Home Loan Terminology
Loan terminology can be confusing, especially for those still new to the world of home buying. If you find yourself scratching your head with all the mortgage and financial speak, don’t worry! We’ve created this handy mortgage glossary to help provide some clarity:
A – B – C – D – E – F – G –H – I – J – K – L – M – N – O – P – Q – R – S – T – U – V –W – X – Y – Z
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Word |
Definition |
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# |
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100% Offset |
An offset sub-account where 100% of the balance offsets your loan account. This type of account enables you to have every cent of your money working to reduce your mortgage. |
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100% Offset Sub-account |
An offset sub-account is an optional facility linked to a variable home loan, which allows for cash deposits and withdrawals and can have a visa debit card linked to it. The funds in the offset sub-account offset the interest charged on the linked home loan. |
A |
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Advertised Rate |
The interest rate offered by a lender for a loan or credit facility, that does not include any other fees or charges, |
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Amortisation |
This is a display/document showing the reduction of the principal loan or outstanding balance over a period of time as the borrower makes scheduled payments. |
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Application fee |
A fee charged by the lender to cover loan processing costs. |
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Arrears |
This refers to overdue or late loan payments. |
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Appraised value |
This is the assessed value of the property made by a qualified appraiser or professional valuer. |
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Asset |
This includes owned property, saving accounts, cars, superannuation, and shares or investments. |
B |
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Incurred when the borrower ends or pays off the entirety of their fixed rate loan before the end of the loan term. Also known as fixed rate break costs. |
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A loan that helps borrowers cover the purchase of a second owner occupied property while in the process of or before selling their first one. |
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C |
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The profit obtained from selling an asset like a property. |
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The federal tax charged on the profits obtained from the sale of an asset such as real property. |
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Caveat |
A notice of interest on a piece of land or Certificate of Title. This prevents others from registering a dealing with that property which could be contrary to the interest of those who lodged the caveat. |
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Certificate of Title |
A legal document detailing the ownership of a piece of land or property. |
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Collateral |
An asset the borrower will use as security for a loan. |
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Comparison Rate |
An interest rate lenders must display which displays the ‘true’ cost of a loan, including the actual rate and any upfront or ongoing fees. By looking at the comparison rate, you can compare different lenders easily. |
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When a lender agrees in principle to lend a borrower a certain amount following the lender’s validation and assessment. This is not equivalent to a loan approval or a guarantee of approval. This is also known as pre-approval. |
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Conditions precedent |
The conditions the borrower must satisfy before a formal loan approval can be provided. |
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A loan that finances the construction of a home or major renovations. |
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A written agreement detailing the terms and conditions of a property sale. |
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The legal process of transferring ownership of real estate from one party to the other. |
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A clause that enables buyers to walk away from a property purchase after signing a contract within a limited time. Cooling off periods vary per state and territory. |
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A report from a credit reporting bureau that details an individual’s credit information and credit history. |
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A numerical representation of an individual's credit health. Credit rating scales differ per credit reporting agency. |
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Creditor |
A party to whom money is owed or has claim to another party’s property. |
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The use of multiple assets as security for a single loan. For example, two separate properties are used as collateral for one single home loan. |
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D |
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Daily interest |
The interest accrued daily on the balance of a loan. |
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Debtor |
A party that owes money to a creditor. |
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A default occurs when the borrower fails to make repayments or meet the terms of the loan. |
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Also known as a down payment, this is the initial amount put towards the purchase of a property. |
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This refers to the reduction of the value of an asset like a property over time. |
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Direct debit |
An automatic transaction that directly transfers money from a borrower’s external account to their loan to make regular/scheduled loan repayments. |
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When the mortgage is removed from the title of your property after paying the loan in full. A loan can be discharged due to a property sale, a refinance to another lender, or by paying the loan out with the borrower's own funds/cash. |
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Discharge fee |
A fee paid to the lender for the administrative costs of paying out your home loan. |
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The transfer of money to the borrower from the lender before or after the settlement of the loan. Also used in the context of a construction loan, where progress payments are drawn down in stages to pay for the construction work as it is completed. |
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E |
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A right to use land belonging to another party for specific purposes. |
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Encumbrance |
An outstanding claim, lien, charge, or liability that is registered on the title of a property and can affect or restrict the use or transferability of a property. |
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Equity loan |
