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Mortgage

Application fee

The fee paid when a new loan is set up

Basis point

A unit of measure used to describe the percentage change in value. One basis point equals 0.01% e.g. 25 basis points is the same as 0.25%

Break cost

A fee which may be payable if you pay out your fixed rate loan or switch to a variable rate before the fixed rate period ends

Bridging finance

A loan to cover the shortfall in funds when you settle a purchase of a new home before you settle on the sale of your existing home (generally temporary and short-term)

Co-borrower

When two people sign a loan they are co-borrowers. Both parties are then jointly and separately liable for repaying the full amount owing.

Comparison rate

Usually higher than the advertised rate, the comparison rate is adjusted to take into account lenders fees and charges over the term of the loan so can be used to ‘compare’ loans between lenders. However, comparison rates are currently calculated on a $150,000 loan over a 25 year term, so the true comparison rate for your particular loan may be different.

Conditional approval (also known as approval in principle)

Conditional approval from a lender gives you an indication of how much you can borrow based on the information you provide. It is recommended you gain conditional approval prior to purchasing a property.

Construction loan (also known as a building loan)

A loan designed for building a new home or major renovations that allows borrowers to draw down funds to pay builders and tradespeople as the building project progresses

Credit limit (also known as facility limit)

The maximum amount that can be borrowed under the current loan contract

Credit reference (also known as a credit report)

A report from an authorised credit reporting agency which shows your credit history. Lenders need your permission to obtain this.

Drawdown date

The date you use your loan funds for the first time

Equity

The part of a property that belongs to the individual, not the bank (i.e. the value of the property, less the outstanding loan amount)

Fixed interest rate

An interest rate that stays the same for a set period, usually 1, 2, 3 or 5 years. This also ensures interest repayments remain the same for the period.

GST

Goods and Service Tax (GST) is a tax of 10% that applies to most goods and services sold or consumed in Australia.

Guarantee

A legally binding guarantee undertaken by a third party (usually a parent or member of the immediate family) to take responsibility for the payment of your loan if you’re unable to

Guarantor

A third party (usually a parent or member of the immediate family) who agrees to be responsible for another person’s mortgage in case of default

Honeymoon rate (also known as an introductory rate)

A lower interest rate offered at the start of your loan (often for the first 12 months) which reverts to a standard variable rate after the honeymoon period ends

Interest in advance

Interest charged on a loan at the beginning of the time period e.g. when interest to be accrued over the year is charged at the beginning of the year

Interest in arrears

Interest charged on a loan at the end of a set time e.g. when interest accrued in the current month is charged at the end of the month

Interest Only (IO) repayments

A repayment structure where a borrower defers the repayment of their loan principal for an agreed period of time and only pays the interest accrued. Once the agreed interest only period ends, the borrower must start repaying the principal as well.

Introductory rate

See Honeymoon rate

Investment loan

A loan used for investment purposes (such as the purchase of an investment property or shares). It typically has a higher interest rate and may be less flexible than an owner-occupied loan.

Lenders mortgage insurance (LMI)

This is an insurance payment which covers your lender in case you can’t make your repayments. It is usually required for home loans with a loan to value ratio (LVR) above 80% and can be added to the loan amount.

Lenders agreement (also called a Facility agreement or Letter of offer)

The contract between you and your lender which sets out the terms and conditions of your loan

Line of credit

A line of credit allows qualifying borrowers to draw money up to a pre-set maximum limit as required for a set period of time. Interest is only charged on the amount drawn down and once the funds and interest are paid back, the money is usually available to be borrowed again.

Loan term

The length of your loan – usually 15, 20 or 30 years

Loan-to-Value Ratio (LVR)

The loan amount divided by the appraised value of the property

Loan top up

An increase in the amount of an existing loan

Lump sum payment

An unscheduled extra repayment made to your loan

Monthly service fee

A fee you pay each month on your loan account

Mortgage

A loan from a bank or lender allowing you to finance the purchase of a home, where you use the property as security for the loan. Mortgage also refers to the document that states the property is security for the money borrowed to purchase it.

