Glossary

A

AAPR
The Average Annual Percentage Rate (AAPR) is also known as the 'true rate or mortgage comparison rate. It wraps up interest payments and fees and expresses all these costs in one rate. It is designed to reflect the total annual cost to a borrower of a loan. All lenders must disclose this benchmark rate in their advertising of home loans and personal loans from July 2003. In Australia, the AAPR is officially called the 'Comparison Rate'.

Accelerated Payment
The option to make higher repayments to pay off the loan faster.

Acceptance
To agree to the terms of an offer or contract.

Account-Keeping Fees
Fees charged to cover or partially cover the lender's internal costs of administering the loan.

Accrued Interest
Interest you have earned or incurred that is yet to be paid or charged.

Additional Repayment
Extra funds paid into the loan in addition to the minimum monthly or weekly payments. These extra funds reduce the term of the loan.

Additional Securities
An asset that guarantees the lender their loan until the loan is repaid in full. Usually the property is offered to secure the loan.

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 or body authorised to act on behalf of a Customer in the sale.

Amortisation Period
The period of time the loan is calculated over (and repaid).

Application
The first step in the official loan approval process; this form is used to record important information about the potential borrower necessary to the underwriting process.

Application Fees
The fee charged by a lender to cover or partially cover the lender’s costs of setting up a establishing the loan.

Appraisal
A document that gives an estimate of a property's fair market value; an appraisal is generally required by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property.

Appreciation
The increase in the value of a property caused by economic factors.

Arrears
An overdue account that remains outstanding, yet to be paid.

ARM
Adjustable Rate Mortgage; see Variable Rate Mortgage.

Assets
Money, property (goods owned) or anything that is of value.

Asset lender
Lending institution that lends finance based on the value of the asset, which is held as security.

ASIC
Australian Securities and Investment Commission

Assignment
Legal reference of a right or a title to a property, to another party.

At Call
A bank account from which money can be withdrawn immediately.

Auction
Public sale of property with new ownership going to the highest bidder.

B

Balance Sheet
A statement of net assets, liabilities and equity.

Balloon Payment
A large loan repayment usually at the end of the loan term.

Bank Account Debits Tax (BAD)
State or Territory government tax (except ACT) on withdrawals from accounts on which a cheque may be drawn.

Bank Cheque
A cheque on which the drawer is a bank or other finance institution drawing on itself; no individual or company name appears. The Customer buys the cheque for cash and a small fee and uses it in the same way as cash.

Banker's Lien
The right of a Bank to retain a Customer's securities until a liability to a Bank is discharged.

Bankruptcy
The legal financial state and individual is in, when unable to meet debts (for Companies it’s known as being ‘wound up’). A debtor may be declared bankrupt by the Federal Court at either the debtors or the creditor’s instigation, and the debtor’s 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.  *Bankruptcy information is held on your credit file for 7 years.  

Basic Variable Rate Loan
This No frills loan usually comes without “features or flexibility”, generally cheaper than Standard Variable Rate Loans but being variable will fluctuate with market movement with no redraw facility no extra repayments can be made or mortgage offset.

Bearer
Person presenting a cheque.

Bill of Sale
A written agreement whereby ownership is transferred but the original owner is allowed to retain possession.

Body Corporate
A corporation of the owners of units within a strata building. They form a self-elected council for the management of the building and common areas.

Borrower
A person or entity borrowing money to purchase, pay off or refinance a loan facility or effect.

Boundary
The line separating adjoining properties.

Breach of Contract
Breaking the conditions of a contract.

Break Costs
Relates to the penalty fees charged when a borrower terminates a fixed-rate loan contract before the expiry of the fixed-rate period.

Bridging Finance
A short-term loan often used to cover a finance gap between the purchase of a new property and the sale of an old property. Higher interest rates are usually charged for this form of finance.

Building Inspection
Inspection generally carried out prior to the purchase of a property to ensure the building is structurally sound. Contracts of sale can be made subject to the satisfactory building inspection.

Building Regulations
Rules of a legal or statutory nature by which local councils control the manner and quality of buildings. They are designed to ensure public safety, health and minimum acceptable standards of construction.

Building Society
Institutions operating in a similar fashion to banks. Customers are 'members'.

Buy 
To purchase an asset: to take a loan possition. 

Buyers Agent
Person who acts on behalf of the buyer to find and negotiate on properties the buyer wishes to purchase.

C

Capital
The current value of your assets, including car, property, business, or money etc.

Capital Gain
The monetary gain obtained when you sell an asset for more than you paid for it.

Capital Gains Tax
A Federal tax on the monetary gain made on the sale of an asset (excluding your primary residence) bought and sold after September 1985.

Capitalisation
Capitalisation refers to the ability to add the borrower’s cost of the Lenders Mortgage Insurance (LMI) premium (including stamp duty on the LMI premium) to the Base Loan Amount. The total is then drawn out of their loan account. Borrowers avoid paying this fee up front and can amortise this payment over the term of the loan.

