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Home Loans Glossary
A | B | C | D | E | F | G | H | I | J | K - L | M | N | 0 | P - Q | R | S | T | U | V | W - Z
Here is a glossary of commonly used terms and jargon that is used by
providers of home loans and lenders in the mortgage industry.
A
AAPR
Average Annualised Percentage Rate.
Sometimes referred to as the compulsory Comparison Rate, this figure takes into
account the other costs associated as an average interest rate, to create a
level field with which to compare similar loan product interest rates.
Acceptance
Agree to the terms
of an offer or contract.
Additional
Repayment
Extra funds paid into the loan in addition to the minimum
monthly payments.
Affordability
The ratio of average household disposable income to income required
to meet payments. The higher the number, the more affordable property is.
Agent
Real Estate Agent.
Person/Body authorised to act on your behalf in the sale, purchase or management
of property.
All-in-one Loan
Allows you to deposit all of your income into the loan account and
then withdraw money from that account for day-to-day transactions. The longer
spare funds stay in the account, the greater the interest savings.
Amortisation Period
The period of time a
loan is calculated over and repaid.
Application Fee
The fee charged by the
lender to cover or partially cover the lenders costs of setting up or
establishing the loan.
Appraised Value
Estimate of the value of a property being used as security foe a
loan.
Arrears
An overdue
account.
Assets
Money,
property or goods.
Asset Lender
Lending institution that lends finance based on the value of the
asset, which will be held as security.
Assignment
Legal transference of a right or
a title to a property to another party.
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B
Basic Variable
Variable home loans at a
reduced rate with fewer features than a standard variable
Bankruptcy
The legal financial state an
individual is in when unable to meet debts (for companies it's known as being
wound up). The federal court may declare a debtor bankrupt, at either the
debtors' or the creditors' instigation; and the debtors' estate will be placed
in the hands of an official receiver who will distribute the estate in
accordance to the provisions of the Bankruptcy Act
Body Corporate
A management corporation,
employed on behalf of the owners of units or flats to manage the building and
common areas.
Borrower
A
person/persons, or entity borrowing money to purchase, pay off, or refinance a
product or effect.
Break Costs
Incurred when a loan is paid off before the end of its term.
Bridging Finance
Enables you
to cover the purchase of a new property when you are yet to sell another
property.
Building Inspection
A qualified building inspection is recommended prior to the sale of a
property to insure there are no hidden problems with the property and that you
are getting what you pay for
Buyer's
Agent or Buyer Advocate
Person to act on behalf of the buyer to find
and negotiate on properties the buyer wishes to buy.
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C
Capital
The current value of your assets,
including car, property, business, money etc.
Capital Gain
The financial gain you get
when you sell something for more than you bought it for. May be subject to the
capital gains tax; this is paid on the gained amount.
Capped Loan
A loan where the interest rate
is not allowed to exceed a set level for a period of time, but unlike fixed rate
loans, is allowed to drop.
Caveat
A notice of warning given to a public authority, eg. Titles Office,
claiming entitlement to an interest in certain land. The caveat is registered
and remains on the books as a warning to anyone who contemplates dealing with
the property. It therefore prevents any action being taken without the previous
notice of the person entering the caveat (the caveator).
Certificate of Title
Details the land
dimensions, encumbrances and ownership details of a property.
Charge (Over Property)
The term used to
describe any right established over a borrower's property to secure a debt or
performance of an obligation.
Collared
Rate
Variable rate loan with a set upper and lower limit beyond which
the interest rate cannot move past.
Collateral Security
Additional or
supporting security given in addition to the principal security.
Combination Loans
Various loans come under
the same banner to form one loan. Also known as a Split Loan.
Commission
Generally the payment that the
broker receives from the bank or lending institution, once the client's loan has
settled successfully.
Comparison Rate
Schedule
The annual percentage rate and the respective Comparison
Rate, for loan products for specific amounts over specific terms for a
particular lender.
