Definitions of HOME Mortgage, Property Investment and Lending Terms

Acceptance:

To agree to the terms and conditions of an offer contract.

Additional Repayment:

Additional funds paid off your loan which exceed the minimum monthly repayments.

Amortisation:

Paying off the principal and interest of a loan over a period of time (Loan Term), usually by instalments.

Application fee:

A fee paid by a borrower to cover the costs of establishing a loan.

Arrears:

Overdue payments which are due to be paid.

Assets:

Items of value that you own, such as cash, shares, property, superannuation, furniture, etc.

Balance Sheet:

A financial statement confirming assets, liabilities and capital.

Balloon Payment:

The last payment to finalise a loan, the amount of which is substantially more than previous instalments.

Borrower:

An entity or person/s borrowing money.

Breach of Contract:

To break the conditions of a contract which have previously been agreed to.

Break Costs:

A fee incurred for paying out a loan balance on a fixed term loan before the term has expired.

Bridging Finance:

A short-term loan taken where the purchaser wishes to buy a new property before selling their existing property. The lender will take security over both properties until the initial property is sold. Higher interest rates may be charged for bridging finance.

Capital:

The current value of your assets, such as cash, property, shares, motor vehicles, etc.

Capital Gain:

The financial gain received when selling an asset for more than you initially purchased it for.

Capped Loan:

A loan where the interest rate is set so that it may reduce, but not exceed a certain level over an agreed period of time.

Cash Flow:

In relation to company accounts, reported net income plus amounts charged off for depreciation, amortisation and extraordinary charges to reserves.

Certificate of Title:

A document which details the ownership of land and the dimensions or other details of a property.

Commercial Property:

Property intended for use or occupancy by retail and wholesale businesses such as shops, office buildings, factories ans hotels.

Consumer Credit Code:

The Consumer Credit Code, or Uniform Consumer Consumer Credit Code (UCCC), is parliamentary legislation that is designed to protect the rights of the consumer by ensuring all lenders adhere to the same rules of lending practice.

Conveyancing:

A legal process to transfer ownership of property from the seller to the buyer.

Contract for Sale:

A contract used to transfer the ownership of property, which documents the conditions for the sale.

COSL:

The Credit Ombudsman Service Limited.

Credit Limit:

The maximum preset amount a borrower can use on a loan account.

Credit Reference or Credit Report:

In order to approve a loan, a lender will require a credit report on the borrower to confirm previous loans applied for or credit difficulties recorded. Credit reports are prepared by authorised credit reporting agencies, such as Veda Australia. The Lender obtains the borrower's permission in writing to proceed with a credit report.

Creditor:

A party who is owed money.

Daily Interest:

Interest calculated on a daily basis.

Debt Service Ratio:

Lenders calculate the Debt Service Ratio by taking into account a borrower's expenses as a proportion of their income.

Debtor:

A party who owes money to another.

Default:

Failure to make a loan repayment by a specified date.

Deferred Establishment fee:

A penalty which may be charged when a loan is repaid by the borrower in full.

Deposit Bond:

A deposit bond can be used as an interim substitute for a cash deposit. They are generally issued by an insurance company or financial institution. If the vendor accepts this bond, the purchaser would be required to pay 100% of the purchase price at settlement.

Direct Debit:

A deduction of funds from a customer’s bank, credit union or building society account.

Disbursements:

Fees and charges which are usually imposed by the solicitor when establishing a loan.

Discharge Fee:

A fee imposed by the lender to process the discharge of a loan when it is paid out.

Draw Down:

A draw down is the transfer of money from the lender to a borrower after the loan has settled.

Early Repayment Penalty:

If a loan is repaid before the end of its term, lenders may charge an early repayment penalty.

Equity:

The value which an owner has in an asset over and above the debt against it, the difference between the value of a property and the amount still owed on the mortgage.

Facility:

A term used to describe a loan account.

First Home Owners Grant:

An incentive from the Federal Government giving $7000 to first home buyers as a one off payment.

Fixed Rate:

An interest rate set for an agreed term, such as 2 or 3 years, so payments remain constant for this period.

Genuine Savings:

For our home loans that do require a minimum deposit, you will need to demonstrate genuine savings accumulated over a 3-6 months depending upon the lender. Genuine savings normally include:

Accumulated savings
Fixed Term Deposits
Sale of Shares
Proceeds from Real Estate Sale

Government or statutory charges:

All home loans and purchase/refinance of residential property attract government charges such as stamp duty and mortgage duty. These charges are determined by the relevant State government, and will vary from State to State.

Gearing:

Also known as ‘leverage’, gearing is a measure of the debt against the equity (ownership) you have in a property.

Guarantor:

A person giving a guarantee who agrees to pay another person/s debt if they default on their loan payments.

Government Fees:

All home loans and purchase of residential property will attract certain government charges at the time of settlement. For example, stamp duty and mortgage duty.

Gross Income:

Income before tax, superannuation or payroll deductions.

Home Equity:

Equity is the difference between the value of a home and the amount still owing on it. For example, if a property is valued at $350,000 and the owner owes $50,000 on their home loan, the equity is the difference, which in this case is $300,000.

Honeymoon Rate:

Some lenders offer a 'discount' or introductory rate for a short period of time. At the end of the 'honeymoon' period, the interest rate will usually revert to the lender's standard variable rate.

Interest:

A lenders charge for the use of funds or the return on deposited funds.

