Mortgage Terms
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
A
Accelerated Payment: the option to make higher repayments to pay off the loan faster
Account Keeping Fees: are fees charged by the lender to try and recover the ongoing costs of administering the loan facility
Additional Repayment: extra funds paid into the loan over and above the minimum prescribed repayments. This helps reduce the term of your loan.
Adjustments: the process of allocating expenses on settlement of a property that the seller has paid for but has not used, and which the buyer will use in the future e.g. land and water rates, electricity etc.
Amortisation period: the period of time one has to repay a loan at the arranged terms.
Application Fee: a fee payable to the lender to cover or partially cover the lender's internal costs of approving, documenting and settling your loan and can include administrative costs, legal and valuation fees.
Assets: money, property or any goods owned which can be used as security for a loan.
ATM: automatic teller machine
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B
BAD: Bank Account Debits Tax. Is a State or Territory Government tax (except ACT) on withdrawals from accounts on which a cheque may be drawn.
Bankruptcy: when a debtor has his/her estate placed into the hands of a receiver who has the responsibility to distribute the estates assets.
BPay: a service that enables customers to electronically transfer funds either into or out of their bank, building society, mortgage manager or credit union account to pay bills.
Body Corporate: is a corporation of the body of owners of a strata building e.g. a block of units or apartments. They form a self-elected council for the management of the building and any common areas.
Break Costs: costs charged by a lender when a loan is paid off before the end of its agreed term. Generally applied to fixed loans.
Bridging Finance: short term finance used to cover the gap between the funds received from the sale of an existing house and the payment of funds to purchase a new house. Usually allowed for a period up to 6 months. Not all lenders offer this loan facility.
Broker: also referred to in the industry as mortgage introducer, agent, advisor, Finance Advisor, loan writer and referrer. This is a person who acts as an introducer or middle person between the lender and the client to organise a home loan or other finance product.
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C
Capitalised Mortgage Insurance: this is where the lender adds the mortgage insurance premium on top of the loan amount saving the borrower the upfront cost of the insurance. This can have the effect of lending someone over 97% of the property value.
Capped Loan: a loan where the interest rate is not allowed to exceed a certain amount for a fixed period of time, but unlike fixed loans is allowed to decrease.
Caveat: is usually a contract which restricts certain things happening. Is normally placed on a property to prevent it being sold if obligations are owed to a third party.
Certificate of Title: shows the description of the property, who the owners of the property are, plus any parties who have a registered interest in the property, i.e. the lender.
Common Law Title: known 'old system title' it consists of a series of title documents called 'a chain of title'. A title is sound only if every document in the chain is available and complete. Legal costs of acting on a purchase of Old System Title land are higher than on a purchase of Torrens Title land because making a thorough investigation of the chain of title can be complicated and time consuming. Old System Title may be converted to Torrens Title and is often automatically converted to Torrens Tile following a sale.
Company Title: when a company owns the whole of the property a company title is used. When buying the property the purchaser purchases shares in the company and the purchaser obtains an entitlement to occupy a particular part of the property.
Comparison Rate: used to compare the actual rate of a loan, taking into account nominal interest rate per annum, the compounding frequency and upfront and ongoing fees, as outlined in the consumer credit code. It only applies primarily for personal use loans and products that are fixed term.
Conditional Approval: refers to an 'Approval in Principle' which is subject to change at anytime. The application will proceed to unconditional approval once certain conditions have been met. These conditions could be a suitable valuation of the property, employment checks, obtaining lenders mortgage insurance or perhaps clarifying some information from the applicants.
Contract of Sale: a written agreement outlining the terms and conditions for the sale or purchase of a property, between a vendor and purchaser.
Conveyancing: the legal process for the transferral of ownership of real estate.
CRAA: Credit Reference Association of Australia
Credit Impaired: where an applicant does not have a clear credit lending history. The applicant may have arrears on loans, paid or unpaid defaults, judgements, or past bankruptcies. Not all lenders will lend to people in these circumstances and those that specialise in this area generally charge higher interest rates and fees and charges (based on the higher risk level).
Credit Limit: the maximum amount a borrower can draw up to on a loan. Credit cards and line of credit loans will have a credit limit.
Creditor: a party to whom money is owed.
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D
Daily Interest: most loans interest is calculated on a daily basis, therefore the more regularly funds are sitting in the mortgage account the less interest that is paid to the lender.
Debt Consolidation: the act of combining a number of debts together into the one loan to reduce the overall interest paid and/or reduce the repayments made on a regular basis. Common debts to consolidate are a home loan, credit cards, interest free loans, personal loans, car loans and renovation loans.
Debtor: someone who owes money to someone else.