Capped Loan
Loan where the interest rate is not allowed to exceed a set level for a period of time, but unlike fixed rate loans, can fall.

Caveat
Latin for "beware". 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 thereby prevents any action being taken without the previous notice of the person entering the caveat (the caveator).

Caveat Emptor
Latin for "let the buyer beware".

Certificate of Currency
This Certificate of Currency is a certificate provided by an insurance company which confirms a property is insured. Majority of funders require this form to be provided by a Buyer prior to booking in a settlement with the funders interest/company name noted on the certificate.

Certificate of Title
This document details the land size and ownership details. It also shows if there are any mortgages or other restrictions on it. This document is usually held by the lender as security for a loan.

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.

Chattels
Are personal property. There are two types. Real chattels are buildings and fixtures. Personal chattels are clothes and furniture.

Clear title
A seller has a clear title when there are no restrictions (such as an outstanding mortgage) preventing the sale, and when ownership of the seller has been established.

Cluster Housing
Group of houses that share common space.

Collared Rate
Is a 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.

Commission
Fee payable to a real estate agent, mortgage broker or finance introducer for services.

Common Law Title
(Old System Title) details the 'chain' of transactions and events dating back to the original owner. Most old system title has been converted to Torrens Title and any remaining will usually be converted to Torrens Title on the sale of the property.

Community Title
A form of subdivision, where owners receive a Torrens Title for the lot they own and are members of body corporate. They also share ownership of the common facilities.

Company Title
This title applies when unit owners are actually shareholders in a private company. As a shareholder, they are entitled to exclusive occupation of a particular unit. However, if an owner wants to change the occupancy in any way (for example, by leasing the unit or selling its share holding) it must be approved by the company. You might want to see your solicitor before buying a company title.

Comparison Rate Schedule (CSR) / Compulsory Comparison Rate (CCR)
*All lenders must disclose a benchmark comparison rate in their advertising of home loans and   
 personal loans since July 2003.

The Comparison Rate includes the interest, fees and charges.  An example is, if you take your current interest rate, then you add the on going fees and charges, this is what you could really be paying.

*it’s always good to find out what the fees and changes are, so you can work out what you really will be paying.

Compound interest
Interest that is paid on both the accumulated interest as well as on the original principal.

Consumer Credit Code
Legislation designed to protect the rights of an individual (personal consumer) by ensuring banks and other financial institutions all adhere to the same rules when providing personal, domestic or household credit.  Also known as the Uniform Consumer Credit Code or UCCC.

Contract of Sale
A written legally enforceable agreement outlining the terms and conditions of a sale between a seller and a buyer.

Conveyance
The transfer of ownership of property from the seller's name to the buyer's name.

Conveyancing
The legal process for the transfer of ownership of property.

COSL
Credit Ombudsman Service Limited.  Formerly known as MIOS (Mortgage Industry Ombudsman Service).

Cover note
A guarantee of temporary property insurance before the implementation of a formal policy, also known as a certificate of currency.

Conveyance
The transfer of ownership of property from the seller's name to the buyer's name.

Conveyancing
The legal process for the transfer of ownership of real estate.

Countersigned
Additional signature or signatures to guarantee the validity of a document.

Covenant
Terms and conditions that specify the usage of a block of land or the buildings on it.

Credit
Borrowed money or other finance (eg. Hire purchase) to be paid back under an arrangement with a lender.

Credit History
History of an individual's debt payment; lenders use this information to gouge a potential borrower's ability to repay a loan.

Credit Limit
Maximum amount a borrower can use at any one time.

Credit Reference Limited
(Previously called Credit Reference Association of Australia or CRAA) holds details of the credit history of all Australians.

Credit Union
A cooperative which operates similarly to a bank, but is owned and controlled by people who use its services.

Creditor
A party to whom money is owed.

CRAA
(Credit Reference Association of Australia) The company which records and holds credit information on everyone. Now known as 'Veda Advantage Limited'.

D

Daily Interest
Interest calculated on a daily basis - therefore varies according to daily account balance.

Debt-to-income ratio/Debt Service Ratio (DSR)
This is a calculation to measure the borrower’s capacity to repay the loan.  The lender calculates the DSR by taking into account a borrower’s expenses as a percentage of their income.

Debit
An account entry to charge a withdrawal to a specified account.

Debtor
Someone who owes money to another.

Deed
A legal document that states an agreement or obligation regarding a property.

Default
Failure to meet debt payment on a due date. A failure to make loan payments (defaulting on a loan) may result in the mortgage holder taking legal action to repossess the mortgaged property.

Default Rate
For Fixed rates ~ The rate rolls/moves automatically back to a stanard variable rate at the end of any fixed period. or For missed repayments ~ The rate at which debt holders default on the loan or the amount of money that they owe to the funder.

Deferred Establishment Fee (or Exit Fee)
Is charged when you pay down or discharge your loan within a short period of taking it out, such as three years.

Delinquency
Failure of a borrower to make timely mortgage payments under a loan agreement.