Compulsory Comparison
Rate
Sometimes referred to as the Average Annualised Percentage Rate,
the CCR takes into account other costs associated with a loan as an average
interest rate, to create a level field with which to compare similar loan
product interest rates.
Construction
Home Loans
Specifically granted for the purpose of building a new
dwelling. You are generally able to draw down money as required.
Consumer Credit Code
Legislation designed
to protect the rights of the individual (personal consumer) by ensuring banks
and other financial institutions all adhere to the same rules when providing
personal, domestic or household credit. It should provide borrowers with
complete and honest information. Also known as the Uniform Consumer Credit Code
o UCCC.
Contract of Sale
A
written agreement outlining the terms and conditions for the purchase or sale of
property.
Cover Note
Temporary insurance taken out on a property before an official
insurance policy can be drawn up.
Conveyancing
The legal process for the
transferal of ownership of real estate.
Credit History
A thorough check of all
financial history of a potential borrower such as past loans and debt.
Credit Limit
Maximum amount
the borrower can use at any one time.
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D
Daily Interest
Interest calculated on a
daily basis - varies according to daily account balance.
Debtor
Someone who owes money to another
and can be compelled to perform an obligation.
Deed
A document in writing, which is
signed, sealed and delivered by parties thereto, to prove and testify the
agreement of the parties whose deed it is, to the things contained in the deed.
Default
Failure to meet debt
payment on a due date.
Default Rate
The rate a loan rolls/moves to automatically at the end of any fixed
period.
Deferred Establishment Fee
Is charged when you payout your loan within a short period of taking
it out, such as three years (not all loans have this fee).
Deposit
The down payment on the purchase of
a property normally paid to the real estate agent's trust account to secure the
home.
Deposit Bond
Guarantees
that the purchaser of a property will pay the full deposit by the due date.
Depreciation
The accounting
practice where the cost of a fixed asset of a business is spread over the life
of the asset. Depreciation is a non-cash expense that allows the money to be
retained by the business, thus technically allowing the business the capacity to
replace the asset over time.
Direct
Debit
Where the lender debits (deducts) a payment from client’s bank,
credit union or building society account.
Disbursement
Solicitors incidental costs
involved when dealing with client on behalf of Lender, e.g. searches,
certificates, pest reports etc.
Discharge
The total repayment of the
mortgage.
Discharge Fee
The
administration fee for finalizing a repaid loan.
Discount Rate/Introductory Rate
A loan
offered at a reduced rate for an introductory period - usually no longer than 12
months to a new borrower.
Dividend
A source of income where company profits are paid out to the
company's shareholders.
Drawn Down
Act of transferring money from lending institution to the borrower
after the loan has settled.
DSR
Debt Service Ratio.
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E
Encumbrance
A charge or
liability, e.g. mortgage.
End Loan
The loan amount you are left with after you have sold your existing
home and paid the proceeds towards your bridging loan.
Equity
Generally used to donate the
financial interest of a person in a property or business enterprise, e.g. a
persons equity in his/her house is difference between its value and the amount
still owed to a lender. A persons overall equity refers to his/her net financial
worth, or the difference between what he/she owns and what he/she owes (i.e.
Assets - Liabilities = Equity).
Equity
Loan
A loan usually secured by the value of equity you hold in your
house.
Establishment Fee
Fees
that may or may not be charged to set up a loan (also known as an application
fee).
Estate
An interest in
land.
Exchange
The legal
point of time when the vendor and the buyer swap documentation with a view to
settlement.
Expenses
Cost of
living per month - i.e. rent, school fees or a car loan repayment.
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F
Fee Simple
The estate in fee simple is the highest estate in land, and it is the
closest the law comes to recognizing absolute ownership for all practical
purposes. However, while we refer to proprietor of an estate in fee simple (who
is the owner for all practical purposes), their ownership is not legally
absolute, for absolute legal ownership of all rests with the Crown.
First Home Owners Grant (FHOG)
A subsidy which the State and Federal Governments offer to people
when they purchase their first owner occupied home.
