Glossary

Definition of Terms

All in One	An All-in-One loan allows you to repay extra amounts off your loan and "redraw" them when you really need them. The benefit is that if you make additional repayments above the minimum required your loan balance will fall and so will your interest payments. The Loan operates like a normal transaction account.
Application fee or Establishment fee	A fee paid by a borrower for setting up a loan. Very few lenders charge a fee for simply submitting a loan application to them.
Basic Variable	A no frills version of the Standard Variable Rate Loan which is normally a much lower rate. Basically the extras offered under the Standard Variable Rate Loan are removed thereby allowing the lender to reduce the interest rate charged.
Bridging finance	A loan/facility that can be used when buying a new home before selling an existing home. Bridging finance is generally short term only, requiring the facility to be fully repaid from the sale of your home in 6 to 12 months.
Comparison rate	A rate to give you an idea of the cost of the loan as it also includes the set up fees and ongoing charges of the loan. It is expressed as a single percentage figure. It should be noted that costs such as redraw fees or early repayment fees and cost savings such as fee waivers and offset accounts, are not included and may influence the ‘real’ cost of the loan.
Conditional Approval	The initial approval of a loan application which may be subject to certain conditions. These must be satisfied before the Lender provides unconditional or formal approval. Conditions might include:- subject to property valuation; subject to repayment of existing loan; subject to Lender’s Mortgage Insurance, etc. The conditional approval may also detail any outstanding documents that are required prior to formal approval, such as additional payslips or a copy of the contract for the purchase, etc.
Conveyancing	The legal process of transferring ownership of property from one person to another.
Conveyancer	A person who facilitates the conveyancing process. Conveyancers are sometimes used in lieu of a solicitor for property transactions.
Credit limit (or facility limit)	The maximum amount that a borrower can borrow under their loan contract.
Credit reference or Credit report	A report, prepared by an authorised credit reporting agency, which shows the credit history of a borrower. A lender needs permission from the borrower to obtain a credit report.
Deposit on property	A sum of money paid to the vendor to secure a binding contract to purchase a property. This amount is usually 10% or an amount agreed on with the Vendor.
Deposit guarantee or Deposit Bond	A substitute for a cash deposit to assist with the purchase of a property. The buyer is required to pay the full purchase price at settlement. In principle, it is the same as if you used your own funds, because if you decide not to proceed with the purchase, you lose your deposit and will be required to hand to the vendor the actual amount of the deposit.
Drawdown date	When the loan is actually started and the funds are handed used for the purchase, ie. loan funds are paid to the vendor to complete the purchase
Deposit	Percentage of total consideration, or an agreed amount, paid on exchange of contract for purchase of an asset
Economic costs (or break costs)	A fee which may be payable to the Lender if, prior to the expiry of a fixed rate period, the borrower repays the loan in full, regardless of the reason. Economic cost is the lender’s estimate of its loss resulting from the repayment of the loan.
Equity	The amount of an asset that is actually owned, eg. The value of the property less any outstanding loans against the property.
Exchange of Contracts	A formal legal process that creates a binding contract for the sale of real property on agreed terms. The vendor and purchaser each sign a copy of the sale contract and then exchange these documents, after which time the contract becomes legally binding on the parties. The parties are then bound to proceed to settlement, subject to any cooling off period that may apply. A deposit is usually also paid by the purchaser to the vendor during the exchange process. Any party that unilaterally declines to proceed to settlement may forfeit deposit monies or be subject to a damages claim.
First home owners grant (FHOG)	A Federal Government grant given to qualifying first home buyers.
Fixed interest rate	An interest rate that is locked in for a specified period of time.
Government charges	Refers to various charges payable to the government/s. Examples include transfer of land stamp duty, mortgage stamp duty, transfer and mortgage registration fees. Amounts vary for each state and territory.
Guarantee	A promise by a third party to meet a borrower’s payment obligations if they are unable to pay. It is often secured by the guarantor’s own property.
Guarantor	The third party who is providing the guarantee for the borrower.
Honeymoon 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 variable rate.
Interest in advance	When interest is charged at the beginning of a period of time. For example, charging the first year’s interest in the first month of a loan. It is generally only available on fixed rate loans for investment purposes.