Deposit
A deposit is normally paid by the buyer at the time of exchanging contracts. Normally a minimum of 5-10% of the total purchase price is required.

Deposit Bonds
A guarantee that the purchaser of a property will pay the full deposit by the due date. Institutions providing deposit bonds act as a guarantor that payment will be made.

Depreciation
The accounting practice where the cost of a fixed asset of a business is spread over the life of the asset.  Deprecation is a non-cash expense which allows the money to be retained by the business, thus technically allowing the business the capacity to replace the asset over time.

Direct Debit
Is electronic debiting of payments from a borrower’s/customer's nominated bank/building society cheque or savings account to pay mortgage or any other repayments?

Disbursements
Miscellaneous fees and charges incurred during the conveyancing process, including search fees and charges paid to Government authorities.

Discharge Fees
An administration fee to cover the costs incurred in finalising a loan account.

Discharge of Mortgage
A document signed by the lender and given to the borrower when a mortgage loan has been repaid in full.

Disposable Income
Any incomes left over after all known expenses have been met (eg. loan payments, bills, other commitments).

Down payment
The portion of a home's purchase price that is paid in cash and is not part of the mortgage loan.

Draw Down
Act of transferring money from lending institution to the borrower after the loan has settled.

DSR
Debt Service Ratio - Maximum of a loan applicant's weekly, fortnightly or monthly wage which will support loan repayments over the agreed loan term. Usually expressed as a percentage.

Duty (or Stamp Duty)
State Government tax on finance transactions. For the purchase of real estate, it is calculated according to the property value. It also applies to the amount of the mortgage and the amount differs form state to state.

E

Early Termination Fee
Is a fee paid by the borrower, if a loan is discharged in a shorter period of time that the contract states.

Easement
A right to use a corridor or passage of land which is owned by another.

Electronic Funds Transfer (EFT)
Electronic transfer of funds from one account to another.

Encumbrance
A charge or liability, e.g. a 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.

Endorse
To sign the back of a cheque to confirm or transfer its ownership to someone else.

Equity
The amount of the property that is owned by the borrower.

Equity Loans
A loan secured by the part of the value of an asset (usually house) which you own.

*This loan is commonly utilised for renovations/extensions, that back deck, motor vehicles, swimming pools, home theatre, the long awaited holiday, home air-conditioning and other personal items, investment in shares or other worthwhile investments.

Escrow
Money, property, a deed, or a bond put into the custody of a third party for delivery to a grantee only after the specified conditions are fulfilled.

Establishment Fees
Lending body fees which may or may not be charged to set up a loan.

Estate
The whole of one's possessions, especially all the property and debts left by one at death.

Exchange  
The legal point of time when the vendor and purchaser swap documentation and start enquiries with a view to settlement.

Exit Fee (or Deferred Establishment Fee)
Fee imposed by some lenders when the loan is paid off before the end of its term. Fees generally apply to fixed rate loans or private funded loans.

F

Factoring

Often used synonymously with accounts receivable financing. Factoring is a form of commercial finance whereby a business sells its accounts receivable (in the form of invoices) at a discount. Effectively, the business is no longer dependent on the conversion of accounts receivable to cash from the actual payment from their customers, which takes place on typical 30-to-90-day terms. Businesses benefit from the acceleration of cash flow by obtaining cash from the factor equal to the face value of the sold accounts receivable, less a factor's fee.

Fair Market Value
The hypothetical price that a willing buyer and seller will agree upon when they are acting freely, carefully, and with complete knowledge of the situation.

Fee Simple
Private ownership of real estate in which the owner has the right to control, use, and transfer the property at will.

Finance Institutions Duty (FID)
State duty on the receipts of finance institutions.

First Home Owners Grant
The First Home Owners Grant is a grant from the Federal Government.  If you are purchasing your first home, you may be eligible for the First Home Owners Grant.  The grant is worth $7000 and you may be eligible if you meet the following conditions:

• Neither you nor your spouse/de facto have claimed a grant under the First Home Owners Grant Act 2000 in any State or Territory of Australia.
• At least one of the applicants must be an Australian citizen of permanent residence.
• Neither you nor your spouse/de facto have owned a home prior to 1 July 2000, either jointly, separately or with some other person.
• Neither you nor your spouse/de facto have owned and occupied a home after 1 July 2000.
• You must have entered into a contract to purchase a home on or after 1 July 2000 or signed a contract to build a home on or after 1 July 2000 (owner-builders must have commenced laying foundations on or after 1 July 2000)
• You must be a natural person and not a company or trust.
• You must be at least 16 years of age.
• At least one applicant must occupy the home as their principal place of residence within 12 months of the settlement or construction.
• Application for the grant must be made within 12 months of completion of construction or settlement of the home.
• For more information on the First Home Owners Grant you can go to: www.osr.gov.au

Fittings
Items that can be removed from a property without causing damage to it eg. Carpets and curtains.

Fixed Interest
An interest rate set for an agreed term.

Fixed Rate Loan
Locks in a rate of interest for a period of time, usually up to five years.  Most fixed rate loans don’t allow you to make extra payments.

