The amount the loan facility is ahead of scheduled repayments. This amount is often available for redraw.
Agents commission
The fee (usually a percentage of the sale price) payable to a real estate agent for selling a house.
Amortisation period
Refers to the time period it will take for the borrower to repay a loan in full. Also known as the loan term for principle and interest loans. This length of time is set during the application and approval process and, along with the agreed interest rate, is used to calculate the monthly mortgage payment.
Application fee
This is generally a flat fee that covers the lender’s internal costs and often waived for home loan finance.
Appraised value (valuation)
The estimated value of a property being used as security for mortgage purposes.
Arrears
An unpaid (outstanding) or overdue amount.
Assets
Everything that a person or company owns or has a right to, from which a benefit can derive. Net assets are assets in excess of liabilities. Liquid assets are assets either in the form of cash or readily convertible into cash.
Also known as an owner’s corporation. A body corporate manages the common property of a residential, commercial, retail or industrial development. All the owners of a flat, apartment or unit within a strata building elect a council responsible for the management of the building and its common areas.
Break costs/Fixed rate break cost
A cost on charged by lenders for paying out a fixed term loan early. These penalty charges for ‘breaking’ or ending a fixed term loan before the agreed date are designed to compensate the lender for any loss of profit, and usually only charged if the comparison rate at the time of breaking is lower than the original fixed rate.
Bridging finance
A short-term loan used to cover the period between the termination of one loan and the start of another. This finance gap can happen when a buyer purchases a new property before selling an old one. Higher interest rates and establishment fees usually apply to this type of finance to compensate for the additional risk.
Building inspection
An assessment carried out by a certified building inspector to ensure the building meets building code requirements and is structurally sound. Building inspections are usually undertaken prior to the purchase of a property and contracts of sale can be made subject to obtaining a satisfactory building inspection.
A capital gain is the difference between the original purchase price and what is received when the asset is disposed of.
Capital gains tax
A federal tax payable on the financial gain made from the sale of an asset purchased after September 1985. Most personal assets are exempt from the tax (including sale of an owner-occupied residence), so it generally applies to investment properties only.
Capped interest rate
A loan where the interest rate is allowed to fluctuate but cannot exceed a set level for a period of time.
Caveat
A caveat lodged upon a land or property title indicates that a person, other than the owner, can claim some right over, or interest in, the property.
Certificate of title
A legal document that provides the identification of ownership for certain property, such as vehicles, homes and land. It is a record of all current information relevant to a particular property or piece of land, including current ownership details, description of property and any registered caveats. A lender usually holds this document as security until the loan is fully repaid, then is returned to the borrower.
Certificate of currency
A certificate from your property insurer confirming that insurance is in place, its expiry date and lists the financial institution the loan is with.
Chattels
Chattels are items of movable personal property, such as furniture, clothes and appliances. In real estate terms, chattels can be taken by the seller, whereas fixtures must be left behind when the property is sold.
Commission
The fee or payment made to a broker or other financial agent for negotiating a sale. The amount may be a flat fee or a percentage of the sale.
Comparison rate
The Comparison Rate provides an indicative interest rate that takes into account certain costs associated with setting up a loan. This rate includes the nominal interest rate/s, loan approval fee, any other upfront fees and known ongoing fees. The Comparison Rate does not include government and statutory fees, which are standardised across all loans regardless of the lender. Other fees and charges that are ‘event based’ and which may or may not apply throughout the term of the loan are also not included, eg redraw fees and early repayment costs.
Contract of sale
A written agreement setting out the terms and conditions agreed upon between the buyer and seller for the purchase of a property.
Conveyancing
The legal process involved in the transfer of title (ownership) of property from one person to another.
Cover note
A temporary document issued by an insurance company that provides insurance coverage until a formal policy can be implemented.
Credit
Contractual agreement in which a borrower receives immediate access to money or other financial assistance which must be paid back under arrangement with a lender at a later date.
Someone who is in debt (owes money) to another person or organisation.
Default
Failure to meet the legal obligations (conditions) of a mortgage or loan agreement, such as the inability to make minimum loan repayments when due. Defaulting on a loan may result in financial penalties or in extreme cases, the lender taking legal action to repossess the property.
Deposit
A monetary amount paid by the buyer at the time of exchanging the contract for sale, showing an intention to complete the purchase. Normally a minimum of 5-20 percent of the total purchase price is required.
Deposit bond
An alternative to the cash deposit which is required between signing the contract of sale and settlement. It is a type of insurance that acts as a guarantee to the seller that they will receive their deposit. This is useful if the buyer has cash tied up in term deposits or other investments. The buyer must pay the full purchase price of the property, including the amount of the deposit, at settlement.
Direct debit
Regular electronic debiting of funds from a nominated account under the authorisation of the account holder.
Disbursements
Miscellaneous fees and charges incurred during the conveyancing process, including search fees and charges paid to government authorities.
Discharge fee
A fee to cover the costs incurred by the lender when 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 financial expenses, such as loan payments and bills, have been met.
Draw down
To withdraw funds from a loan facility. Draw down usually refers to loans where the limit is set, but the amount is not accessed all at once such as a construction loan, or a line of credit. The borrower draws down or uses the funds as required, up to the set limit.
An outstanding liability or financial charge on a property.