Mortgagee

The lender – the organisation who lends the money and holds the mortgage as security

Mortgagor

The borrower – the individual or entity who must repay the loan, and who gives the lender a mortgage as security

Mortgage broker

A person who has an established network of lenders, who can advise borrowers on the right type of loan and help them to arrange the loan

Mortgage protection insurance

An insurance that covers you in the event that you are unable to meet your mortgage repayments in the event of death, sickness, unemployment and disability.

Offset account

A savings account linked to a mortgage to ‘offset’ the loan principal by the amount in the account. This has the effect of reducing interest payable on the mortgage.

Owner occupied loan

A loan used for the purchase of a property that the borrower intends to live in themselves. These loans tend to have a lower rate and more loan options than investment loans.

Prepayment

Any extra loan payments you make on top of your scheduled minimum repayments.

Prepayment penalty fee (also known as a break cost)

See Break cost

Principal

This is the initial loan amount. It also refers to the amount still owing on your loan. Interest on a loan is calculated on the amount of principal remaining.

Principal and Interest (P&I) repayments

A repayment structure where you repay the interest as well as some of the principal in each repayment

Property value

Your property value as determined by your lender. Your lender may use your property’s purchase price, get an external valuer or do their own valuation to determine the property value.

Rate lock

This allows you to lock in a fixed interest rate quote for three months when your loan is approved. If interest rates go up before the loan drawdown date, you’re guaranteed the original rate.

Redraw facility

A loan feature that lets you easily withdraw money from any extra repayments you may have made onto your loan.

Refinancing

This involves paying off an existing loan and setting up a new one with a different lender. You may choose to do this if your existing lender can’t offer you the rate or loan features you require.

Repayment

The amount your loan contract says you must pay the lender at an agreed time (usually fortnightly or monthly).

Repayment holiday

If you are ahead in your repayments, you may be able to apply for a break or ‘holiday’ from your repayments.

Security

An asset such as a property or a term deposit that can be used to secure your loan

Split loan

When you divide your loan into multiple parts (usually two). You may choose to do this so that a portion of the loan has a fixed interest rate and the remainder has a variable interest rate.

Term

See Loan term

Term deposit

A type of savings account where the size of the deposit, the interest rate and the length of time the money is deposited for are all fixed. Typically used to earn more interest on savings as the interest rate is often slightly higher than for money in an everyday bank account.

Top up

See Loan top up

Variable interest rate

An interest rate that can move up or down. Movement is often based on the official cash rate, but it can also be moved at the lender’s discretion. Your minimum repayments will change in line with the variable rate determined by your lender.

Variation

Changes to an existing loan with the same lender such as a loan split or product switch.


Property

Agent’s commission

The fee paid to the real estate agent for selling the property

Appraised value

Estimate of the value of a property being used as security for a home loan. Used by lenders in calculating the loan parameters.

Appreciation

An increase in value of an asset, such as an existing property or block of land

Body corporate (also known as owner’s corporation)

The owners of units or townhouses within a strata building form the body corporate. This group, which is a legal entity, elects the Strata Committee to manage the block and maintain common areas.

Capital gain

Profit from selling an asset at a higher market price than it cost

Capital gains tax

A federal government tax on the monetary gain made on the sale of an asset bought and sold after September 1985.

Caveat

Notification placed on a title to warn any purchaser that someone else holds an interest in the property. This ensures it is not sold without the consent of this third party.

Caveat emptor

Latin for ‘let the buyer beware’. In other words, the buyer has the responsibility to examine the goods being purchased

Certificate of title

Records ownership of a piece of property

Cooling-off period

The amount of time either the buyer or seller has to change their mind in a private sale. This may not apply if a property is bought or sold at auction or if a 66W certificate is signed.

Common property

A part of the property that is for the use of all tenants or owners

Conveyancer

A conveyancer is an expert who represents a buyer or a seller during the home transfer (conveyancing) process.

Conveyancing

The legal process of transferring ownership of a property from the seller to the buyer

Deposit guarantee (also known as a deposit bond)

A substitute for the cash or cheque deposit required when signing the contract of sale on a property

Equity

The part of a property that belongs to the individual, not the bank (i.e. the value of the property, less the outstanding loan amount)

Exchange of contracts

When the buyer and seller swap signed contracts of sale. This is the point where a deposit is paid by the buyer and the sale becomes legally binding for both parties.