*Having your loan fixed is excellent if you are looking for certainly in your repayments and are worried about interest rises.

Fixtures
Items that would cause damage to a property if removed. Their removal must be stipulated in the contract of sale and any damage made good by the seller eg. Lighting, stoves, dishwashers etc.

Flood insurance
Insurance that protects homeowners against losses from a flood; if a home is located in a flood plain, the lender will require flood insurance before approving a loan.

Foreclosure
|A legal process in which mortgaged property is sold to pay the loan of the defaulting borrower.

Freehold
The dwelling and the land on which it stands is owned by the owner until they choose to sell.

Frozen Account
An account in which all transactions have been suspended.

G

Garnishee
To legally divert a part or whole of someone's money or property to someone else.

Garnishee Order
A court order taken out by a creditor on a person's employer or banker for the deduction of funds from his wages or bank account to repay a debt.

Gazumping
Where the vendor (Seller) and purchaser (Seller) have verbally agreed on a price, but the property is sold to someone else who has offered a higher price.

Gearing
Ratio of your own money and borrowed funds in an investment.

General Law System
The system whereby all dealings on a property are made in the form of conveyances, whether the transaction is a sale, a mortgage, a reconveyance, etc.  Under this system the mortgage is in fact a transfer of ownership.  When a conveyance is prepared it forms part of the chain of title and must be carefully preserved in order to prove the “root” to title.

General Lien
The lender's right to retain property until a debt is paid. Includes Power of Attorney and other clauses generally contained in Lender security forms.

GST
Goods and Services Tax.

Government Charges/Fees
State and government charges at the time of settlement, eg. Stamp duty.

Gross Income/Profit
Income from a person or company, before tax, superannuation, or payroll deductions.

Guarantee
A promise made as bound by the terms of a contract.

Guarantor
Person/s that agrees to be responsible for the repayment of another person’s debts should it default.

H

High Start Loan
A loan where the initial repayments are high and decrease over the term of the loan.

Highest Bid
The top price offered by a bidder at auction. If the reserve price is not reached and the property is passed in.

Holding Deposit
A refundable deposit demonstrating the goodwill of the buyer to go ahead with the purchase.

Home Equity
The value of a homeowner's unencumbered interest in their property(s). Equity is the difference between the home's fair market value and the unpaid balance of the mortgage and any outstanding debt over the home. Equity changes as the mortgage is paid or as the property appreciates or depreciates.

Home Equity Loan
A home equity loan gives you a revolving line of credit secured by the equity in your house. This allows you to use the funds for any other purpose such as the purchase of a second property, shares or other investments. The interest rate is generally higher than a standard variable rate, and these accounts are not suitable for everyone.

Home Inspection
An examination of the structure and mechanical systems to determine a home's safety; makes the potential homebuyer aware of any repairs that may be needed.

Home Loan
A home loan requires you to pledge your home as the lender's security for repayment of your loan. The lender agrees to hold the title or deed to your property until you have paid back your loan plus interest.

Home & Contents Insurance
An insurance policy that combines protection against damage to a dwelling and its contents with protection against claims of negligence, i.e.: inappropriate actions that result in someone's injury or property damage.

Honeymoon Rates
Is a short interest rate at a reduction.

*Excellent way if you plan to make large dint in your loan while in the honeymoon period.

*Beware, as this rate can convert to a higher than normal standard rates when your honeymoon is over.

I

Inclusions
Items included with the property e.g. light fittings.

Income Statement
A statement of income and expenditure for a period.

Indemnity
Security against damage or loss; sum paid in compensation for loss incurred.

Index
Measurement used by lenders to determine changes to the Interest rate charged on a variable rate mortgage.

Inflation
A sustained increase in the general level of prices so that a given amount of money buys less and less. (e.g.: The number of dollars in circulation exceeds the amount of goods and services available for purchase; inflation results in a decrease in the dollar's value.)

Instalment
The regular periodic payment that a borrower agrees to make to the lender.

Instrument
Formal legal document in writing, eg. A deed of conveyance.

Insurance
Protection against a specific loss over a period of time that is secured by the payment of a regularly scheduled premium.

Interest
The Lenders charge for using the funds.

*See also daily interest.

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 principle is paid back at the end of the term and only interest is paid during the term.  These loans are usually for a short period of time, 1 to 5 years.

*These types of loans usually attract investors.

Interest Rate
The amount of interest charged on a monthly loan payment; usually expressed as a percentage.

Internal Rate of Return
A measure of the return on an investment (or loan) which takes into account the time value of money by showing the rate of interest at which the present value of future cash flows is equal to the cost of the investment or loan.

Introductory Loan
A loan is offered at a reduced rate for an introductory period (usually 6 to 12 months) to new borrowers. Also called a discounted or honeymoon rate.

Inventory
A list of items included with a property e.g. furniture.

Investment Property
A property purchased for the use other than for self inhabiting, with the sole purpose of earning a return on the investment, either in the form of rent or capital gain.

