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Glossary

A

Acceptance

To agree to the terms and conditions of an offer or contract on a property.

Additional repayments

Extra money you decide to pay off your home loan (over and above your normal loan repayments).

Amortisation

Reducing the amount of your home loan over time by paying both principal and interest repayments.

Application Fee

Also called an Establishment Fee. The fee charged by a lender to lodge a loan application.

Auction

A publicly held sale where a property is sold to the highest bidder.

Appreciation

An increase in the value of a property.

Assets

A list of what an individual currently owns, such as real estate, savings accounts, cars, home contents, superannuation, shares etc.

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.

Break cost

A fee charged to end a fixed rate loan before the expiry of the fixed period.

Bridging finance

Also known as a home-to-home loan. A type of loan that enables you to buy or build a new home before selling your existing one, without paying two mortgages at the same time.

Buyer’s agent

An agent or broker who represents the buyer in a property purchase.

C

Capital gain

The amount by which proceeds from the sale of property exceeds the original purchase price.

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.

Certificate of title

A document showing a home’s land dimensions and ownership details, as well as any encumbrances.

Comparison rate

The true interest rate of a home loan when all fees are also taken into account. It lets you compare different loans which have different fees.

Certificate of currency

A certificate issued by an insurance company showing that a building is insured.

Construction finance

A special home loan you get when you’re building a new home. Instead of paying a lump sum to the owner of the house you’re buying, the lender pays progress payments to your builder as your house is being built.

Contract of sale

A written agreement outlining the terms and conditions of the purchase or sale of a property.

Credit

Borrowed money or other finance to be paid back under an arrangement with a lender.

Conveyancer

When you buy or sell a house, you need to appoint a conveyancer or solicitor to make it official (arrange ‘settlement’), and ensure you legally own your new home.

D

Default

When you fail to pay your home loan repayment on time.

Deposit (on home loan)

With a standard home loan, the most you can borrow is 95% of the value of the property. You have to come up with the rest yourself before you apply for the loan – preferably from genuine savings.

Deposit (on property)

When you buy a home, you have to pay a deposit to the seller, to show you’re serious about purchasing the home.

Depreciation

A decrease in the value of a property.

Discharge/exit fee

A fee charged by some lenders when you pay off your home loan.

Disposable income

A person’s remaining income after all known expenses, such as loan payments and bills, have been met.

E

Established property

A house that’s already built.

Establishment fee

Also known as an Application Fee. The fee charged by a lender to lodge a loan application.

Equity (home equity)

The difference between what you owe on your home, and what your home is currently worth.

F

First Home Owner Grant (FHOG)

A grant provided by the government to help first home owners into their own home.

Fixed rate

An interest rate that is locked in for a set period of time.

Formal approval

When the lender formally approves your loan application and offers you unconditional loan approval.

Full doc

“Full doc” stands for “full documentation”. It’s a loan that’s designed for borrowers who can provide full documentation of their income (payslips, tax returns and other financial statements). When you apply for a full doc loan, you get more options and generally a lower interest rate.

G

Genuine savings

Evidence of regular savings over a defined period of time.

Green title

When the owner of a property has full ownership (i.e. they don’t share ownership with someone else). Green title is helpful when making improvements, because no-one else needs to be considered.

Gross income

Your total income before tax.

Guarantor

A third party to a loan who is helping the borrower obtain finance by offering additional security support. Guarantors are generally limited to spouses or immediate family members. A guarantor may be liable for the loan debt if the borrower defaults.

H

Home-to-home loan

Also known as bridging finance. A type of loan that enables you to buy or build a new home before selling your existing one, without paying two mortgages at the same time.

Honeymoon rate

Also known as an Introductory Rate. A low interest rate offered on introductory loans (the first period of some loans). It can be fixed, capped or variable for the first period of the loan. At the end of the initial period (‘honeymoon period’) the loan usually reverts to the standard variable rate.

I

Instalment

The regular payment that a borrower agrees to make to a lender.

Interest

The amount charged for the money borrowed from a lender.

Interest only loan

When you make only interest repayments; you don’t pay off any of the principal. Usually a short term arrangement.

Introductory rate

Also known as a Honeymoon Rate. A low interest rate offered on introductory loans (the first period of some loans). It can be fixed, capped or variable for the first period of the loan. At the end of the initial period (‘honeymoon period’) the loan usually reverts to the standard variable rate.

J

Joint tenants

Equal holding of a property between two or more people. If one party dies, their share passes to the survivor or survivors.

L

Land loan

A loan for a block of land.

Lender’s Mortgage Insurance (LMI)

If you want to borrow more than 80% of the property’s value, you have to pay mortgage insurance (LMI). Mortgage insurance is a one-off payment, usually made when you settle on the property. The amount you pay depends on the loan amount, the value of your property and how much of the purchase price you want to borrow (e.g. 95%). It protects the lender in the event that you can’t meet your repayments and the home is sold with the debt outstanding.

