Home Loan and Real Estate Glossary

Home Loan Glossary A

Accrued Interest
Interest you have earned or incurred that is yet to be paid or charged.
Additional Securities
An asset that guarantees the lender their loan until the loan is repaid in full. Usually the property is offered to secure the loan.
Additional Repayment
Extra funds paid into the loan in addition to the minimum monthly or weekly repayments. These extra funds reduce the term of the loan.
Adjustments
The process of allocating expenses, e.g. council rates, water rates, gas rates, electricity rates, etc.
Agent
Someone who acts on behalf of another person or organisation.
Amenity
A feature of the hme or property that serves as a benefit to the buyer, but is not necessary to its use. May be natural (like location, parks, water) or man-made (like a swimming pool or garden).
Amortisation Period
Repayment of a Home Loan through monthly instalments of principal and interest. The monthly repayment amount is based on a schedule that will allow you to own your home at the end of a specific time period, (e.g. 15 or 30 years). Also known as the loan term.
Application Form
The first step in the home loan approval process is to complete the loan application; this form is used to record important information about the potential borrower necessary to the underwriting process.
Application Fees
Fees charged to cover or partially cover the lender’s internal costs of setting up a loan.
Appraisal
A document that gives an estimate of a property’s fair market value appraisal is generally required by a lender before the expiry of the fixed-rate period.
Arrears
The total of overdue loan repayments.
ASIC
Australian Securities and Investment Commission.

Home Loan Glossary B

Body corporate

All the unit owners within a strata building. The owners elect a council responsible for the management of the building and it’s common areas.
Bridging Loans
A short-term loan often used to cover a finance gap between the purchase of a new property and the sale of an old property. Higher interest rates are usually charged for this form of finance.
Building inspection
An inspection generally carried out prior to the purchase of a property to ensure the building is structurally sound. Contracts of sale can be made subject to a satisfactory building inspection.
Building Regulations
Rules of a legal or statutory nature by which local councils control the manner and quality of buildings. They are designed to ensure public safety, health and minimum acceptable standards of construction.
Buyers’ Agent
Person who acts on behalf of the buyer to find and negotiate on properties the buyer wishes to purchase.

Home Loan Glossary C

Capital
The current value of your long-term assets.
Capital Gain
The monetary gain obtained when you sell an asset for more than you paid for it.
Capital Gains Tax
A Federal tax on the monetary gain made on the sale of an asset (excluding your primary residence) bought and sold after September 1985.
Capital Growth
The positive increase in value of an asset or investment ie the difference between the current value and the original purchase price.
Capitalised Interest
Interest payments which are added to the principal of the loan.
Capped Loan
A loan where the interest rate is not allowed to exceed a set level for a period of time. Unlike fixed-rate loans, the interest rate is allowed to drop.
Caveat
Latin for “beware”. A notice of warning given to a public authority. Usually a caveat is in the form of a contract clause that stipulates a particular requirement.
Certificate of Title
A document that details the land dimensions and identifies the ownership of land. It shows who owns the land and whether there are any mortgages or other restrictions on it. This document (if issued) is usually held by the lender as security for a loan.
Charge
The term used to describe any right established over a borrower’s property to secure a debt or performance of an obligation.
Chattels
Personal property. There are two types. Real chattels are buildings and fixtures, while personal chattels are clothes and furniture.
Cluster Housing
A group of houses that share common space.
Collateral Security
Additional or supporting security given in addition to the principal security.
Commission
The fee payable to an “agent” for services.
Company Title
A property title that applies when owners of units in a block form a company.
Comparison Rate
Since July 2003, all lenders must disclose a benchmark comparison rate in their advertising of Home Loans and personal loans. This comparison rate is designed to reflect the total annual cost to a borrower of a loan. It wraps up interest payments and fees and expresses all these costs in one rate, or the average annual percentage rate (AAPR).
Compound Interest
Interest that is paid on both the accumulated interest and the original principal.
Consumer Credit Code
An Act of Australian Parliament governing the relationship between borrowers and lenders. The legislation is designed to protect the rights of the individual by ensuring finance institutions adhere to the same rules when providing personal, domestic or household credit.
Contract of Sale
A written, legally enforceable agreement outlining the terms and conditions for the purchase or sale of a property.
Conveyance
The transfer of ownership of a property from the seller’s name to the buyer’s name.
Conveyancing
The legal process for the transfer of ownership of real estate.
COSL
Credit Ombudsman Service Limited.
Covenant
Terms and conditions that specify the usage of a block of land or the buildings on the land.
Cover Note
A guarantee of temporary insurance before the implementation of a formal policy
Credit History
A history of an individual’s debt repayment. Lenders use this information to gauge a potential borrower’s ability to repay a loan.
Credit Limit
The maximum amount of credit the borrower can use at any one time.
CRAA
CRAA is a term often used by Brokers and Lenders. CRAA became “Credit Advantage Limited”, then Baycorp Advantage and then Veda Advantage and My Credit File. Veda Advantage is the company which records and holds credit information on everyone in Australia.