*Interest portion, costs, etc can be tax deductible. Please check with your tax professional for further information.

J

Joint and Several Liability
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 names of two or more persons, where all persons have an equal interest in the whole property.  When one person dies the property passes to the survivor(s).   They are known as Joint Tenants or Joint Proprietors of that property.

Judgment
A legal decision; when requiring debt repayment, a judgment may include a property lien that secures the creditor's claim by providing a collateral source.

L

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.

Lease
A document granting a period of tenancy of a property under specific terms and conditions.

Legal Fee
May be charged where an outside party is used to prepare Lender documentation.

Lenders Mortgage Insurance (LMI)
It's a one-off payment by the borrower to the lender to insure the loan.  It's usually required when a loan amount is higher than a lender's acceptable L.V.R. which is usually around 80% of the property's value.  L.M.I. insures the lender for the full amount of a loan in case a borrower defaults. See LVR

Lender's Opinion
Enquiries made from one Lender to another to check on a Customer's reliability or credit worthiness.

Liabilities
Someone's debts or obligations.

Lien
The right to hold property as security against a debt or loan.

Line of Credit
A flexible loan arrangement with a specified credit limit to be used at a Customer's discretion.

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 Fraud
Purposely giving incorrect information on a loan application in order to better qualify for a loan; may result in civil liability or criminal penalties.

Loan Pre-approval
The loan is approved before the borrower bids on or offers for the property.

Loan to Valuation Ratio (LVR)
The ratio of the amount lent to the valuation of the security (usually the house), also known as Loan to Value Ratio (LVR)

Loan-to-Value Ratio (LVR)
Loan to Value Ratio (LVR) is a mathematical calculation which expresses the amount of a first mortgage lien as a percentage of the total appraised value of real property. The Loan to Value Ratio is one of the key risk factors that lenders assess when qualifying borrowers for a mortgage. The risk of default is always at the forefront of lending decisions, and the likelihood of a lender absorbing a loss in the foreclosure process increases as the amount of equity decreases. Therefore, as the LVR ratio of a loan increases, the qualification guidelines for certain mortgage programs become much stricter. Lenders can require borrowers of high LVR loans over 80% to buy mortgage insurance to protect the lender from the buyer default, which increases the costs of the mortgage.

Lock-In
Interest rates can change frequently, so many lenders offer an interest rate lock-in that guarantees a specific interest rate if the loan is closed within a specific time.

Loss Mitigation
A process to avoid foreclosure; the lender tries to help a borrower who has been unable to make loan payments and is in danger of defaulting on his or her loan.

Low Doc Loans/No Doc Loans
A low doc loan is an abbreviation for low documentation loan.  These loans were set up for people who fall into these categories: Consultants, contractors or self-employed.  The self-employed have found if hard getting a loan in the past because they have no payslips or only recently self-employed with no tax returns as evidence of income. This way you need very minimal documentation in order to get your loan approved.

*A property valuation and a declaration of earnings maybe all that is required.

*The LVR usually a maximum of 80% and the interest rate is higher approximately 1%.

Low Doc Commercial
Similar to the above but borrowing purpose and security is predominantly for commercial reasons.

Low Start Loan
A loan where the initial repayments are low and increase over time.

Lump Sum Repayments
Additional ad hoc repayments, made over and above your minimum repayment requirement.

M

Margin
The difference between the lender's interest indicator rate (and other reference rate) and the rate actually charged to borrowers.

Margin Lending
Margin Lending enables investors to borrow against their existing assets (e.g. cash, share holdings etc) to invest in more shares.

Maturity
The date a debt or investment must be paid in full.

Maximum Loan Amount
The maximum amount that can be borrowed based on an applicants' disposable income, deposit, and the purchase price of the property.

Maximum Loan Value Ratio (LVR)
Maximum loan to valuation. This means the amount you can borrow expressed as a percentage of the valuation of the security (usually the property you are buying).

Maximum Term
The maximum length of a home loan or a specific portion within that loan. (normally 25 or 30 years).

Median
The median is the 'midpoint' when a set of values are arranged in ascending order. eg. if the numbers were 1,1,3,4,5,6,7,7,7,7,8 the median would be 6, whereas the average is 5.09.

Minimum Fixed Amount
The minimum amount that can be borrowed at a fixed rate of interest.

Minimum Loan Amount
The minimum amount that can be borrowed.

Minimum Lump Sum Payment
The minimum amount that can be repaid as a lump sum.

Minimum Redraw Amount
The minimum amount that can be redrawn from a loan.

Minimum Repayment
The amount you are contractually obliged to repay each month, in order to repay your loan within the agreed term.

MIOS
Mortgage Industry Ombudsman Service. Now COSL – see COSL

Monthly Fees
The fees charged to cover or partially cover the lender's internal costs of administering the loan each month.

Mortgage
Registrable legal document providing security to the lender.

Mortgage Offset
Non-interest earning account that is offset against a home loan to reduce the total interest payable.

Mortgagee
The Lender of the funds.