First home owner grant (FHOG)

A national grant funded by the states and territories that is given to eligible first home buyers to assist them in purchasing a home

Fittings

Items that can be removed from the property, such as furniture

Fixtures

Items that are part of the property, such as baths, dishwashers and built in cupboards

Freehold (also known as Torrens title)

This indicates that the dwelling and the land it sits on are owned indefinitely by the owner

Government charges

Charges imposed by the government. In regards to property, this includes stamp duty and mortgage registration fees.

Holding deposit

A refundable deposit that indicates the buyer’s intention to go ahead with the loan. It is not legally binding and does not secure the property for the buyer.

Home equity loan

When a borrower has equity in their home, they may use this as security for a new loan. You can typically borrow approximately 80% of the value of your equity. You may be able to use a home equity loan to fund the purchase of an investment property or renovations.

Inclusions

Items included in the property, such as light fittings, which should be listed in the contract

Land tax

An annual tax paid to the state government calculated according to the value of the property – each state or territory is different.

Lenders mortgage insurance (LMI)

This is an insurance payment which covers your lender in case you can’t make your repayments. It is usually required for home loans with a loan to value ratio (LVR) above 80% and may be added to the loan amount.

Mortgage

A loan from a bank or lender allowing you to finance the purchase of a home, where you use the property as security for the loan. Mortgage also refers to the document that states the property is security for the money borrowed to purchase it.

Mortgagee

The lender – the organisation who lends the money and holds the mortgage as security

Mortgagor

The borrower – the individual or entity who must repay the loan, and who gives the lender a mortgage as security

Mortgage broker

A person who has an established network of lenders, who can advise you on the right type of loan and help you to arrange the loan.

Mortgage insurance

See Lenders mortgage insurance (LMI)

Owner-occupied

This means the purpose of property you own is that it is for you to live in, rather than rent out to a third party

Negative gearing

An investment property is negatively geared if the rental return is less than the expenses of the property (such as interest repayments, agency fees and other property-related expenses). This net loss can be offset against any other income earnt to reduce the taxable income and how much tax is paid.

Off-the-plan

Buying a property prior to construction taking place

Option

This is a legally binding agreement where a purchaser may reserve a property for a period of time under mutually agreed terms, usually by making a deposit. Depending on the terms, the buyer may be able to walk away from purchasing the property if the deal doesn’t work out, although they typically forfeit the deposit and may have other financial penalties.

Over-capitalising

When the cost of renovations is greater than the value it adds to a property, and the costs will not be recouped if the property is sold

Passed in

When a property fails to sell at auction, it is ‘passed in’ at the highest bid.

Portability

The ability to ‘move’ a loan from one security (usually a property) to another, which can be helpful when selling and buying a new home.

Private treaty sale

This occurs when a real-estate agent finds a buyer for the property without going to auction

Property value

Your property value as determined by your lender. Your lender may use your property’s purchase price, get an external valuer or do their own valuation to determine the property value.

Purchaser

The party buying a property for sale

Reserve price

The minimum price that the vendor will sell the property for at auction

Semi-detached

A house that shares a common wall with another house

Settlement

When settlement occurs, the purchaser pays for the property in full in exchange for title documents, keys and the right to take possession.

Stamp duty (also known as transfer duty)

Stamp duty is a tax you pay to the state or territory government when you purchase a property, calculated according to the sale value.

Strata title

Most units or townhouses have a strata title. This means that there are multiple owners of properties on one piece of land. Each individual owns their particular unit or townhouse (the lot) and has shared ownership of the common property, such as driveways, foyers and gardens.

Title deed

Formal documents signifying ownership of a property

Torrens title (also known as freehold)

The system of title where the purchaser owns the dwelling and the land it sits on indefinitely. Most land in Australia, where owned by an individual, is Torrens title.

Transfer duty

See Stamp duty

Valuation

A report arranged by the lender to ascertain the value of your property, usually determined by a valuer.

Vendor

The party offering a property for sale

Zoning

Used by local authorities to control the way a property in that area must be used, such as residential, retail or commercial.