A loan that uses the equity of a property to borrow funds. |
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Establishment fee |
Also known as an application fee, this is a fee charged by the lender to open or establish a loan. |
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This refers to additional payments made by the borrower for their home loan outside of the agreed-upon scheduled repayments. |
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The difference between the home’s value and the amount still owed on the home loan. |
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Exit fees |
Incurred when a borrower pays off their loan in full. Most commonly known as discharge fees. |
F |
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Family guarantee |
This refers to when a family member or relative provides the security for a borrower’s home loan. |
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A one-off grant by the Federal Government to help first-time home buyers fund their home purchase. Eligibility, requirements, and grant amount varies depending on the state and territory. |
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An interest rate that does not change for a set period, generally between 1 to 5 years for home loans. |
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Freehold title |
A type of property ownership that means an individual is the legal owner of a property and has full control over its use. |
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Full-documentation (full-doc) loan |
A type of loan that requires borrowers to provide complete and comprehensive documentation of their finances. |
G |
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This refers to savings that an individual has accrued consistently over a period, usually between three to six months or even longer. |
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A type of financial gift from a relative used to pay the down payment or deposit of a mortgage. |
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Guarantee |
A written agreement that states a guarantor will meet the financial obligations of a borrower in the event that they fail to meet the conditions of their loan. |
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Guarantor |
A third-party individual who agrees to shoulder the responsibility of the loan in case the borrower defaults. A guarantor is used as additional security when applying for a loan. |
H |
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Home equity loans |
A loan that uses a property’s equity as collateral to finance a purchase. |
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Honeymoon rate |
A reduced or discounted interest rate offered for a limited time, typically during the first few months or years of a loan. Also known as an introductory rate. |
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Honeymoon period |
The period where a loan has a reduced or discounted interest rate. After the honeymoon period, the interest rate will increase to the normal or standard interest rate. |
I |
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Insolvency |
The inability of an individual to pay their debt off even after the sale of assets. |
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Interest |
The amount charged by a lender for the use of borrowed money, usually displayed as an annualised percentage rate. |
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A loan where the repayment only consists of interest for an agreed period, usually 1 to 5 years. This means that no principal is included in the repayments for the chosen interest-only period. |
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The percentage of the loan, used to calculate the interest that is to be paid. |
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Introductory rate |
A reduced or discounted interest rate offered for a limited time, typically during the first few months or years of a loan. Also known as a honeymoon rate. |
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A loan used for purchasing investment properties. |
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L |
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Land Titles Office |
A state government body that is responsible for the maintenance of registers containing details of all property titles. |
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Lease |
A contract granting the use of an asset for a certain period at a specified monthly rental cost. |
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Insurance you pay to the lender on loans with high risk to protect lenders from defaults. LMI is normally payable by the borrower when the LVR exceeds 80%. |
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Liabilities |
This refers to debt or financial obligations such as personal loans, car loans, home loans, and credit card debts. |
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Line of credit |
A flexible loan that allows borrowers to access a certain amount of funds whenever they are needed. |
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Loan balance |
The total amount you owe on your home loan |
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This is the process of using the home’s equity to borrow more money which increases the existing loan amount. This is also known as a ‘top up’. |
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The percentage borrowed compared to the value of the property. Example - If the property is worth $250,000, and you borrow $200,000, then the LVR is 80% because you’ve borrowed 80% of the property's value. |
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Low documentation (Low Doc) loan |
A type of loan that requires less documentation from borrowers compared to a standard loan. |
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Loan term |
A period within which borrowers must repay their home loan, generally between 15 to 30 years. |
M |
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Minimum Monthly Repayment |
The minimum repayment amount required by the lender to pay back the loan within the agreed-upon loan term. |
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Maximum loan amount |
The maximum loan amount that can be borrowed, generally calculated based on the borrower's financial position and credit score, amongst other factors. |
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Minimum loan amount |
The minimum loan amount that a lender is able to loan to a borrower. |
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Also known as a home loan, this is a type of loan used to purchase a property. |
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Mortgagee |
The lender providing the funds for the borrower to purchase a property. |
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Mortgagor |
The individual who borrows money to purchase a property. |
N |
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This is the Federal legislation which governs the provision of credit to consumers in Australia. |
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Occurs when the expenses and amount owed on a property outweigh the profit. |
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No-documentation (No-doc) loan |
A type of loan that requires very minimal documentation from borrowers compared to a standard loan.