Mortgage Broker
A mortgage broker is an intermediary simular to a travel agent.  They sit between the borrower on one side and the lender on the other.  Their job is to help a borrower find the most appropriate loan for their circumstances and assist them in applying for the loan.  Just like a travel agent, it is not the mortgage broker that provides the end product to the borrower.  The loan is provided by the lending institution with the broker merely acting to introduce the two parties in the one deal to one another.

So why would you use the services of a mortgage broker?  Because they know a lot more about the products on the market than you ever will and can therefore save you a lot of time researching the market.  They know how to compare all the different deals and can work out which is the one most suitable for your particular circumstances.  They can also help you with the confusing loan application process.  They know how the different lenders assess applications; they can save you a lot of time.

*When using a broker, it is important to check that they are a member of the Mortgage Industry Association of Australia. 

*The broker receives a commission for this introduction, it is a fee not paid by you the borrower but buy the lender.

Mortgage Discharge Fee
An administration fee to cover the costs (e.g. documents) incurred in winding up a loan.

Mortgage Insurance
This is taken out by lenders, but is paid for by the borrowers, to cover themselves if the borrower’s defaults on their loan and property sale proceeds don’t cover the outstanding amount.  Also known as LMI Lenders Mortgage Insurance

Mortgage Manager
Mortgage managers are lending specialists who arrange funding for home and investment loans. Unlike banks, building societies and credit unions, mortgage managers do not have a base of Customer deposits with which to fund their loans. Instead they source their funds via a process known as securitisation.

Mortgage Offset Account
A savings account runs in conjunction with a home loan. The interest earned on the account is applied to reduce the interest paid on the loan. A 100% offset is where the interest rates earned and paid are the same. A partial offset account is where the interest earned on the offset account is only a portion of the rate paid on the home loan.

Mortgage Originator
Originators initiate or generate mortgage applications for the mortgage trust. Put simply, they 'pool' a group of mortgages which can then be sold on to investors as an income producing asset. Originators are responsible for receiving applications for finance, assessing credit and monitoring the transaction through to settlement. They may then appoint a mortgage manager or may take on the management role themselves.

Mortgage Payment
A regularly scheduled payment that usually includes both principal and interest.

Mortgage Protection Insurance
Different to mortgage insurance. Mortgage Protection covers borrowers’ loan repayments in the event that they are not able to meet them through illness or redundancy.

Mortgage Registration Fee
State Government charge for the registration of a loan.

Mortgagor
The borrower and/or Guarantor borrowing money in the terms of the mortgage.

N

Negative Gearing
Where the return on an investment is insufficient to cover the overall costs of maintaining the investment. 

*The loan interest, real estate fees (should you  appoint one), maintenance to the property, building insurance can usually be claimed as a tax deduction.

Net Income
The income received by an individual AFTER TAX has been taken out.

Net Profit
The profits remaining in a business after all expenses have been taken out, but BEFORE TAX.

Non-Conforming Loans
Non-conforming finance refers to loans that cater for those who can't meet the standard income verification and credit history criteria mainstream lenders like banks and mortgage originators use for ordinary borrowers. Such borrowers include those who are self-employed, have a poor credit record or who have recently arrived in Australia. Non-conforming loans are usually at higher interest rates to reflect higher risk of these borrowers. The non-conforming finance is also called 'sub-prime lending'.

Non-Recourse

Non-Recourse Debt or Non-Recourse Loan is a secured loan (debt) that is secured by a pledge of collateral, typically real property, but for which the borrower is not personally liable. If the borrower defaults, the lender/issuer can seize the collateral, but the lender's recovery is limited to the collateral. If the property is insufficient to cover the outstanding loan balance (for example, if real estate prices have dropped), the lender is simply out the difference. Thus, non-recourse debt is typically limited to 80% or 90% loan-to-value ratios, so that the property itself provides "overcollateralization" of the loan. A lender of non-recourse debt depends crucially on an accurate assessment of the credit of the borrower, and a sound knowledge of the underlying technical domain as well as financial modelling skills.

O

Off the Plan Purchase
Buying a property from the plans only, not the finished product.

Offer
Indication by a potential buyer of willingness to purchase a home at a specific price; generally put forth in writing.

Official Cash Rate
The Official Cash Rate is the interest rate set by the Reserve Bank of Australia and used to influence the general level of interest rates in banking and the economy. Changes to the cash rate, also termed "official interest rates", flow on to variable home loan, personal loan and credit card rates within weeks.

Offer to Purchase
A legal agreement that details a specific price for the purchase of a specific property.

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.

Offset Account/Mortgage offset
Offset accounts can help reduce your tax bill by offsetting taxable income from deposit accounts against interest paid in after tax dollars on mortgage repayments. However, not all offset accounts are equal, with many not paying the same interest as you are charged on your mortgage.

Old System Title
(common law title) details the 'chain' of transactions and events dating back to the original owner. Most old system title has been converted to Torrens Title and any remaining will usually be converted to Torrens Title on the sale of the property.