Fittings
Items that can be removed from
property without causing damage to it e.g. carpet and curtains.
Fixed Interest (Fixed Rate)
An interest
rate set for an agreed term (1, 2, 3, 4, 5 and 10 are normal terms).
Fixtures
Items that would
cause damage to the property if removed. Their removal must be stipulated in
contract of sale, and damage made good by the seller, e.g. hot plate and oven,
etc.
Freehold
The dwelling
and the land on which it stands which is owned by the owner indefinitely.
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G
Garnishee Order
A court order
taken out by a creditor on a person's employer or banker for the deduction of
funds from wages or bank account to repay a debt.
Gearing
The ratio of your own money and
borrowed funds in an investment.
General
Law System
System whereby all dealings on a property are made in the
form of conveyances, whether the transaction is a sale, a mortgage,
re-conveyance, etc. Under this system the mortgage is, in fact a transfer of
ownership. When a conveyance is prepared, it forms part of a chain of title and
must be carefully preserved in order to prove the "root" to title.
General Lien
Sets out in writing the banks
right to retain property until the debt is paid. Includes Power of Attorney and
other clauses generally contained in bank security forms.
Government Fees
State and Federal
government taxes/charges at the time of settlement, e.g. stamp duty.
Gross Income/Profit
Income
from a person or company, before tax, superannuation or payroll deductions.
Guarantee
A person who agrees
to be responsible for the payment of another persons debts.
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H
Holding Deposit
A
refundable deposit based on the goodwill of the buyer to go ahead with the
purchase.
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I
Income
The total
of all incoming monies.
Indemnity
Security against damage or loss; sum paid in compensation for loss
incurred.
Installments
Regular loan repayments.
Instrument
Formal legal document in
writing, e.g. a deed of conveyance.
Interest
The lenders charge for the use of
funds or the return on deposited funds.
Interest Adjustment
This may be charged to
compensate the lender for loss of interest revenue when additional repayments
are made on a fixed loan.
Interest Only
Loans
A loan where the principal is paid at the end of the term and
interest is paid during the term. These loans are usually for a short period of
time up to five years and for investment purposes.
Interest Only Repayments
The minimum amount
that can be repaid on a loan. Only interest is paid and the original loan amount
does not decrease.
Interest Rate
A percentage of interest that the borrower pays on the loan.
Introductory Loan/Honeymoon Rate
A loan offered at a reduced rate for an introductory period (usually
no longer than 12 months) to new borrowers.
Investment Loan
A type of loan required
when purchasing an investment property.
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J
Joint and Several Liability
The banks joint account authorities, guarantee form, etc, are framed
to ensure that joint account holders with debts due to the Bank of joint
guarantors liable to the Bank shall be severally liable, (i.e. individually), as
well as jointly . With Joint and Several Liability a creditor has as many rights
of action as there are debtors; he can sue them jointly or severally until he
has obtained payment, and an unsatisfied judgment against one debtor will not be
a bar to an action against the others.
Joint Tenancy
Property in the name of two
or more persons, where all persons have an equal interest in the whole property.
When one person dies the interest passes to the survivor(s). They are known as
joint Tenants or Joint Proprietors of that property.
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K - L
Liability
A debt which one is liable for; being responsible only to a limited
amount.
Land Tax
A state
government tax charged to the owners of any property over a stipulated value,
unless it is their principal place of residence.
Land Transfer Registration
Registration of
the transfer of ownership in property to the buyer.
Lien
The right to hold property as security
against a debt or loan.
Line of Credit
A loan arrangement with a specified credit ceiling to which funds are
drawn from.
Loan
An advance
of funds from a lender to a borrower on the agreement that the borrower pays
interest on the loan, plus paying back the initial amount of the loan, at, or
over, an agreed time.
Loan
Administration Fees/Loan Maintenance Fees
A fee that is charged to
cover the lenders maintenance and administration cost of the loan accounts.
Loan Approval Fee
A fee,
which lenders charge to cover the cost of processing a loan application.
