive the benefits of property owned by someone else.

Break costs Costs incurred when a fixed rate loan is paid off before the end of the fixed rate period, or when additional payments are made in advance. These are also sometimes called early exit fees.

Bridging finance Temporary finance to ‘bridge’ the gap between the time money needs to be paid out and money being received comes in. Typically used where a borrower wants to purchase a new property before selling their existing property.

C

Capital gain The monetary gain obtained when you sell an asset for more than you paid for it. Such gains may be taxable.

Cash back Lenders often use cash back as an incentive to refinance with them. Cash back gives you a refund once you’ve taken out your loan.

Cash flow forecast A financial forecast that details the expected monetary inflows and outgoings of a business or personal finance over a certain period.

Cash flow statement A financial statement that summarises money coming in (inflows) and going out (outgoings) over a specific past period.

Cash rate The interest rate that banks pay to borrow funds from other banks in the money market overnight.

Caveat A legal notice registered on a property title to indicate an interest or claim on the property by a third party. It’s often used to inform potential buyers or creditors about existing legal interests, such as pending legal actions.

Collateral An asset or property that a borrower pledges as security for a loan. If the borrower fails to repay the loan, the lender has the right to take ownership of the collateral to recover the outstanding debt. In the context of home loans, the property being financed is often the collateral.

Common law Where a legal outcome is decided primarily based on the principles of fairness and equity, in the absence of a specific written law.

Comparison rate An interest rate figure designed to help borrowers understand the true cost of a loan. It includes both the interest rate and most fees and charges that are applicable over the life of the loan. It helps borrowers compare different loan products more accurately.

Construction loan A type of loan specifically designed for financing the construction or renovation of a property. It provides funds in stages, allowing the borrower to pay contractors and suppliers as the construction progresses. Once the construction is complete, it may be refinanced into a traditional mortgage.

Contract of sale A legal agreement between the seller and the buyer of a property outlining the terms and conditions of the sale, including the purchase price, deposit, settlement date, and any special conditions. It’s a crucial document in the home buying process.

Conveyancing Process of transferring ownership of a property from one party to another.

Cooling off period A period of time in which you can get out of a contract for the purchase of goods or services, if you change your mind.

Credit score A numerical representation of an individual’s credit ‘rating’ calculated using the information contained in the credit report. Different credit reporting agencies use different rating scales.

Credit report A detailed record of an individual’s credit history, including their borrowing and payment habits. It’s maintained by credit reporting agencies and is often used by lenders to assess an applicant’s creditworthiness when considering a loan application.

Creditor An individual, financial institution, or organisation to whom money is owed. In the context of home loans, the lender (eg: a bank or mortgage company) is the creditor who provides the funds to the borrower for purchasing a home.

Cross collateralisation The act of using one asset as collateral to secure multiple loans or multiple assets to secure one loan.

D

Daily interest Daily interest is a method of calculating the interest on a loan. With this approach, the interest is calculated based on the outstanding loan balance each day. The advantage of daily interest is that it can result in slightly lower interest costs for borrowers because interest is charged on the reducing principal balance as payments are made. This differs from monthly interest calculations, where the interest is based on the loan balance at the beginning of each month.

Default Occurs when a borrower fails to meet their financial obligations or repay a loan in accordance with the terms and conditions specified in the loan agreement. This may include missing payments, not paying the full amount owed, or violating other terms of the loan. Defaults can have serious consequences, including legal actions and damage to the borrower’s credit.

Debtor A debtor is an individual or entity that owes money to another party. In the context of home loans and mortgages, the borrower who receives the funds to purchase a home becomes the debtor. The lender is the creditor, and the debtor is responsible for repaying the borrowed amount with interest.

Deposit An initial cash contribution towards the purchase of the property, usually payable on signing/exchange of contracts.

Depreciation An accounting term used to describe the reduction in the value of assets. An annual reduction in the value of assets is allowable under Australian tax law and would be declared as an expense to offset income for taxation purposes.

Direct debit  An automatic funds transfer from one account to another. You can set up a direct debit to make your home loan repayments.

Discharge  Release of a registered mortgage that was on the title of the property.

