Here is a mammoth list of definitions and explanations of commonly used Australian financial terms and acronyms to help you cut through the jargon and make sense of your borrowing options.
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Account Fee: Many banks/lenders charge one-off and, in some cases, ongoing account keeping fees for mortgages.
Accrued Interest: Interest calculated but not yet added.
Agent: Someone who acts on behalf of another person or organisation. For example, a real estate agent acts on behalf of a landlord or owner when leasing or selling a property.
Amortisation period: Also known as the loan term. It’s the agreed length of time that a borrower has to repay a loan. It’s set during the application and approval process.
Application fees: The fees a lender charges to set up the loan. It’s generally to cover the lender’s internal costs. Not all banks/lenders charge an application fee so it is worth checking if the lender you choose is one that charges a fee. In some cases, lenders who do not charge a fee offer a higher interest rate.
Appraised value: The estimated value of a property being used as security for a loan.
Appreciation: The increase in the value of a property as a result of inflation and market conditions.
Arrears: An outstanding or overdue amount on a loan.
Assets: Property owned by the applicant. An asset is anything you own that is worth money, including any savings, stocks or funds. Money, property or goods owned.
Auction: A public sale where a property is sold to the highest bidder.
Basic or 'no frills' loans: Generally tend to be cheaper than package variable loans, however, these loans tend to be less flexible and offer fewer features, such as having a redraw facility but no 100 percent offset account.
Beneficiary: A beneficiary is a person selected to receive the income from a trust, estate, or a deed of trust.
Body corporate: The group of all of the unit owners within a strata building or strata complex. The owners elect a council responsible for the management of the building and it’s common areas.
Breach of contract: Breaking the conditions of a contract.
Break costs: The penalty charges for ‘breaking’ or ending a fixed term loan before the agreed date. If you have a fixed rate loan contract and you wish to break the contract before the period expires, you may incur a break fee.
Bridging finance: A loan used to cover the finance gap that can happen when a buyer purchases a new property before selling a previous one. Higher interest rates usually apply, and there is a time limit on full repayment of the loan.
Building inspection: An inspection of a property by a qualified building inspector. It is generally carried out prior to the purchase of an existing property, or at the construction milestones while building a new property, to ensure a building is structurally sound/meets building code requirements. Contracts of sale can and should include clauses requiring that a building inspection be carried out prior to settlement, with the sale subject to a satisfactory building inspection report, or consideration made to cover the issues identified by the inspection.
Building regulations: Legal or statutory rules set up by a local council to control the type and quality of buildings in its jurisdiction. The rules are generally designed to ensure public health and safety as well as acceptable standards of construction.
Building society: A financial institution owned by its customers or “members”. It offers banking and other financial services, including mortgage lending.
Capital gains: The financial or monetary gain obtained when an asset is sold for more than its original price. Usually, the profit you receive from selling the asset incurs capital gains tax, except on the sale of a home that remains exempt from this tax.
Capital gains tax: A federal tax on the monetary gain made on the sale of an asset bought after September 1985. The tax does not apply to the gains made on the sale of an owner-occupied residence, so it generally applies only to investment properties.
Caveat: A caveat lodged upon a land or property title indicates that a party, that is not the owner, claims some right over or interest in the property.
Caveat emptor: 'Let the buyer beware' - the principle that puts the onus on buyers to be satisfied with any item before buying.
Certificate of Title: A statement that identifies who owns the land and includes details of mortgages, easements, dimensions of the land and whether there are any obstructions on it. A record of all current information relevant to a particular property or piece of land, including:
- Current ownership details.
- Any registered encumbrances or caveats.
- Lot or plan details.
- A lender usually holds this document as security. Once the loan is fully repaid, the Certificate of Title is returned to the borrower.
Chattels: Chattels are items of personal property, such as clothing, appliances and furniture. In real estate terms, chattels are usually movable items which may be included in the sale, such as furniture.
Comparison rate: Since July 2003 all lenders and brokers must provide a ‘comparison rate’, by law. A Comparison Rate reveals the cost of a loan, allowing you to compare ‘apples with apples’ when choosing a loan. The Comparison Rate takes into consideration the costs associated with setting up a loan including the interest rate, the loan approval fee and any other up-front or ongoing fees. It excludes government fees and charges because they are standard across all loans.
Construction loan: If you are building a property, a construction loan allows you to draw money as required to assist with building costs.
Consumer Credit Code: is an Act of Parliament that governs the involvement between borrowers and lenders. Credit providers such as banks, building societies etc, must tell you what your rights and obligations are in any credit arrangement. They are required by law to truthfully disclose all relevant information about your arrangement in a written contract, including interest rates, fees, commissions and other information which in the past was often hidden.
Contract of Sale: A written agreement outlining the terms and conditions for the purchase or sale of a property.