Low Doc Loan
Low Doc home
loans and commercial loans are offered by select lenders if a borrower lacks the
standard income statements or tax records that verify their income - due to self
employment or no set salary.
LVR
(Loan to Value Ratio) the ratio of amount lent, to the valuation of
the property (i.e. $100,000 at 80% LVR = $80,000).
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M
Maturity
The date
a debt or investment must be paid in full.
MIOS
Mortgage Industry Ombudsmen Service.
Mortgage
A form of security
for a loan usually taken over real estate. The Lender, the mortgage has the
right to take (repossess) the real estate if the mortgagor fails to repay the
loan.
Mortgagee
The lender of
the funds.
Mortgagor
The
person borrowing money in the terms of the mortgage.
Mortgage Broker
A person or organisation
marketing numerous home loans and commercial loans from a panel of lenders who
select the best loan or loans for borrowers from this selection.
Mortgage Discharge Fee
An administration
fee to cover the costs (eg. documents) incurred in up a loan (This fee is not
charged on every loan).
Mortgage Offset
Account
By offsetting all available funds in your transaction account
against the loan, you can lower the interest you pay.
Lenders Mortgage Insurance
This is taken
out by lenders, but is paid for by the borrowers, to cover themselves if the
borrower defaults on their loan, and property sale proceeds don't cover the
outstanding amount (usually charged above 80% of the value of the property).
Mortgage Manager
A Company
responsible for managing every facet of a borrower's loan. Often sources loans
from mortgage originators.
Mortgage
Originator
Retail and more often, wholesale lender who sources
securitised funds in order to package them as loans.
Mortgage Protection Insurance
Different to
mortgage insurance and covers borrower’s loan repayments in the event that they
are not able to meet them, through illness or redundancy, for example.
Mortgage Registration Fee
A
state government fee for the registration of a mortgage.
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N
Negative Gearing
Gearing your investment so that the costs to maintain it (loan
repayments, council rates, maintenance, etc) outweigh the income produced by the
investment, leading to a reduction in taxable income.
Net Income
The income received by an
individual after tax has been taken out.
Net Profit
The profit remaining in a
business after all expenses have been taken out, but before tax.
No Deposit Home Loans
A loan that select
lenders offer where no deposit is required allowing a 100% loan of the entire
property value.
No Doc Loan
No Doc loans are offered by select lenders if a borrower has no
income statements or tax records that verify their income. This particular loan
requires borrowers to sign an agreement stating that they will be able to
service the loan (ie. meet the repayment requirements).
Non Conforming Borrowers
Applicants who
fall outside the normal eligibility requirements of mainstream lenders.
Non-Conforming Loans
Where
standard loan criteria can not be met by borrower ie. credit card defaults or no
standard income.
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O
Off The Plan Purchase
Buying
a property from the plans only, not the finished product.
Offset Account
A savings account linked to
your mortgage in such a way that the interest earned on your savings is applied
to reduce the interest on your mortgage.
Ongoing Fee
Any loan maintenance fee
charged regularly over the life of the loan and charged monthly or yearly.
Overdraft
A pre arranged
limit to which a person can exceed an account balance.
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P - Q
Passed In
A property is passed in at auction if the highest bid fails to meet
the reserve price.
Portability
Where a new property can be used as security for an existing loan
i.e. when a loan is transferred to a new security property without needing to
repay the loan, reapply, or restructure.
Power Of Attorney
A written authorisation
to another person or persons, to perform certain acts for the signer, as they
were the signer.
Pre-Approval Loan
Before looking or making an offer on a property, you are able to be
conditionally or unconditionally approved by a lender allowing you the security
of knowing what you are eligible to borrow.
Principal
The capital sum borrowed on which
interest is paid during the term of the loan.
Principal and Interest Loan
A loan which
both the principal and interest are paid during the term of the loan.
Private Treaty Sale
A
property sale where the buyer negotiates directly with the seller, as opposed to
an auction sale.
Progress Draws
Payments made to the builders at the completion of each stage of
construction where you only use a portion of your loan at a time.