Discharge fee When a loan is paid out in full, your lender may charge you a discharge fee. This is in addition to any break costs. When you refinance, you are paying your lender out in full, so this fee type may apply.

E

Easement A legal right that allows someone other than the property owner to use a specific portion of the property for a particular purpose. Common examples include utility companies having easements to access and maintain their infrastructure on private property, or neighbours having an easement for a shared driveway. Easements are typically recorded in property deeds and remain with the property even if it changes ownership.

Encumbrance Any claim, liability, or restriction on a property that affects its value, use, or transferability. Encumbrances can include easements, liens, mortgages, and other legal claims that may limit a property owner’s rights. Potential buyers should be aware of any encumbrances on a property when considering a purchase.

Equity Indicates your financial interest in property or business enterprise. Your equity in your house is the difference between its market value and the amount you owe on the house.

Equity loan A loan that uses the equity in your property to borrow for any personal purpose, including personal investment. An equity loan usually operates like an overdraft, where the borrower has a set credit limit against which they can draw funds.

Establishment fee The fee charged by the lender to establish a loan. Also known as an application fee.

Extra repayments A feature available on your home loan, you can make extra repayments that will reduce your interest.

F

First home owner grant Various State Governments provide financial grants to assist first home buyers to meet the cost of purchasing their home.

Fixed interest rate Interest rate set for a fixed period. At the end of the fixed rate period which is usually 1 – 5 years most lenders will allow you to fix again at the current rates or revert to their standard variable rate.

Floating charge  A security interest over non-specified assets of a business.

Foreclosure  Process by which a lender takes possession of the security property to satisfy the debt for loans that are in arrears and where all attempts to rectify that loan have failed.

Freehold title Also known as fee simple title, represents the most complete form of property ownership. When a person holds freehold title to a property, they own it outright, including both the land and any structures on it. This ownership comes with the most significant bundle of rights, allowing the owner to use, modify, sell, or pass the property to heirs as they see fit. It’s in contrast to leasehold or other forms of ownership where certain rights are restricted.

G

Genuine savings  Funds that have been accumulate or held for a certain period before applying for a loan (min of 3 months).

Gifted funds Monies given to a borrower to help with a home purchase.

Guarantee  An agreement in writing to meet the financial obligations of another party if they fail to meet their contractual obligations.

Guarantor A guarantor is a third party to a loan and helps the borrower obtain finance by offering additional security. A guarantor may be liable for the loan debt if the borrower defaults.

H

Home equity loans Allows you to borrow money against the equity on your existing home to put towards a deposit to buy a new home or an investment property.

Home loan deposit The amount of money put into a bank account or left with a person or company to secure the purchase of a home.

Honeymoon period Initial period of a loan when the home loan interest rate is reduced. Generally for a fixed time – usually 1 to 2 months.

I

Income statement Representation of all income and expenditure of a business or person, usually for a 12 month period.

Inflows (monetary inflows) Money going into a business which could be from sales, investments or financing.

Insolvency The inability of a business or person to repay their debts even after the sale of assets.

Interest only A type of loan or mortgage payment structure in which the borrower is required to pay only the interest portion of the loan for a specified period, typically a few years. During this period, the borrower does not make any payments toward reducing the principal loan balance. Interest-only payments are usually lower than traditional amortised payments but can result in a balloon payment or increased payments when the interest-only period ends. This type of loan structure may be suitable for certain financial situations but should be approached with caution due to the potential for increased costs later in the loan term.

Interest rate The amount that a lender charges you for taking out a loan, typically expressed as an annual percentage of the loan balance.

Investment loan A loan provided to borrowers seeking to buy a property that will be rented out to generate income.

J

Joint tenants Equal holding of property between two or more people. If one party dies, their share passes to the survivor. This is a common arrangement for married couples.

K

L

Land titles office A state government body that is responsible for the maintenance of registers containing details of all property titles.

Lease A contract granting use of an asset for a certain period at a specified monthly rental.

Lender’s mortgage insurance A form of insurance taken out by the lender to safeguard against a financial loss in the event of a security being sold due to the loan going into default. The borrower pays a once-only premium. The insurance covers the lender, not the borrower.