Deferred Establishment Fee: this fee is charged if the borrower exits a loan within a certain period of establishment, usually between three and five years. Deferred establishment fees vary from lender to lender and are designed to stop borrowers jumping from one honeymoon or discount loan to the next. Not all loans carry deferred establishment fees, but you will most likely find lenders to charge large amounts for discount or honeymoon loans. Deferred establishment fees range from a small amount to a fairly substantial penalty, for example it may be charged as one months loan repayment, or based on a sliding scale. The sliding scale is usually based upon when the loan is paid out, the longer the loan time the smaller the deferred establishment fee.
Deposit: the buyer normally pays a deposit at the time of exchanging contracts. It is normally 10% of the total purchase price however it can be lower by negotiation. If obtaining a loan which is 90% or higher you will need to negotiate a lower deposit. A lower deposit will more likely be accepted if a pre-approval certificate is obtained from the lender to ensure the seller that finance is approved.
Deposit Bonds: are issued by major insurance companies and are a guarantee to the vendor that payment of the deposit (up to a maximum of ten percent of the value of the property) will be made at the time of settlement, as opposed to paying the deposit up-front when exchanging contracts.
Depreciation: the cost of building a property can be depreciated over a 40 year term and claimed as a tax deduction against income earned on the property. It is also possible to depreciate the fixtures and fittings of the property as well.
Depreciation Schedule: sets out your depreciation entitlements on a yearly basis and ensures you receive your maximum tax-deductible depreciation allowances.
Direct Debit: the regular electronic debiting of funds from a customers nominated account to another company.
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E
Early Termination Payment: the cost of paying out a loan early (normally within the first 5 years).
EFT: Electronic Funds Transfer from one account to another.
Encumbrance: an outstanding liability or charge on an asset.
Establishment Fees: can be charged upfront by a lender on establishing a loan facility for a customer. Usually covers a valuation fee and application fee.
Equity: the amount of an asset actually owned after taking away any debts owed against the asset.
Exchange of Contract: the legal point of time when the vendor and purchaser swap documentation and start enquiries with a view to settlement.
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F
FID: Financial Institutions Duty is a State duty on the receipts of financial institutions.
Fixed Rate: an interest rate that applies to a loan for a set term. The term can be from 6 months up until 15 years in Australia. The rate can be principal and interest or interest only.
Freehold: is where the owner owns the dwelling and the land indefinitely.
Full Approval or Unconditional Approval: when the lender has completed all their checks and is willing to proceed to drawing loan contracts up.
Full Document loan: or commonly known as fully verified loan. This is where the customer is an employee (PAYG) or self-employed and can provide income documentation for the previous two years to prove serviceability of a loan.
Funds Transfer: an easy way to access the available balance in an account and transfer this money to another account.
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G
Gearing: the ratio between your own money and borrowed funds
GST: goods and services tax currently paid at 10%
Guarantee: a promise made as bound by the terms of a contract.
Guarantor: is a person or company who agrees to be held responsible for another person's debt if they default on the loan
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H
Holding Deposit: a refundable deposit demonstrating the goodwill of the buyer to go ahead with the purchase. The buyer then generally has 14 days to confirm they will be going ahead with the purchase.
Household Income: the total amount of income earned from everyone in the family i.e. the two parents.
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I
Inclusions: items included with the property for sale e.g. light fittings, stove, blinds, air conditioner etc.
Interest: the amount a lender charges you for borrowing their money. The interest can be charged in advance or arrears.
Interest Only Loans: the amount borrowed is not repaid until the end of the term of the loan. Repayments consist of interest, fees and charges. Commonly used for construction loans and investment property loans
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J
Joint Tenants: the holding of property by two or more persons in equal shares. If one person dies, their share passes on to the survivor/s.
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K
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L
Land Tax: a state government tax charged to the owners of any property over a stipulated value, unless it is their stipulated place of residence.
Lease: is a contract granting a specific tenancy of a property under certain terms and conditions.
Lenders Mortgage Insurance: a form of insurance to cover the lender if the borrower defaults on their home loan and the sale of the property is unable to cover the outstanding loan amount. Lenders Mortgage Insurance is usually paid by the borrower when the loan is higher than 80% of the purchase price (will differ between Lenders). It is important to understand that lenders mortgage insurance does not provide you the borrower with any form of protection.
Loan Switching: where a borrower switches from an existing loan type to another. Most lenders will charge a fee for this of around $300. Some loans will automatically roll into another loan type without the need to pay a fee e.g. at the end of a fixed rate term the loan will roll into a standard variable rate for no fee.
Loan to Value Ratio: commonly known as LVR or LTV. This refers to the maximum amount lenders will approve against the value of the property to be used as security.
Low document loans: also known as lo document, lite document or self-certifying loans. This is a loan whereby PAYG or self-employed people fall outside the guidelines of normal lending criteria. Low document loans allow for these borrowers to state their income without providing any documentary evidence.