Property
A person's property is "that is
his/her own to do what he/she likes with". It may be tangible or intangible, and
may be given a monetary value (eg. house, car or goodwill). Property may be
classed 'real' which relates to land or interests in land (except leaseholds)
and buildings, etc, or 'personal', which relates to other kinds of property such
as cars, bank account, and leasehold interests in land.
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R
Redraw
Borrower is able to
draw/take out on pre paid funds.
Refinancing
To replace or extend an
existing loan with funds from the institution or another.
Rental Guarantee
A promise by a developer
guaranteeing a certain level of return on an investment property. Usually stated
as a percentage of the purchase price, it generally relays to investment
properties purchased off the plan.
Repayment Period
The repayment frequency
throughout the life of the loan. I.e weekly fortnightly or monthly.
Reserve Price
A specified
minimum price acceptable to a seller at auction.
Residential Investment Loan
A loan funding
a property bought for investment purposes.
Reverse Mortgage Loan
On option for people
60 years and above to use the equity in their home to secure a loan. No
repayment needs to be made until the property is sold in which case the whole
loan amount must be repaid including the interest.
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S
Search
An
examination to confirm that the vendor is in a position to sell the property and
that there are no encumbrances on the property.
Securitisation
The packaging of cash flow
producing assets into a marketable security, e.g. property, roads, bridges, etc.
The process where mortgage backed securities (in the form of a bonds) are sold
directly into capital markets, investors in the bonds comprise superannuation
funds as well as other major institutions.
Security
An asset that guarantees the
lender their borrowings until the loan is repaid in full. Usually the property
is offered to secure the loan.
Serviceability
Ability of borrower to make
and meet repayments on a loan, based on the borrowers expenses and income(s).
Settlement
Finalisation of
payment by the new owner, and assumption of possession.
Split Loan
Selective lenders offer loans
where you can split the loan amount into several accounts i.e. fixed or
variable.
Stamp Duty
A state
government tax on the mortgage amount and purchase price.
Standard Variable
Variable home loans with
comprehensive features. This is often the variable rate fixed rate loans roll to
at the end of the fixed term.
Strata
Title
A title that records your ownership of a 'unit' of a larger
property. Unlike a strata title, the owner becomes a shareholder in the company
that manages the common area.
Surety
Person who makes themselves responsible for another’s payment of
debt, also known as guarantor.
Survey
A plan of a property showing how the
building and the boundaries around it are situated.
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T
Tenants In Common
Property in the names of two or more persons and in which each has
separate and distinct share. When one person dies his share is not passed to the
survivor(s) but becomes part of their estate for disposal according to their
will.
Term
The length of a
home loan or specific portion within that loan.
Third Party Security
Security provided for
a mortgage by a third party (someone different from actual borrowers) who is
legally different from the borrower or debtor.
Title Deed
Registration showing the
ownership of property.
Title Search
Process to ensure that the vendor has the right to sell and transfer
ownership.
Title Transfer Fee
A fee charged when purchasing a property for the transfer of the
title deed for the property.
Torrens
System
System whereby ownership and all dealings on a property are
detailed on the one document, i.e. a certificate of title or deed of grant.
Under this system a mortgage is a charge or encumbrance on the title.
Registration is compulsory to effect legal transfer of an interest in property
and each time the property is sold, mortgaged, or a mortgage discharge, the
transaction is recorded on the certificate of title.
Transfer
The document registered with the
land titles office that confirms the change of ownership as noted on the
certificate of title.
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U
Uncommitted Monthly Income
Total income available once all monthly expanses are taking out.
Unencumbered
A property free
of liabilities, restrictions or mortgages.
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V
Valuations
A
report as required by the lender, detailing a professional opinion of a
properties value.
Variable Interest Rate
A rate that changes in accordance with rates in the marketplace.
Variation
Changing any part
of the original loan contract.
Vendor
Person selling a property who is its current owner.
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W - Z
Zoning
Local authority guidelines as to the permitted use of land.