Home Loan Glossary D

Daily Interest
Interest calculated on a daily basis therefore varies according to daily account balance.
Debt Service Ratio (DSR)
Maximum of a loan applicant’s weekly, fortnightly or monthly wage which will support loan repayments over the agreed loan term. Usually expressed as a percentage.
Debt-to-Income Ratio
A comparison of gross income to expenses.
Deed
A legal document that states an agreement or obligation relating to a property.
Default
Failure to meet debt repayment by a due date. A failure to make loan repayments may result in the mortgagor taking legal action to repossess the mortgaged property. Defaults can be registered against you for non repayment of any bill such as Telecommunications, Utilities companies, etc.
Delinquency
Failure of a borrower to make timely mortgage repayments under a loan agreement.
Deposit
A deposit is normally paid by the buyer at the time of exchanging contracts. Normally a minimum of 5 – 10% of the total purchase price is required, but a 20% deposit would be recommended if possible.
Deposit Bonds
A guarantee that the purchaser of a property will pay the full deposit by the due date. Institutions providing deposit bonds act as guarantor that payment will be made.
Depreciation
The periodic cost assigned for the reduction in usefulness and value of a long term tangible asset.
Direct Debit
Regular electronic debiting of funds from a customer’s 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 finalising 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
Any income left over after all known expenses have been met (e.g. Home Loan repayments, bills, other commitments)
Downpayment
The portion of a home’s purchase price that is paid in cash and is not part of the Mortgage Loan
Draw Down
To access available loan funds.

 Home Loan Glossary E

Early Termination Payment
The cost applied when paying out a loan early.
Electronic Funds Transfer (EFT)
Electronic transfer of funds from one account to another.
Encumbrance
An outstanding liability or charge on a property.
Equity
The portion of something – asset, house or company – which you own. Equity is the difference between the market value and the current amount of money still owing on the loan, ie Assets – Liabilities = Equity.
Equity Finance Mortgage
An Equity Finance Mortgage (EFM) is a type of Home Loan that effectively boosts your potential borrowing capacity by anything up to 25%.
Equity Loan
A loan usually secured by the proportion of the value of your house which you own.
Equity Mortgage
A loan secured by the part of the value of an asset (usually a house) which you own.
Escrow
Money, property, a deed or a bond put into the custody of a third party for delivery to a grantee only after the specified conditions are fulfilled.
Establishment Fees
Lending body fees which may or may not be charged to set up a loan.
Estate
The whole of one’s possessions, especially all the property and debts left by one at death.
Exchange of Contracts (or Exchange)
The legal point of time when the vendor and purchaser swap documentation and start inquiries with a view to settlement.
Exit Fee
A fee imposed by some lenders when the loan is paid off before the end of it’s term. Fees most generally apply to fixed rate loans.

Home Loan Glossary F

FBAA
Finance Brokers Association Australia.
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.
Fittings
Items not intended to be removed from a property when it’s sold, for example fixed carpets, lights, curtains and stoves.
Fixed Interest
An interest rate set for a fixed term. Penalties may apply if the loan is paid out or additional repayments made before the term expires.
Fixed-Rate Mortgage
A fixed 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
Fixtures
Items that would cause damage to a property if removed. Their removal must be stipulated in the contract of sale and any damage made good by the seller (e.g. carpets , stoves, dishwashers etc)
Foreclosure
A legal process in which mortgaged property is sold to pay the loan of a defaulting borrower.
Freehold
The dwelling and the land on which it stands is owned by the owner until they choose to sell.

Home Loan Glossary G

Gearing
Ratio of your own money and borrowed funds in an investment.
Gross Income
Income from a person or company, before tax, superannuation or payroll deductions.
Guarantee
A promise by a third party to meet a borrower’s payment obligations if they are unable to pay.
Guarantor
A party who agrees to be responsible for the payment of another party’s debts, should it default.