Liabilities

A person’s debts or financial obligations, including existing credit card debts and personal loans.

Line of credit

A flexible loan arrangement with a specified limit to be used at a customer’s discretion.

Loan to Value Ratio (LVR)

How much of the purchase price you want to borrow. E.g. If you want to borrow $160,000 to buy a property worth $200,000, the LVR would be 80% (160,000/200,000 x 100).

Low doc home loan

A home loan that requires fewer official documents than a normal home loan, but often has a higher interest rate. Low doc home loans are useful for people who are self-employed.

M

Mortgage broker

Someone who acts as an intermediary who brokers mortgage loans on behalf of individuals or businesses.

Mortgagee

The institution who lends the money.

Mortgagor

The person who borrows the funds.

Mortgage offset

Also known as an offset account. A transaction account, linked to your home loan, which you can deposit your surplus cash into. Any money in the deposit account reduces (or ‘offsets’) the loan principal, even if only temporarily. So while it’s there, you pay less interest. Your interest is calculated on the loan principal minus the balance in the account. For example, if the principal on your loan is $180,000 and you have $5,000 in the transaction account, your interest will be calculated only on $175,000 ($180,000 – $5,000).

N

Negative gearing

Negative gearing happens when you have an investment (e.g. a rental), and the money you earn from that investment (e.g. rent) doesn’t cover the cost of keeping the investment (e.g. home loan repayments, rates, maintenance, etc.). In other words, when you’re making a loss on an investment, at least until you sell. Come tax time, your income tax is calculated on your income minus your investment losses. So you may pay less tax.

Non-genuine savings

Sums of money that may have been gifted to you or received as a lump sum from a transaction, but have not been a regular occurrence over time.

O

Owner occupied

A property in which the owner lives.

Offset account

Also known as a mortgage offset. A transaction account linked to your home loan, which you can deposit your surplus cash into. Any money in the deposit account reduces (or ‘offsets’) the loan principal, even if only temporarily. So while ever it’s there, you pay less interest. Your interest is calculated on the loan principal minus the balance in the account. For example, if the principal on your loan is $180,000 and you have $5,000 in the transaction account, your interest will be calculated only on $175,000 ($180,000 – $5,000).

P

Pre-approval

When a lender advises you in writing how much they will lend you, subject to their terms and conditions.

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 home loan.

Positive gearing

When you receive more in rental income from your tenants than what you pay on the likes of loan repayments, interest, property maintenance, management fees, rates etc.

Principal

The outstanding loan amount on which interest is calculated.

Principal & Interest loan

A loan in which you make both principal and interest repayments.

R

Redraw facility

Allows you to access any additional repayments you’ve made on your home loan.

Refinance

To move your home loan from one lending institution to another.

S

Security

The asset supplied by the borrower to the lender as the lender’s security for lending the funds. The lender will maintain “control” over this security until their funds are fully repaid. Usually real estate is offered as security.

Self-Managed Super Fund (SMSF)

If you want to buy a property through your super fund, it has to be a self-managed fund.

Serviceability

The ability of a borrower to meet loan repayments, based upon the loan amount, the borrower’s income, expenses and other commitments.

Service fee

Some lenders charge a service fee to cover the cost of administering and maintaining your home loan account.

Settlement

When you’re buying a property and the transaction is completed. In other words, settlement is when the house legally becomes yours. Your lender makes final payments on your behalf, in exchange for the relevant documents of ownership.

Split loan

A loan where you pay a fixed rate on part of the principal and a variable rate on the rest. Or it might alternatively be a combination of a standard home loan and a line of credit home loan.

Stamp duty

Whenever you buy a house or a block of land, you have to pay a state government tax on it. This tax is called stamp duty, and it’s calculated on the purchase price.

Standard variable rate

The rate which lenders usually apply to their ‘premium’ home loan product. The product usually has features like a redraw facility, portability, salary account and mortgage offset.

Strata title

Title that is commonly used for units, which forms part of the owners’ corporation.

Switching fee

A fee charged when you already have a loan from a lender, and you change to another type of loan (e.g. variable rate loan to fixed rate loan).

T

Tenants in common

When two or more people own a property together (whether they have equal or unequal shares).

Term

The duration of the loan.

V

Vacant land

Land that has no buildings on it.

Valuation

A report detailing a professional opinion of a property’s value. A lender will require a valuation before approving your loan application.

Valuation fee

A fee to cover the cost of valuing a property.

Variable interest rate

A home loan interest rate that fluctuates according to the official cash rate set by the Reserve Bank of Australia.