Interest Only Loan:

Under an interest only loan the borrower makes no principal repayments. The repayments are for the amount of interest only, which has accrued on the loan. Loans are usually interest only for a short period of around 1 to 5 years, before reverting to principal and interest repayments.

Interest Rate:

The rate at which interest is applied.

Joint Tenants:

Joint tenancy is the holding of property by two or more persons in equal shares. If one person dies, their share is transferred to the remaining joint tenants in equal shares.

Land Tax:

An annual tax levied by state governments, the rate of which is determined by the assessed valuation.

Liabilities:

A debt which one is liable for. Eg. Mortgages, personal loans, crdit cards etc.

Line of Credit Loan:

This is a flexible loan that allows you to have funds transferred to your cheque account when required.

Loan:

An advance of funds from a lender to a borrower on the agreement that the borrower pays interest on the loan, plus pay back the initial amount of the loan at or over an agreed time.

Loan Agreement:

The contract between the lender and the borrower which sets out the conditions that apply to the loan.

Loan to Value Ratio (LVR):

This ratio measures the amount of the loan, compared to the value of the security property. For example, if the property is valued at $250,000 and you borrow $200,000, the LVR would be 80% (200000 / 250000 x 100 = 80).

Lenders Mortgage Insurance:

Insurance taken out to protect the lender against losses on the loan, in case you default - it does not protect or cover the borrower. The cost of Lenders Mortgage insurance is paid by the borrower.

Loan Offer:

An offer of finance which sets out the full terms and conditions of the credit contract, including any special conditions you must satisfy before a lender will advance you the credit.

Lump Sum Payment:

An additional payment made by the borrower to reduce the loan amount. These payments are in addition to regular repayments.
Maturity: The date a debt or investment must be repaid.

Mortgage:

A form of security for a loan over property given to the lender for the repayment of the loan.

Mortgage Manager:

A company responsible for the day-to-day management of loan.

Mortgagee:

The lender of the funds.

Mortgagor:

The person borrowing money in the terms of the mortgage.

Net Income:

The income received by an individual after tax has been taken out.

Net Profit:

The profit remaining in a business after all expenses have been taken out, but before tax.

Notice of Termination:

Notice given either by a landlord or tenant that they want to end the rental agreement and vacate the property in compliance with the terms and conditions of the lease.

Offset Account:

An Offset Account is an ordinary transactional bank account, but rather than paying any interest it reduces the interest charged on your home loan. For example if the balance of your home loan is $250,000 and you have $2,000 in your Offset Account, then you will only be charged home loan interest on a balance of $248,000. Given that home loan interest rates are almost always higher than interest rates paid on deposits, this is an advantageous outcome.

Outgoings:

The expenses incurred in generating income – typically rates, insurance, repairs and maintenance and management fees.
Owner Occupied: Property that is lived in by its owners.

PAYG:

Abbreviation for Pay-As-You-Go, a taxation procedure for wage and salary earners under which income tax is deducted in instalments from periodic pay.

Pre-Approval:

A commitment from a lender, subject to property appraisal and other stated conditions. It confirms how much home money the lender will loan a borrower.

Principal:

The capital sum borrowed on which interest is paid during the term of the loan.

Principal & Interest Loan:

This is the most common type of loan. The loan is repaid in regular instalments which repay some of the outstanding loan balance (principal) as well as covering the interest each month.

Progress Payments:

If the property you purchase is under construction, progress payments may need to be made to the builder as the building is constructed.

Redraw Facility:

A loan feature that allows the withdrawal of funds from a loan, if the borrower has made additional repayments. Some loans will require a minimum amount to be redrawn and may charge a redraw fee, particularly when the withdrawal is made at a branch.

Refinancing:

This means that you switch your current loan from one lender to another.

Regulated Loans:

Loans which are considered for personal use and is governed by regulations of the Consumer Credit Code.

Rent Review:

A periodic review of rent under a lease using a predetermined method. It may be in line with the Consumer Price Index (CPI) or in accordance with a market valuation.

Residential Tenancies Tribunal:

Specialist bodies that exist in most Australian States and Territories to resolve disputes between landlords and residential tenants.

Residential Tenancy Database:

Used by real estate agents to identify tenants with a history of breaching tenancy rules.

Secured:

To take guarantee over property for purposes of protecting a loan.

Security:

An asset used to guarantee a loan.

Serviceability:

Ability of borrower to make and meet repayments on a loan based on the borrowers expenses and income(s).

Settlement:

Is the completion of the sale or purchase of a property. When the final payments are made at settlement, the lender will receive the signed transfer and the mortgage. The lender will hold the title deeds and the mortgage until the loan is repaid.

Settlement Date:

The date on which settlement takes place.

Signatory:

A person authorised to access an account.

Stamp Duty:

There are two types of Stamp Duty to consider:

Property Stamp duty is a state government tax which is payable when a property is transferred. It 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.
Mortgage Stamp Duty is payable on your mortgage in some states, it is calculated on your loan amount.
Standard Variable Rate: An interest rate, which is applied to a loan. These may have features such as redraw facility, construction, split loans options and mortgage offset.

Tenants in Common:

Two or more people who hold the property in specific shares. If one person dies, their share passes according to the terms of their will, and is NOT automatically transferred to the other property holders.

Term:

The length of a loan or a defined period within that loan.

Transfer:

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

Valuation:

A professional opinion of the value of a property.

Variable Interest Rate:

This is a fluctuating rate of interest charged by lenders. Variable interest rates rise and fall.