Letter of demand A written communication, typically from a creditor or a person to whom a debt is owed, to the debtor. This letter formally requests payment of a debt and outlines the details of the debt, including the amount owed and a deadline for payment. It serves as a legal notice, indicating the intention to take legal action if the debt is not paid within the specified timeframe. Letter of Demand is often a precursor to debt recovery procedures and legal action.

Liabilities A person’s debts or financial obligations, including existing credit card debts and personal loans.

Line of credit A flexible loan arrangement where the borrowers can draw down and repay the loan as they choose within a specified limit.

Liquidation Refers to the process of winding up a business entity’s affairs, either voluntarily or through a court order, to settle its debts and distribute its assets. There are two primary types of liquidation: voluntary liquidation initiated by a company’s shareholders or members, and involuntary liquidation ordered by a court in response to insolvency or other legal reasons. The goal of liquidation is to realise the company’s assets, pay off creditors, and distribute any remaining assets among shareholders or members.

Loan document A comprehensive set of legal papers that outline the terms and conditions of a loan agreement between a lender and a borrower. These documents detail the specifics of the loan, including the loan amount, interest rate, repayment schedule, collateral (if applicable), covenants, and other obligations and rights of both parties. Loan documents include the promissory note, which serves as an IOU for the loan, and other agreements like the mortgage or deed of trust if the loan is secured by real estate. These documents are legally binding and serve to protect both parties’ interests.

Loan term The contractual period of a loan by when monies owed must be repaid.

Loan to value ratio The ratio of the home loan amount compared to the value of the security. Commonly called LVR. For example, for a loan of $270,000 on a home valued at $300,000, the LVR is $270,000 divided by $300,000 expressed as a percentage, i.e. 90%.

M

Margin Difference between the interest rate for the borrower and the cost of those funds to the lender.

Mortgage The legal agreement between a lender and a borrower that gives the lender the right to take the borrower’s property if they fail to repay the loan plus interest.

Mortgagee The party granting the mortgage, usually in exchange for providing funds. As known as the lender.  

N

Negative gearing  The ability to reduce tax liability based on substantiated losses against income – bearing investments, such as an investment property.

O

Off-the-plan purchase  A contract to purchase a property that is not yet built.

Offset account  A transactional account linked to the home loan. The balance held in this account ‘offsets; the balance in the home loan, helping to reduce the interest paid and the overall term of the loan.

Outgoings refer to the money that you spend on a regular basis. These can include a range of expenses, from fixed bills such as rent or mortgage payments, to variable costs such as grocery shopping or entertainment. 

Overdraft An authorised limit by which the account can be overdrawn, providing access to additional funds.

Owner’s equity A term used to determine the value of the business or person – the difference between what the business/person owns and what it owes.

P

Portability (Loan) portability is transferring the mortgage on the home you sell, to your next home.

Power of attorney (POA) A legal document that authorises an individual to act on behalf of another person, known as the principal. The person appointed with power of attorney can make legal and financial decisions, sign documents, and perform actions specified in the POA. This legal instrument can be general, granting broad authority, or limited to specific matters. It’s often used when someone is unable to handle their affairs due to illness, absence, or other reasons.

Pre – approval The home loan amount that a lender agrees in principle to offer you, subject to certain conditions.

Prime security  Provided to the lender to secure a loan

Principal The sum of money borrowed and therefore owed to a lender, excluding interest and other charges.

Principal and interest loan A loan in which both principal and interest are paid with each repayment during the term of the loan.

Progress payments A partial payment approach identified in a contract related to steps or phases toward the completion of the contract for goods or services.

Q

R

Redraw facility  A loan facility that allows a borrower to make additional repayments and then access those extra funds if necessary.

Refinancing  To replace or extend an existing loan with funds from the same lender or a different lender.

Renegotiate (home loans) A loan such as a home mortgage, that has been modified by the lender prior to its full repayment.

Rent-vesting A popular term used to describe buying an investment property while living in a rental property.

Registered mortgage debenture A security item registered at ASIC that details a charge over company assets.

Reverse mortgage This type of loan is aimed at retirees and allows them to take a loan as a lump sum and/or income stream, using the equity in their home.