Home Loan Glossary H

Home Equity Loan
A home equity loan gives you a revolving line of credit secured by the equity in your house. This allows you to use the funds for any other purpose, such as the purchase of a second property, shares or other investments. The interest rate is generally higher than a standard variable rate, and these accounts are not suitable for everyone
Home Inspection
An examination of the structure and mechanical systems to determine a home’s safety. Makes the potential home buyer aware of any repairs that may be needed.
Home Loan
A Home Loan requires you to pledge your home as the lender’s security for repayment of your loan. The lender agrees to hold the title or deed to your property until you have paid back your loan plus interest.
Home & Contents Insurance
An insurance policy that combines protection against damage to a dwelling and its contents with protection against claims of negligence, i.e. inappropriate action that results in someone’s injury or property damage
Honeymoon Rates
“Honeymoon” or introductory rates are a low interest rate offered at the start of a loan. At the end of the specified time period the interest rate converts to a standard variable rate.

Home Loan Glossary I

Income Statement
A statement of income and expenditure for a period.
Indemnity
Security against damage or loss; sum paid in compensation for loss incurred.
Inflation
A sustained increase in the general level of prices so that a given amount of money buys less and less. The number of dollars in circulation exceeds the amount of goods and services available for purchase, resulting in a decrease in the dollar’s value.
Installment
The regular periodic payment that a borrower agrees to make to the lender.
Interest Only Loan
The borrower only has to pay the interest that is accrued on the loan and no principal payments for a specified time period.
Interest Rate
The amount of interest charged on a monthly loan payment. Usually expressed as a percentage.
Introductory Rate
A low interest rate offered at the start of a loan. At the end of the specified time period the interest rate converts to a standard rate.
Investment Loan
Loans used for investment purposes, such as the purchase of an investment property.

Home Loan Glossary J

Joint Tenants
Equal holding of property between two or more persons. If one party dies, the property passes to the survivors

Home Loan Glossary L

Land Tax
A State Government tax charged to the owners of any property over a stipulated value.
Liabilities
Someone’s debts or obligations.
Line of Credit
A fully functional transaction account that has a credit limit attached to it. The borrower can generally withdraw funds at any time, up to the credit (or facility) limit. (If the credit limit is attached to more than one account, the borrower may only be able to draw up to the account limit on each account.) There is usually no fixed repayment schedule; however, the borrower is usually required to make payments to at least cover the interest and fees on the loan.
Lenders Mortgage Insurance (LMI)
Lenders Mortgage Insurance. A one off payment by the borrower to the lender to insure the loan. nsurance taken out by the lender to protect itself from default by the borrower. Generally required for Home loans with a Loan to Value Ratio (LVR) above 80%.
Loan to Valuation Ratio (LVR)
The total amount of the loan divided by the appraised value of the property. For example, if a property is valued at $300,000 and the loan amount is $240,000 then the LVR is 80%.
Low-Doc Loans
A loan process generally for self-employed people who do not have the standard financial statements required to obtain a loan.
Lump Sum Repayment
An extra repayment made to a loan, outside of the scheduled repayments.

Home Loan Glossary M

Margin
The difference between the lender’s interest indicator rate (or other reference rate) and the rate actually charged to borrowers
Maturity
The date by which a debt or investment must be paid in full.
MFAA
Mortgage & Finance Association Australia
Monthly Service Fee
A fee which may be payable each month on a loan account. The fee varies depending on the type of loan.
Mortgage
A document which creates a security interest over a property to a creditor as security for a loan.
Mortgagor
A person who gives a Mortgage. For example, a borrower who provides a mortgage over their house as security for a loan is a mortgagor.

Home Loan Glossary N

Negative Gearing
Where the return on an investment is insufficient to meet the interest costs of the loan used to fund the investment. This amount can usually be claimed as a tax deduction
Net Income
Gross income less expenses, including taxes and insurance, but before depreciation, or distribution of earnings
Non-Conforming Loans
Loans that cater for those who can’t meet the standard income verification and credit history criteria that mainstream lenders like banks and Mortgage originators use for ordinary borrowers.

