+ A

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).

+ B

Bona-fide - Genuine and above board.

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.

+ C

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 report - A report outlining an individual’s credit history, public records and any credit black spots.

+ D

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.

+ E

Encumbrance - An outstanding liability or charge on a property.

Equity - The amount of a property actually “owned” by the owner. It’s the current value of a property less the amount still owed on its mortgage. Equity usually increases as the principal of the mortgage is paid off. Market values and improvements to the property can also affect equity.

Establishment fees - Fees charged by a lender to cover the cost of setting up a loan.

Exit or early repayment fees - Penalties charged by some lenders when a loan is paid off before the end of its term.

Extra repayments - These are regular additional repayments on a home loan account, above the minimum required repayment, which can reduce the term of the loan and the interest payable.

+ F

First Home Owners Grant - A grant from the Federal and State Governments. It was introduced as compensation for the increased cost of housing after implementation of the Goods and Services Tax (GST) on 1 July 2000. It’s only for buyers that have not previously bought property in Australia.

Fixed rate - An interest rate that applies to a loan for a set term. Both the interest rate and loan repayments are fixed for the agreed term, regardless of any interest rate variations in the home loan market. The agreed term is usually anywhere between 1 and 7 years.

Freehold - Complete ownership of a property and the land that it’s built on.

+ G

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.

Guarantee - A contract to pay someone else’s debt if they don’t pay it. Guarantor - A person or organisation that agrees to be responsible for the payment of a loan - if the actual borrower defaults or is unable to pay.

+ H

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.

Home equity - The amount of a property actually “owned” by the owner. It’s the current value of a property less the amount still owed on its mortgage. Equity usually increases as the principal of the mortgage is paid off and when property market values increase.

Home loan - The funds borrowed to purchase a property. The property acts as security for repayment of the loan. The lender holds the title or deed to the property. It’s also known as a mortgage.

+ I

Instalment - The regular payment that a borrower agrees to make to a lender.

Interest - The amount charged for the money borrowed from a lender.

Interest only loan - A loan where only the interest is paid for an agreed term, usually 1 to 5 years. The principal is then repaid over the remaining term of the loan by the conversion of repayments to principal and interest.

Interest rate - The percentage of the loan amount, used to calculate the interest to be paid for a loan.

Introductory loan - A loan offered to new borrowers at a reduced rate for an introductory period - usually 6 to 12 months. It’s also called a discounted or honeymoon rate.

Investment property - A property purchased for the sole purpose of earning a return, either in the form of rent or capital gain. The owner does not live in the property.

+ L

Lease - An agreement between a property owner and a tenant. It allows the tenant to occupy and use a property for a set period in exchange for a set rent.

Lender's Mortgage Insurance (LMI) - Insurance which covers the lender if a borrower defaults on a loan and the sale of the property doesn’t cover the outstanding debt. It’s usually required for the loans the lender considers more risky. For example, when the amount borrowed is over 80% of the property value. Only the lender is covered by this insurance. It offers no protection to the borrower.

Line of credit loan - A flexible loan arrangement with a specified limit to be used at a customer’s discretion.

Lump sum repayments - Additional ad hoc repayments, made over and above the minimum loan repayment required.

LVR - Abbreviation for the term Loan to Value ratio. It is the percentage of the loan amount compared to the value of that property. So if a house is worth $160,000, and the mortgage is $100,000, then the LVR is 62.50%. Most lenders require a borrower to take out Lender's Mortgage Insurance if the LVR is 80% or more.

+ M

Mortgage - A loan for the purpose of purchasing a property, where the property is used as security.

Mortgage foreclosure - Where the lender forces the sale of the property held under the deed of mortgage in order to recoup unpaid monies owed under the terms of the agreement.

Mortgagee - The lending institution.

Mortgagor - The borrower (you).

+ N

National Consumer Credit Protection - Australian legislation covering consumer protection and consumer rights.

Non-conforming loans - Designed for those who find it more difficult to meet the borrowing conditions of standard loans.

+ O

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.

+ P

Principal - The amount of capital borrowed.

Principal & Interest loan - A loan in which both the principal and interest are repaid, during the agreed term of the loan.

+ R

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.

Redraw facility - A component of a variable rate loan which enables a borrower to make extra repayments on the loan but later redraw this money if needed.

+ S

Searches - Research carried out, prior to the settlement of the property, to confirm information about the property. Searches are usually arranged by a solicitor.

Security - An asset that a borrower gives a lender the rights to - so the lender can be confident of getting the money back, one way or another if the debt is not re-payed as per the loan agreement.

Settlement - There are generally two types of settlement that happen with most property purchases: * Settlement of the property is when the balance of the purchase price is paid to the seller. The buyer receives the keys and becomes the legal owner of the property. * Settlement of a loan coincides with settlement of the property. It’s when the lender transfers the borrowed funds to the seller or the seller’s mortgage holder.

Split loan - Generally a loan that is part variable and part fixed, but it can also be a loan with multiple variable parts. Borrowers wanting to use equity in a property to invest in the share market may make “multiple variable splits” to better track the return on their investment.

Stamp duty - A State Government tax based on the purchase price of the property. It’s also payable on mortgages in some states. Each state and territory has different rules and calculations. To estimate the amount of stamp duty you may have to pay, use our stamp duty calculator.

+ V

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 lender sentiment.

Vendor- The person who is selling the property.