S

Security  Another property which either you or your guarantor owns that guarantees the home loan. Steps can be taken by the lender to sell the security if you can’t repay the home loan.

Secured debt Those for which the borrower puts up some asset as collateral for the loan.

Settlement  Finalisation of a financial translation to start a loan. Documents and monies are exchanged to initiate the loan and formalise security.

Sequestration Refers to the legal process of taking possession of a person’s assets and property, known as their “estate,” in order to settle their debts. It is a form of bankruptcy or insolvency procedure, often used in the context of personal bankruptcy. Sequestration can be initiated by a debtor declaring themselves bankrupt or by a creditor seeking a court order to recover the debts owed to them by the debtor. The goal of sequestration is to fairly distribute the debtor’s assets among their creditors to satisfy outstanding debts.

Split loan  A loan that includes both fixed and variable components.

Stamp duty  A charge applied by State Governments for various transactions including the acquisition of property.

Standard variable loan A loan that has an interest rate that varies according to market forces. The loan usually has comprehensive features, such as offset and redraw facilities.

Strata title Also known as strata or strata scheme, is a form of property ownership that is common in multi-unit or multi-story buildings, including apartments. Under strata title ownership, individuals own their individual “lot” or unit within the building and jointly share ownership of common areas and facilities, such as hallways, elevators, and recreational spaces. Each owner is typically a member of a strata corporation or body corporate, which manages and maintains the common property and enforces rules and regulations to ensure the harmonious coexistence of residents.

Surplus  The money that’s built up from making extra mortgage repayments.

Survey A comprehensive examination, assessment, or investigation of a particular area, often conducted to gather data, obtain measurements, or create detailed maps or plans. A property survey involves the measurement and mapping of land boundaries, topographical features, and other relevant information to create an accurate legal description of the property. This helps in defining property boundaries, encumbrances, and easements, ensuring a clear understanding of the property’s characteristics and dimensions.

T

Tenants in common  A form of property ownership in which two or more individuals hold a shared interest in a property. Each co-owner, or tenant in common, has an undivided interest in the property, which may not necessarily be equal among the co-owners. In the event of the death of one owner, their share of the property can be bequeathed to their heirs through a will. Unlike joint tenancy, where the property automatically passes to the surviving owner(s), tenants in common have more flexibility in determining the distribution of their share.

Term The length of a loan or a specific portion of time within the loan.

Torrens title Also known as the Torrens system, is a land registration system to confirm and guarantee the ownership of real property. A government agency maintains an official register of land titles, recording all ownership details, encumbrances, and other relevant information. This system provides a high level of certainty regarding property ownership and simplifies the process of buying and selling real estate. A certificate of title issued under the Torrens system serves as conclusive evidence of property ownership.

Title search Search of records registered at the Land Titles Office (LTO) to conform interests in a particular property. A title search shows interest such as; proprietor, mortgagees and charges.

Transfer of land An instrument which authorises the LTO to record a change in property ownership.

Trust  An entity set up to own and distribute money and property to specified beneficiaries. A trustee is appointed to act as the administrator of the trust on behalf of the beneficiaries.

Trustee Any person or organisation that holds the legal title of an asset or group of assets for another person, called the grantor.

U

Unconditional approval  This is confirmation that your lender has approved your full home loan application and will lend you the money.

Unencumbered Refers to property or assets that are free from any liens, mortgages, or legal claims that could restrict or encumber the owner’s ability to use, transfer, or sell the property. When a property is unencumbered, it is owned outright without any financial obligations or restrictions. (Eg: a house with no outstanding mortgage is considered unencumbered, and the owner has full ownership rights and clear title to the property.) An unencumbered asset can be more easily used as collateral for loans or sold without the need to satisfy outstanding debts or legal claims.

Unsecured debt  Loans that are not backed by collateral.

V

Valuation An assessment of the current and/or future value of a property. Usually, the assessment will be of the property’s market value. Lenders generally require a professional to undertake some form of valuation of the property that is securing the loan.

Variable interest rate  An interest rate that moves up or down during the term of the loan in line with market forces. If you have a home loan with a variable interest rate, your repayments can change.

Vendor  A vendor is the person who is selling a property.

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