Conveyance: The transfer of property ownership and changing the title of a property from the seller’s name to the buyer’s name. Also known as 'Settlement'.
Conveyancing: The legal process for the transfer of ownership of real estate. Also known as 'Settlement'.
Cover note: A guarantee of temporary property insurance before the implementation of a formal policy.
Credit: Borrowed money or other finance to be paid back under an arrangement with a lender.
Credit Bureau: Otherwise known as the Credit Reference Association of Australia or Equifax, where Lenders can obtain credit history information on applicants.
Credit union: A cooperative which operates similarly to a bank, but is owned and controlled by people who use its services.
Creditor: A person or organisation who is owed money.
Debtor: Someone who owes money to someone else.
Deed: Another word for Title. It’s a legal document that states all information regarding the ownership of a property or piece of land.
Default: Failure to abide by the terms of a mortgage or loan agreement - such as not making loan minimum required repayments. Defaulting on a loan may result in financial penalties and, in extreme cases, the mortgage holder taking legal action to repossess the mortgaged property.
Deposit: An amount paid by the buyer at the time of exchanging the contract for sale. It acts as a commitment to buy.
Deposit bond: A guarantee from a financial institution that a deposit will be paid to a seller. It’s useful for buyers with savings in a term deposit because it can be offered at the time of exchange – instead of a cash deposit. Which means the buyer doesn’t have to break the term deposit and lose any interest accrued. The buyer must pay the full purchase price of the property, including the amount of the deposit, at settlement. In the event that a buyer does not settle on the property, the seller will be paid the deposit amount by the financial institution.
Depreciation: A decline in the value of a property or an asset.
Direct debit: Regular electronic debiting of funds from a nominated cheque or savings account.
Disbursements: Miscellaneous fees and charges incurred during the conveyancing process, including search fees and charges paid to government authorities.
Discharge fees: An administration fee to cover the costs incurred in closing/terminating a loan account.
Discharge of Mortgage: A document signed by the lender and given to the borrower when a mortgage loan has been repaid in full.
Disposable income: A person’s remaining income after all known expenses, such as loan payments and bills, have been met.
Drawdown: To access available loan funds. Drawdown usually refers to a construction loan or a line of credit. That is a loan where the limit is set, but the amount is not accessed all at once. The borrower draws down or uses the funds as required, up to the set limit.
Easement: A right to use a part of land owned by another person or organisation, for example, to access another property.
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. For example - if a home is worth is $450,000 and the loan value is for $200,000 then the equity amount is $250,000.
Establishment fees: Fees charged by a lender to cover the cost of setting up a loan.
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.
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. Read more on the Department of Treasury and Finance website.
Fittings: Items not intended to be removed from a property when it’s sold, for example, fixed carpets, lights, curtains and stoves.
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 5 years.
Fixtures: These are items that are likely to cause damage to a property if they are removed. It pays to check what the sale contract specifies but these items usually stay with the property when it is sold.
Freehold: Complete ownership of a property and the land that it’s built on.
Guarantee: A contract to pay someone else’s debt if they don’t pay it, or a form of security in which another party promises to repay a loan if the borrower fails to repay.
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.
Home Appraisal: A written analysis of the estimated value of your home.
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 Equity Loan: This is a loan that assesses the amount of home equity you have and based on that, offers a line of credit that can be used to invest in a property or to renovate for example.
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.
Honeymoon Rate: Also known as ‘Introductory Rate’, this is when lenders offer a very cheap interest rate, usually for a one year period.
Instalment: The regular payment that a borrower agrees to make to a lender.
Interest: This is what lenders charge you for the use of their money.
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 rate: A loan offered to new borrowers at a reduced rate for an introductory period - usually 12 months. It’s also called a discounted or honeymoon rate. NOTE that this rate then increases to the higher variable rate at the end of the introductory or honeymoon period.
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.
Joint tenants: The equal holding of a property between two or more people, where if one party dies, then the ownership of their share passes to the survivor or survivors.
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: As the name suggests, a lender is a bank, building society, credit union or a specialised home lender that lends money.
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 and the borrower still owes the lender the outstanding debt. Read more in our FAQ section. Note this is not the same type of insurance as 'Mortgage Protection Insurance'.
Liabilities: A person’s debts; what they owe.
Lien: The right to hold property
Line of Credit: A loan with a specified ceiling, much like a credit card. 'Line of Credit' is also known as an equity home loan, and is when the lender assigns a credit limit secured against your property. When you need cash you can draw against that limit, either by writing a cheque or using a linked debit card. As you pay back the loan (the terms of repayment vary), the money becomes available to you to use again. It can be useful where user discretion is well-informed.
Loan Maintenance Fee: A loan management fee charged over the life of a loan.