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M
Maturity: the date a debt or investment must be paid in full.
Minimum payment required: the amount an applicant is contractually obliged to repay each month, in order to repay the loan within the agreed term.
Mortgage: a legal document recording the terms and conditions applying to a property, which is used as security and the money borrowed against it.
Mortgagee: the lender of funds
Mortgagor: one who borrows the money and provides the mortgage.
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N
Negative Gearing: where the cost of owning and running an investment property is larger than the rental income received from that property. The loss can then be deducted off your normal gross income, thus reducing the tax you have to pay and increasing the tax refund the ATO will give you. The tax refund can help you cover the costs of the property.
Non-Conforming: non-conforming lending provides an alternative to those applicants who do not meet the criteria of traditional lenders. There are many circumstances when a non-conforming lender could be utilised: mortgage arrears, paid or unpaid defaults, paid or unpaid judgements, bankruptcies, divorce, problems with a credit provider, casual wages as main income, mortgage insurance guidelines not being met, recently arrived in Australia, large reliance on pension income, newly self-employed applicants, unacceptable or unusual deposit sources, instability of employment and residence, large number of debts to be consolidated, short term employment, age of applicants and lending on valuation instead of contract price for off the plan purchasers.
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O
Off The Plan: is the purchase of a property before the property has been built. Only the plans are available but even these can be changed prior to settlement. Commonly used to market high-rise apartment buildings, or land sub-divisions.
Old system title: known as common law title consisting of a chain of the title documents stretching back to the original owner.
Ongoing Fee: a regular loan maintenance fee charged over the life of the loan by most lenders. It covers the management of the loan and the production of loan statements.
Overdraft: a pre-arranged limit to which a person can exceed an account balance.
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P
Portability: where a mortgage is transferred from an existing security to a new security. This normally has to occur on the same day.
Principal: the capital sum borrowed, upon which interest is payable.
Principal and Interest Loan: all repayments include both interest and principal whereby the principal portion reduces the balance of the loan, so it is repaid in full over the term of the loan.
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Q
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R
Redraw Facility: ability to access any additional funds you have deposited into your mortgage above the minimum required. There could be conditions such as the minimum amount to redraw, cost of the redraw and how often you can redraw.
Refinance: to payoff a mortgage and arrange for a new mortgage with the same lender or a new lender.
Repayment Sweep: the regular monthly transfer of money between two accounts under the same loan to cover repayments.
Reserve Price: specified minimum price acceptable to a seller at auction.
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S
Search: a legal examination to confirm that a vendor is in a position to sell a property and that there are no encumbrances on it. '
Security: documentation held by the lender (or mortgagee) regarding the property supporting the loan.
Self-Certified: indicates the borrower is allowed to certify or state their own income without providing documentary evidence.
Settlement Date: the day the purchase is finalised and the new owner takes possession of the property.
Stamp Duty: a state government tax. It is usually applied to documents, including a contract of sale and a mortgage. It is calculated according to the sale value for a contract of sale or the amount secured for a mortgage.
Strata Title: this title gives you ownership of a 'unit' of a larger building which you may sell, lease or transfer at your discretion.
Sub-Accounts: a borrower may split their mortgage into multiple sub-accounts. The accounts could be different interest rate structures e.g. variable or fixed, and used for different loan purposes. Statements will be issued for each sub-account so that it is easy to see the transactions taking place in each account.
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T
Tenants in Common: the equal or unequal holding of property by two or more persons. If one person dies, their share passes to the person named in their will or to their estate.
Term: the duration of a loan, or a specific period within that loan.
Title Deed: a document disclosing the legal description and ownership of a property.
Title Search: process to ensure the vendor can sell the property. This is performed by the buyer's solicitor and lender.
Torrens Title: the name given to the government system of recording ownership of land. It's by far the most common land title and the cheapest title to buy or sell. Once you are registered on the title you are the guaranteed owner.
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U
Unconditional Approval: refers to a formal approval once the borrower has met all outstanding requirements. The loan will then progress to the documentation stage.
Unencumbered: where a property has no debt against it and the title rests with the owner
Unregulated: where a loan is predominantly for business or investment purposes and is not covered by the Uniform Consumer Credit Code (UCCC).
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V
Valuation: a report detailing a property value completed by a professional valuer.
Variable Rate: a rate that goes up and down depending on market interest rates.
Variation: a document detailing a change to any part of a loan contract.
Vendor: the party who offers the property for sale
Vendor Statement: is a statement by the seller to a potential buyer detailing the particulars regarding the property.
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W
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X
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Y
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Z
Zoning: the local government authorities have guidelines as to the permitted use of the land and buildings on that land.
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