Ongoing Fee
Any loan maintenance fee charged regularly over the life of a loan. Can also be a monthly fee.

Option to Buy
Legally binding document which gives a person first right of refusal on a property etc.

Origination
The process of preparing, submitting, and evaluating a loan application; generally includes a credit check, verification of employment, and a property valuation.

Origination fee
A fee for originating the loan charged by the lender. Can also be called an application fee.

Overdraft
Pre-arranged limit to which a person can exceed an account balance.

P

Passed In
Property is 'passed in' at auction if the highest bid fails to meet the reserve price set by the vendor.

Payee
the person or entity to which a cheque is payable.

Plan
Detailed illustration of a house that shows the internal layout and dimensions and the position of the house on the land.

Portability or Portable Loan
A portable loan allows you to sell your house and move to a new one without having to refinance. This saves application and legal fees. 

Power of Attorney
A written authorisation to another person, or persons, to perform certain acts for the signer, as if they were the signer.

Pre-approval of your loan
When you start looking for a home to purchase, it maybe wise to get pre-approval for your loan.  This is an In-Principal approval for a loan by the lender once you have satisfied their lending criteria.  Pre-approval allows you to shop for a property, confident that you will be able to afford it.  It also shows agents and vendors that you are a serious buyer.

Premium
Amount paid on a regular schedule by a policyholder that maintains insurance coverage.

Prepayment
Any amount paid to reduce the principal balance of the loan before the due date or any amount in addition to the minimum repayment. May be subject to a prepayment penalty.

Pre-qualify
A lender informally determines the maximum amount an individual is eligible to borrow.

Principal
The capital sum borrowed from a lender on which interest is paid during the term of the loan.

Principal and Interest Loans
Refers to the way that repayments are calculated to the loan.  This way both the principal and the interest are repaid during the term of the loan.

Private Company
A firm whose shares are held within a relatively small circle of owners and are not traded publicly.

Private Sale
The sale of a property without an estate agent.

Private Treaty
A property sale via a real estate agent where the buyer negotiates through private negotiation and contract with the seller, rather than by auction.

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 (e.g. house, car, 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 accounts, leaseholds interest in land.

R

Real Estate Agent
A person who is licensed to negotiate and arrange real estate sales.

Real Property
Land, with or without improvements (eg. a house).

Re-amortise
To recalculate the minimum repayment required to repay the outstanding balance of your loan over the remaining period (typically relevant when loan balance has changed substantially from the original amount).

Re-draw Facility
Redraw facility allows you to make additional repayments on your mortgage, and then be able to draw back your additional repayments if you need to.

*Make sure you understand the conditions attached to the redraw facility as they can include a minimum amount and a fee for every time you use it.

Refinancing
Replace or extend an existing loan with funds from the same institution or a different lender.

Rent Purchase
Designed to assist low to moderate-income homebuyers to purchase a home by allowing them to lease a home with an option to buy; the rent payment is made up of the monthly rental payment plus an additional amount that is credited to an account for use as a down payment.

Rental Guarantee
A promise by the developer guaranteeing a certain level of return on an investment property.  Usually started as a percentage of the purchase price, it generally relates to investment properties purchased off the plan.

Requisitions on title
Process by which the buyer requests additional information about the title of the property from the seller.

Reserve Price
Specified minimum price acceptable to a seller at auction.

Right of Way
A person's right to cross other property or a general pathway across your land.

Rise and Fall Clause
Building contract clause that allows the final pricing to move up or down according to the fluctuations of material prices or wages.

S

Sale
The act of relinquishing ownership of some asset in exchange for some monetary compensation. Sales may take any of several forms. In a cash sale, the seller receives cash or a cash equivalent immediately in exchange for the asset. In a credit sale, the seller surrenders ownership immediately in exchange for future payment, often with interest.

Search
An examination or research usually carried out on the purchaser's and lender's behalf prior to settlement to confirm that a vendor is in a position to sell a property and that there are no encumbrances on it.

Securitisation
Mortgage securitisation is a cost effective way of rasing funds, directly from the money markets of Australia, Europe and the USA.  As the funds cost less they are passed on to the consumer at cheaper rates.  This has been one of the reasons that home loans have become cheaper since the deregulation of the banking industry.

Security
An asset that guarantees the lender their borrowing until the loan is repaid in full. Usually the property is offered to secure the loan.

Sell
To dispose of an asset.

Semi-detached
Two houses that share a common wall or walls.

Serviceability
Ability of borrower to make and meet repayments on a loan, based on the borrowers expences and income(s).

Service Fee
Usually a monthly fee levied by the Lender to cover cost of administering & maintaining the loan account i.e. fixed and variable costs such as staff, IT software / hardware.

Settlement
Date on which the new owner finalises payment and assumes possession of the property.  When you pick up the keys!

Settlement Period
Period after contracts exchange and before settlement date. Allows the buyer time to organise finance if that is needed and to conduct searches, surveys and other formalities, the settlement period usually lasts about four to eight weeks, depending on a range of factors, including the state legislation.