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Non-conforming loan |
A type of loan designed for borrowers who may not meet the typical lending criteria. |
O |
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This refers to buying a property from a developer or builder before the actual building has been built or is still in the process of being built. |
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A facility that is linked to a home loan. The balance of your offset sub-account reduces the interest charged on your home loan. |
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Old system title |
A document detailing a property’s ownership history. |
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Owner occupier/Owner occupied |
A type of property where the owner of the property is living in it, or 'occupying’ it. |
P |
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Occurs when the income from the property is more than the expenses including loan costs and maintenance fees (i.e., indicating a profit made). |
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When a lender agrees in principle to lend a borrower a certain amount following the lender’s validation and assessment. This is not equivalent to a loan approval or a guarantee of approval. This is also known as conditional approval. |
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Prime home loan |
A type of mortgage offered to those with high credit scores or at who low risk of defaulting. |
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Principal amount |
The amount owing on a loan, also known as ‘loan balance’. |
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Principal and interest repayment |
A repayment type where both the loan interest and the loan principal amount are repaid. |
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Progress payments |
A construction home loan feature that allows borrowers to make progress payments to builders, in stages, as construction is completed. |
R |
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Available with most variable loan products, to enable a borrower to make additional repayments on their loan, and to redraw this money if they need the funds again. |
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A process where an existing loan is paid out with a new loan from a new lender. |
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Regional First Home Buyer Guarantee (RFHGB) |
A government initiative to support eligible first home buyers to purchase a property in the regional area. |
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A property investment strategy where the investor buys a property for rental income while also living in another rental property. |
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This refers to the payments made to a loan. |
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Reverse mortgage |
A type of loan for individuals, usually 60 years of age or older, used to borrow money using their home equity without making regular repayments, as long as they continue to live in the property. The loan is repaid when the homeowner sells or no longer lives in the home. |
S |
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Security
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The asset used as collateral to secure the home loan. |
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This refers to a borrower’s ability to repay their home loan based on their income and expenses. |
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Additional costs associated with taking out a home loan. |
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A type of loan that allows borrowers to borrow funds to allow their self-managed super fund to purchase an investment property. |
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The legal process that involves transferring ownership of a property from the seller to the buyer. |
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A hybrid of a fixed rate loan and variable rate loan. |
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A tax imposed by the State Government on the purchase price of a property. |
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A type of home loan where the rate can change, or vary, over time - depending on numerous factors such as market conditions, and loan funding costs for example. |
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A title associated with ownership of townhouses, home units and commercial properties. |
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Strata report |
A comprehensive document that includes details about the strata’s finances, management, by-laws, restrictions, and the like. |
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Money built up from making additional or extra payments on your mortgage. |
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Details the boundary lines and legal description of a property. |
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T |
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Title |
The record of the legal description and ownership of a property |
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Title fees |
Charges imposed by the State Government to conduct a title search on property ownership. A title search is necessary for both refinance and purchase settlements. |
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Title search |
This will contain information such as property owners, restrictions on land, outstanding loans, registered leases, and other details pertaining to the property. |
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This is the process of using the home’s equity to borrow more money which increases the existing loan amount. This is also known as a loan increase. |
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Transfer fees |
Charges imposed by the State Government to transfer the registered mortgage on title. |
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Transfer of land |
A legal document that transfers the title of the property from one individual or party to another. |
U |
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Unencumbered |
A property that is free from third-party rights, claims, liens, charges, or liabilities. |
V |
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An estimation of something's worth conducted by a registered professional. |
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Valuation fee |
A fee charged by a property valuer to conduct a valuation assessment. |
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Variable interest rate |
An interest rate that can change, or fluctuate, due to various factors such as market changes or costs of funding, for example. |
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A type of loan with a variable interest rate (see above). If the interest rate changes, then the monthly minimum repayment amount may change accordingly. |
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Variation |
Occurs when a loan is varied, or changed, in any kind of way. For example, the loan is changed from a variable rate loan to a fixed rate loan. |
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Vendor |
This refers to the individual or representative who is selling a property. |
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