Interest in arrears	Interest charged at the end of a period of time, generally the end of the month.
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.
Introductory rate or Honeymoon 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 loans	Loans used for investment purposes, such as the purchase of an investment property.
Lenders Mortgage Insurance (LMI)	Insurance 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%.
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.
Loan agreement (or facility agreement)	The formal contract between the borrower and the lender, which sets out the terms and conditions of the loan.
Loan to Value 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 (documentation) loans	A loan process generally for self employed people who do not have the standard financial statements required to obtain a loan.
Lump sum payment	An extra repayment made to a loan, outside of the scheduled repayments.
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.
Mortgage stamp duty	A state or territory government tax, payable on the mortgage and based on where the property is situated. It is payable by the borrower and assessed on the amount secured by the mortgage.
Mortgagee	A person who holds a mortgage as security. For example, if a bank holds a mortgage, the bank is the mortgagee.
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.
No Doc (documentation) loans	A loan process generally for self employed people who do not have the standard financial statements required to obtain a loan and do not wish to divulge their full financial position, such as assets and liabilities. They simply declare that they can afford the loan.
100% 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 $5,000 in the transaction account, then interest is only calculated on $175,000.
Portability	The ability to ‘move’ a loan from one security (eg. property) to another. For example, borrowers can usually take their current loan with them when buying a new home by swapping the security held on the loan to the new property.
Pre Approval (or Approval in Principle)	Initial approval process which provides an estimate of how much someone can borrow (before finding the property), based on the information provided to the bank.
Prepayment	Additional payment(s) made to a loan, in addition to the scheduled principal and interest repayments.
Prepayment fee	Applies to fixed rate loans. A fee is payable when the whole loan amount is prepaid during a fixed interest rate period. It may also be payable when partial prepayments are made (generally in excess of $20,000 per fixed rate period).
Principal	The amount owing on a loan. Interest is calculated on the principal.
Principal and Interest loan	A loan where the repayments are made up of principal and interest.
Purchaser	One who buys something.
Rate Lock	Allows a borrower to lock in the fixed interest rate that is quoted at the time of loan approval for up to 3 months. If interest rates change prior to the loan drawdown date then the borrower is guaranteed the original rate (provided the time between approval and drawdown is within the 3 months). A Rate Lock fee may be payable.
Redraw	A loan feature that allows the withdrawal of funds from a loan, if the borrower has made additional repayments. This may incur a fee depending on product and lender.
Refinancing	Paying off an existing loan and establishing a new one.
Repayments	The amount that the loan contract specifies must be paid at an agreed frequency (eg fortnightly or monthly).
Repayment holiday	If a borrower is ahead in their repayments, they can apply for a break in making loan repayments.
Reverse Mortgage	Specifically designed for people over 65 who own their home but have little cash for everyday living or things such as home renovations, an overseas holiday or a new car. Generally there are no repayments to the loan, provided that the borrowers remain in the home. Repayment is deferred until all the borrowers die (if one dies and it is a joint loan, the loan continues), they no longer live in the house or the property is sold. These loans have strict maximum borrowing limits based on the age of the youngest applicant. Interest and fees are capitalised during the loan period. Voluntary payments may be made at anytime.
Security	The asset used to secure repayment of a loan, for example a property.
Settlement	The completion of the process to sell or purchase a property.
Split loans	Splitting a loan into more than one loan account. For example, a fixed rate loan account and a variable rate loan account.
Stamp duty	Government duty. For example, stamp duty is payable by the buyer on a transfer of land when a property is sold. The amount varies for each state and territory.
Switch fee	Payable when you request to change the type of interest rate or the type of repayments, or to increase the amount of credit except by way of redraw.
Term	The length of a loan, for example 30 years.
Unconditional Approval of Formal Approval	The final part of the approval process once all of the outstanding requirements have been met. The lender will provide unconditional or formal approval
Valuation	The value of a property as determined by the bank or an independent valuer.
Variable interest rate	An interest rate that can fluctuate over the term of the loan and is not locked in for a specified period
Vendor	One who sells anything. In real estate transactions, the person(s) or entity selling the property.