Shareholder
Person or entity that owns equity or shares in a company.

Signatory
A person authorised to utilise an account.

Solicitors Mortgages / Finance
Mortgages / finance offered through solicitors' firms.

Split or Combination Loans
This type of loan allows you to have 1, 2 or more loans under the one property with a split or combination of loan types forming one loan, such as a partial fixed, a variable, an interest only or a Line of Credit facility. Typically, different types of interest are paid on different portions of the account 'Loan'. e.g. Fixed Rate, Line of Credit and Variable Rate Loans.

Stamp Duty
State Government tax assessed on the selling price of the property. Each state has different rules and calculations.

Standard Variable Rate Loans
This loan has all the ‘bells and whistles’ attached.  Probably the most common of principle and interest loan facilities.  They usually are full of features such as: Redraw facility, additional repayments, mortgage offset facility or all-in-one account, internet and phone banking.  The rate being variable will move up and down with the market set by the reserve Bank of Australia from time to time.  They are extremely flexible.

*This loan with all its features comes at a price; make sure that you’re not paying ‘for features that you will not use.

Strata Title
This title gives you ownership of a Unit, Villa and Townhouse of a larger building, which may sell, lease or transfer at you discretion.  Of the entire building, individuals each own a small portion (such as a unit or townhouse) but where there is common property (external walls, windows, roof, driveways, foyers, fences, lawns and gardens) which all owners share.

* This also entitles you to a membership of the Body Corporate in your building/complex.

Sub-prime lending
'Sub-prime lending', also called 'non-conforming' loans, refers to loans that cater for those who can't meet the standard income verification and credit history criteria mainstream lenders like banks and mortgage originators use for ordinary borrowers. Such borrowers include those who are self-employed, have a poor credit record or who have recently arrived in Australia. Non-conforming loans are sometimes at higher interest rates.

Survey
Plan that shows the boundaries of a property and the positioning of any buildings on that property.

Susceptibility Repost
Shows likelihood of future pest infestations.

Surety
Person who makes themselves responsible for another’s payment of debt; also knows the guarantor.

Switching Fee
The lender may impose a switching fee where an existing borrower wishes to change from one loan type to another e.g. Variable Rate Loan to Fixed Rate Loan.

T

Tenants in Common
Property in the names of two or more persons and in which each has a separate and distinct share.  When one person dies his/her share is not passed to the survivor/s but becomes part of their his/her estate for disposal according to his will.

Term Deposit
Often called a fixed interest account - a type of savings account where the interest rate is fixed for a set period of time.

Term
The length of time of a loan.  *The term is usually written in months, rather than years, i.e. 30 years = 360 months.

Third Party Guarantee/Security
Use someone else's property as security - where someone else has agreed to offer their property as additional security for a loan.

Title deed
A document disclosing the legal description and ownership of a property.

Title Fees
Fees payable to the State Titles Office for title search, transfer or property ownership, registration of the new mortgage and/or discharge of an old mortgage.

Title Search
A check of public records to ensure that the vendor has the right to sell and transfer ownership.

Torrens Title
Records your ownership of a piece of property. You are lawfully entitled to lease it. The most common and simplest form of title to property ownership (as opposed to common law or old system title).

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.  Registrations is compulsory to effect legal transfer of an interest in property and each time the property is sold, mortgaged, or a mortgage discharged, the transaction is recorded on the Certificate of Title.

TownHouse
Usually a two storey dwelling registered under a strata title.

Transfer
A document registered with the Land Titles Office that confirms the change of ownership as noted on the Certificate of Title.

U

Unencumbered
A property free of liabilities, mortgages or restrictions.

Underwriting
The process of analysing a loan application to determine the amount of risk involved in making the loan; it includes a review of the potential borrower's credit history and a judgment of the property value.

Uniform Consumer Credit Code (UCCC)
The Uniform Consumer Credit Code is legislation to ensure uniformity amongst all credit providers across all Australian states. For example, all loan contracts must now adhere to a uniform format as specified by the act. It must set out all fees and charges that the borrower (and, if required, guarantor) are liable for under the loan contract.

V

Valuation
An independent report required by the lender detailing a professional opinion of a property's value.

Valuation Fee
Fee which may be charged if the lender seeks to cover the cost of valuing the property taken as security for the loan.

Variable Interest Rate
This is a fluctuation rate of interest charged by the lenders.  Variable interest rates change as the official interest rates rise and fall.  These variances are determined by the Reserve Bank of Australia.

Variation
A change to any part of the original loan contract.

VEDA Advantage
The company which records and holds credit information on everyone, from credit enquiries,  and credit defaults, etc.  Was originally known as CRAA, and may be often referred to as the ‘CRAA Check’.

Vendor
The word vendor is used to describe the owner/seller of an asset.

Vendor Statement
A statement by the seller to the buyer detailing material particulars regarding the property in question.

Villa
Single storey attached dwelling.

W, X, Y, Z

Zoning
Local government authority guidelines as to the permitted uses of land and buildings on that land.