Home Loan Glossary O

Offset Account/Mortgage Offset
Helps reduce interest costs on a loan by linking the loan to a transaction or deposit account. The balance in the transaction account ‘offsets’ the loan principal. Interest is then calculated on the loan principal minus the balance in the account. For example, if the principal on the loan is $180,000 and there is $5000 in the transaction account, then interest is only calculated on $175,000.
Official Cash Rate
The Official Cash Rate is the interest rate set by the Reserve Bank of Australia and used to influence the general level of interest rates in banking and the economy. Changes to the cash rate, also termed “official interest rates”, usually flow on to variable home loan, personal loan and credit card rates within weeks.
Origination Fee
A fee for originating the loan charged by the lender. Also called an application fee.
Overdraft
A pre-arranged limit to which a person can exceed an account balance.

Home Loan Glossary P

Passed In
A property is “passed in” at auction if the highest bid fails to meet the reserve price set by the vendor.
Pre-Approve
Lender commits to lend to a potential borrower. Commitment remains as long as the borrower still meets the qualification requirements at the time of purchase.
Prepayment
Any amount paid to reduce the principal of the loan before the due date, or any amount in addition to the minimum repayment. May be subject to a prepayment penalty.
Pre-Qualify
A lender informally determines the maximum amount an individual is eligible to borrow.
Principal
A capital sum borrowed from a lender on which interest is paid (doesn’t include the interest or additional fees).
Principal and Interest Loan
A loan in which both the principal and the interest are repaid during the term of the loan.

Home Loan Glossary R

Real Property
Land, with or without improvements (e.g. a house).
Redraw Facility
Allows you to make additional repayments on your mortgage, and then have access to the additional repayments if you need to. It is important to understand the conditions attached to the redraw facility as they can include a minimum amount and a fee for every time you use it.
Redraw Fee
Fee charged to cover or partially cover the lender’s internal costs of allowing the borrower to redraw money from repayments.
Refinancing
Replace or extend an existing loan with funds from the same institution or another lender.
Reserve Price
A specified minimum price acceptable to a seller at auction.

Home Loan Glossary S

Security
An asset that guarantees the lender their loan until the loan is repaid in full. Usually the property is offered to secure the loan.
Service Fee
Usually a monthly fee levied by the lender to cover costs of administering and maintaining the loan account.
Settlement Date
A date on which the new owner finalises payment and assumes possession of a property.
Settlement Period
A period after contracts exchange and before the settlement date. This period allows the buyer time to organise finance, if needed, and to conduct searches surveys and other formalities. The settlement period usually lasts six to eight weeks, depending on a range of factors, including the state.
Split Loan
A combination of loan types forming one loan, such as a partial fixed/variable interest rate loan.
Stamp Duty
State Government tax assessed on the selling price of the property. Each state has different rules and calculations.
Standard Variable Rate
The rate which lenders apply to their “premium” home loan product. Carries features such as a redraw facility, portability, salary account and mortgage offset.

Home Loan Glossary T

Tenants in Common
The equal or unequal holding of property by two or more persons. If one party dies the share of the property forms part of the estate rather than passing to the other tenant/tenants.
Term
The length of a home loan or a specific portion within that loan. The term is usually written in months.
Title Deed
A document disclosing the legal description and ownership of a property.
Title Fees
Fees payable to the State Titles Office for title search, transfer or property ownership, registration of the new mortgage and/or discharge of an old mortgage.

Title Search

The process of investigating title to land to check that the seller has the right to transfer ownership. A title search provides the names of the owners and other details of the property such as a restrictive covenant, mortgage or caveat on the title.

Torens Title

The most common and simplest form of title to property ownership (as opposed to  common law or old system title )

Transfer

A document that needs to be registered with the relevant land titles office so that the change in ownership is recorded on the certificate of title.

Home Loan Glossary U

Unencumbered
A property free of liabilities, encumbrances or restrictions
Underwriting
The process of analysing a loan application to determine the amount of risk involved in making the loan. It includes a review of the potential borrower’s credit history and a judgment of the property’s value.
Uniform consumer credit code (UCCC)
Legislation to ensure uniformity amongst all credit providers across Australia.

Home Loan Glossary V

Valuation
A report required by the lender detailing a professional opinion of a property’s value
Valuation fee
A fee which may be charged if the lender seeks to cover the cost of valuing the property taken as security for the loan
Variable interest rate
A rate that varies in accordance with the money market rates
Variation
A change to any part of a loan contract
Veda Advantage
Australian credit files are held by Veda Advantage Limited
Vendor
The party who offers a property for sale

Home Loan Glossary W & Z

Zoning
Local government authority guidelines as to the permitted uses of land and buildings on that land.