Jargon Buster

A handy glossary of mortgage-speak

Payments made in advance of your loan schedule.

A one-off fee you pay the lender to review your application. It’s usually only payable if the bank approves your loan.

The amount of loan repayment that’s overdue.

A large single payment on your loan – typically near the end of the term – to clear your remaining debt.

One basis point equals 0.01% in interest rates. So, if for example, the Reserve Bank cuts interest rates by 25 basis points, they’re cutting it by 0.25%.

The costs associated with refinancing your loan or switching to a variable rate loan before the end of the fixed rate period.

A short-term loan which can be taken out while you’re waiting for your old home to be sold. Bridging loans do not offer as many features as standard home loans.

The rate at which the Reserve Bank lends money to commercial lenders. It affects home loan interest rates.

Latin for ‘Let the Buyer Beware’. It recognises that it is the buyer’s responsibility to ensure a property is fit for purpose before purchasing it.

A legal term for property other than land, such as movable and physical items (e.g. furniture).

The loan’s interest rate once the effect of fees and charges has been removed. So a loan with high fees and charges would have a comparison rate that’s higher than the advertised interest rate.

Interest paid on the accumulated interest as well as principal.

The legal process of transferring property from the seller to the buyer.

The amount of time, after signing a contract to purchase a property, in which the buyer can cancel the contract without legal recourse.

Stands for ‘Credit Reference Association of Australia’. This institution holds records on credit payments and defaults for everyone who has borrowed money in Australia.

Credit reports are more often used in Australia. You don’t have a rating as such, but any credit defaults you may have are recorded.

Failure to make a home loan repayment by its due date.

The amount of money that you put in to purchase the property. Loans with deposits of 20% or more generally don’t require lender’s mortgage insurance.

The first date you are able to access loan funds – either to pay for the property or to pay builders in a construction loan.

Fees paid if you pay off a loan before the specified period. This is used to help the lender recoup interest they would have collected if the loan went for the expected term.

The amount of value held in your property over and above that which the lender has a mortgage over. If your home is worth $200,000 and you currently owe $150,000, you have $50,000 equity.

See ‘Line of Credit Loan’.

A type of loan where the interest you pay remains the same for a period set by the borrower (usually one, two, three or five years).

Items that would cause damage to a property if removed.

An individual or company that promises to pay off your loan if you’re unable to.

A period at the beginning of a loan where interest rates are lower than usual. The rate usually switches to ‘standard variable’ after the honeymoon period.

A loan that doesn’t require you to make payments on the principal. Interest-only loans are often used by property investors and those planning to sell within a short time.

A loan that offers an interest rate lower than usual for a set period at the beginning of the loan. Often referred to as ‘honeymoon rate’.

A loan used to make an investment.

State government tax on the purchase of land. Land tax varies among states.

Insurance taken out by lenders to protect themselves from defaults by the borrower. LMI is generally required for home loans with a Value Ratio (LVR) above 80%.

A transaction account that has a credit limit attached to it. As the borrower, you can generally withdraw funds at any time up to the credit limit. There is usually no fixed repayment schedule – but you may be required to make payments to at least cover the interest and fees on the loan.

A formal contract between you and your lender which sets out the terms and conditions of the loan.

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%.

A person who holds a mortgage as security. For example, if a bank holds a mortgage, the bank is the mortgagee.

A fee that is payable each month on a loan account. Fees vary for different types of loans.

An extra repayment made to a loan outside of the scheduled repayments.

A document that creates a security interest over a property to a creditor as security for a loan.

A person who gives a mortgage. For example, a borrower who provides a mortgage over their house as security for a loan is the mortgagor.

Helps reduce interest costs by linking the loan to a transaction or deposit account. The balance in the account ‘offsets’ the loan principal – and interest is calculated on the principal minus the balance in the account. For example, if the principal on your loan is $180,000 and you have $5,000 in your offset account, interest is only calculated on $175,000.

The ability to ‘move’ your loan from one security (e.g. property) to another. For example, you can usually take your current loan with you when buying a new home.

The initial approval process which estimates how much you can borrow (before finding a property), based on the information provided to the bank.

The additional payment(s) you make to a loan outside of the scheduled principal and interest repayments.

A loan where the repayments are made up of principal and interest.

A loan where the repayments are made up of principal and interest.

The value of the property as determined by a valuer.

Allows you to lock in the interest rate that is quoted to you at the time of loan approval for up to three months. If interest rates change before the loan drawdown date, you are guaranteed the original rate (provided it’s within the three months). You may need to pay a rate lock fee.

A loan feature that allows the withdrawal of funds paid in advance, if the borrower is far enough ahead of their scheduled repayments.

Paying off an existing loan and establishing a new one.

The amount you must pay at an agreed frequency (e.g. fortnightly or monthly) according to your loan contract.

If you’re ahead of your repayments, you can apply for a break in making loan repayments.

A fee that your lender may apply to cover the cost of valuing the property.

The completion of the process to sell or purchase a property.

Splitting a loan into more than one loan account. For example, a fixed rate loan account and a variable rate loan account.

The asset you use to secure repayment of a loan. For example, your property.

The sum of money paid to the government by the buyer when property is sold. The amount varies for each state and territory.

The holding of property by two or more people in equal or unequal shares.

Title that grants ownership of land.

A document registered in the Land Titles Office recording the change of ownership.

The length of a loan (e.g. 30 years).

The value of a property as determined by the bank or an independent valuer.

Your loan’s interest rate could move up or down. If interest rates change, your minimum repayments could too.