Equity
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 it can be altered by market values and property improvements.
Establishment fees
Fees charged by the lender to cover the cost of setting up a loan.
Exit or early repayment fees
Fees charged by the lender when a loan is paid off before the end of its agreed term.
Extra repayments
Additional payments on a loan above the minimum repayment amount required.
An accredited independent agent who acts as an intermediary between financial institutions and clients. They plan, organise and negotiate all types of lending from numerous financial institutions on behalf of the customer to find the most suitable finance for their client’s needs. Similar to a Mortgage Broker, who specialises only in home loans.
First Home Owners Grant
A one-off grant payable to eligible home owners who have not previously purchased property in Australia. It was introduced to compensate for the increased cost of housing after implementation of the GST.
Fixtures and fittings
Items that belong to the property and are not intended to be removed after the sale of the property, eg 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 one and five years, although up to ten is available.
Freehold
Complete ownership of a property and the land that it has been built on.
The amount of a property actually ’owned’ by the owner. Home equity is the difference between 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 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, which is also known as the mortgage.
The amount charged by a lender to a borrower for the use of the money borrowed.
Interest only loan
A loan where only the interest is paid for an agreed term which usually ranges from one to five 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 rate a lender charges to borrow its money, or the rate a bank pays its savers for keeping money in an account.
Introductory loan
A loan offered at a reduced rate to new borrowers for an introductory period, which is – usually six to twelve months. This type of loan may also be called a discounted or honeymoon rate.
Investment property
A property purchased for the sole purpose of earning a financial return, either in the form of rent or capital gain. The owner does not live in the property.
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 payment of rent.
Leasehold
The right to use and have exclusive possession (but not ownership) of real estate for a specified period, subject to the fulfilment of certain conditions as recorded in a lease agreement.
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. LMI is usually required for loans that a lender considers more risky than others, 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.
Liabilities
Debts owed by a company or individual.
Line of credit facility (loan)
A flexible loan arrangement with a specified limit to be used at a customer’s discretion.
Lump sum repayments
Additional ad hoc repayments, made over and above the minimum loan repayment required.
LVR
Abbreviation for the term ‘Loan to Value’ ratio. LVR is the percentage of the loan amount compared to the value of that property. For example, if a house is worth $160,000, and the mortgage is worth $100,000, then the LVR is 62.50%. Most lenders require a borrower to take out Lender’s Mortgage Insurance if the LVR is 80% or more.
The date when an outstanding debt must be paid in full.
Maximum loan amount
The maximum amount that can be borrowed. It’s based on a borrower’s disposable income, deposit, and the purchase price of the property.
Minimum loan amount
The minimum amount that can be borrowed.
Minimum repayment required
The minimum amount a borrower is contractually obliged to pay each month in order to repay a loan within an agreed term.
Mortgage
A document executed by a customer and lender to take property as security for repayment of the loan. The lender holds the title or deed to the property listed in the mortgage. The term ‘mortgage’ is also known as a home loan.
Mortgage Broker
An accredited independent agent who acts as an intermediary between financial institutions and clients. Similar to a Finance Broker, but only specialises in home loans.
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, made redundant from their employment or unable to work. It is also called income protection insurance. This insurance covers the borrower, not the lender.
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 home loan funds.
Mortgagor
The owner or owners of the property offered as security for a loan.
Allows a different property to be substituted as security for an existing loan. Portability can be useful if the borrower is buying a new home but doesn’t want to set up a new mortgage.
Principal
The amount owing on a loan, upon which interest must be paid.
Principal & Interest Loan
A loan in which both the principal and interest are repaid during the agreed term of the loan.
Purchaser
The person who buys property from the vendor; usually the customer seeking finance.
Research carried out to confirm information about the property prior to settlement. Searches are usually arranged by a solicitor.
Security
An asset that a borrower gives a lender the rights to,so that the lender can be confident of getting their money back if the debt is not repaid as per the loan agreement.
Settlement
There are generally two types of settlement that happen with most property purchases: 1. 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. 2. Settlement of a loan coincides with settlement of the property. It’s when the lender transfers the borrowed funds to the seller or the seller’s mortgage holder.
Split loan
A loan that is part variable and part fixed. However, a split loan can also have multiple variable parts. Borrowers wanting to use 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. Stamp duty is also payable on mortgages in some states. Each state and territory has different rules and calculations.
Strata title
The most common title associated with townhouses and home units and 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, roofs, driveways, foyers, fences, lawns and gardens.
A form of agreement often used when friends or family purchase a property together and details the equal or unequal holding of property by two or more people. These shares can be freely transferred to other owners both during life and via a will should one person die, rather than simply defaulting to the owner of the other share.
Term
The duration of a loan or a specific period within that loan. This value is usually written in months, eg, 360 months equals 30 years.
Title deed
Document disclosing the legal description and ownership of a property.
Title fees
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 mortgages.
Transfer
A document registered with the Titles Office that confirms the change of ownership or a property.
A property free of encumbrances, covenants and restrictions.
Uniform Consumer Credit Code (UCCC)
The legal framework that governs the relationship between borrowers and lenders and requires all credit providers such as banks, building societies, credit unions, finance companies and businesses to: • Explain the borrower’s rights and obligations • Disclose all relevant information about a loan in a written contract, including interest rates, fees and commissions.