Loan Portability: Allows the borrower the option of keeping their existing loan but changing the property that secures it. For example, a borrower may sell their current home, and purchase a new home, and simply transfer the existing loan to the new home.
Loan Valuation Ratio (LVR): The ratio of the amount borrowed compared to the value of the secured property. It is a tool used to measure the strength of a loan. It is usually expressed as a percentage, for example, a loan of $300,000 on a home valued at $400,000.
The formula is: LVR = Property Price multiplied by 100 which in this case is $300,000 multiplied by 100 and then divided by $400,000 equals 75% LVR.
Lump sum repayments: Additional ad hoc repayments, made over and above the minimum loan repayment required.
Maturity: The date when a loan must be repaid in full.
Maximum loan amount: The maximum amount that can be borrowed. It’s based on a borrower’s personal circumstances that include, but are not limited to, their disposable income, deposit amount saved, living and loan expenses and the purchase price of the property.
Minimum loan amount: The minimum amount that can be borrowed.
Minimum repayment required: The amount a borrower is contractually obliged to pay each month, in order to repay a loan within an agreed term.
Mortgage: 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 home loan.
Mortgage Broker: A person or organisation offering to organise or sell loans on behalf of a group of lenders.
Mortgage Insurance: See Lenders Mortgage Insurance.
Mortgage offset account: A savings account linked to a home loan. The interest earned by the money in the savings account offsets - or reduces - the interest due on the home loan. A 100% offset is where the interest rates earned and paid are the same. A partial offset account is where the interest earned on the offset account is only a portion of the rate paid on the home loan.
Mortgage Protection Insurance: This insurance covers loan repayments should a borrower become sick, injured or redundant and unable to work. It is also called income protection insurance. This insurance covers the borrower, not the lender. Also known as income protection insurance, this insurance is often recommended as it covers you if you are unable to meet repayments due to serious illness or redundancy. Note this is not the same type of insurance as 'Lender's Mortgage Insurance'.
Mortgage registration fee: A State Government charge for the registration of a loan. Because the property acts as security for a home loan, the government requires a home loan to be registered so that all claims on a property can be checked by any future buyers of that property.
Mortgagee: The lender of the funds.
Mortgagor: The person borrowing the money.
Overcapitalising: This occurs when you spend more money on your home than you are likely to get back if you sell the property.
Passed in: A property is ‘passed in’ at auction if the highest bid fails to meet the reserve price set by the seller.
Portability: Allows a different property to be substituted as security for an existing loan. Useful if you are buying a new home but don’t want to set up a new mortgage.
Prepayment: A payment made before the due date of the loan or in addition to the minimum repayment. This can sometimes incur a penalty fee so be sure to check the terms and conditions of the loan.
Principal: The amount owing on a loan, on which interest must be paid, or the capital sum borrowed on which interest is paid.
Principal and Interest loan: A loan in which both the principal and interest are repaid, during the agreed term of the loan. A loan where both the principal and interest are repaid together over the life of the loan.
Re-amortise: To recalculate the minimum repayment required to repay the outstanding balance of a loan over the remaining period. This generally happens when:
The loan term is extended or
The loan amount has significantly increased or decreased compared to the original loan amount.
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. A loan facility where you can make additional payments on a loan with the option of accessing this money if it is needed in the future.
Refinance: To switch mortgage providers and arrange a new loan for the same property.
Reserve price: At an auction, this is the minimum price acceptable to the seller of a property.
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 the 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 the 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.
Strata title: The most common title associated with townhouses and home units. It acts as evidence of a unit’s ownership. In a strata plan, individuals each own a small portion of a strata building such as a unit – which is identified as 'lot' on the title. All owners in a strata plan share common property such as external walls, windows, roof, driveways, foyers, fences, lawns and gardens.
Tenants in common: A form of agreement often used when friends or family purchase a property together. It details the equal or unequal holding of property by two or more people. If one person dies, their share passes according to their Will or the law, rather than to the owner of the other share.
Term: The duration of a loan, or a specific period of that loan. It can sometimes be written in months, for example, 360 months equals 30 years.
Title: A document that gives evidence of ownership of the property. It also indicates the rights of ownership of the property.
Title deed: Document disclosing the legal description and ownership of a property.
Title fees: Charged by a state or territory’s Titles Office for title searches, property ownership transfers, the registration of new mortgages and the discharge of old ones.
Transfer: A document registered with the Titles Office that confirms the change of ownership or a property.
Valuation: A report which gives professionals opinion on the value of the property. The valuation can be more or less than the purchase price.
Variable rate: An interest rate that goes up or down as determined by the Lender.
Variation: A change to any part of a loan contract.
Zoning: Statutory descriptions of the allowable uses of land as set out by local councils or planning authorities.
Phew! What a list!
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