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Last Updated on 17 October 2019

Home Loan Glossary [2019]


ABA

Stands for Australian Bankers’ Association, a licenced organisation in Australia comprising of 24 members (banks). The ABA works to ensure the banking industry remains affordable and accessible for consumers, and that consumers receive the right banking services and products for their needs.

Accelerated Payment

Also called “additional repayments” or “extra repayments.” This term relates to paying an additional, unscheduled amount on your loan. Accelerated payments help you pay off the loan faster. Not all loans allow accelerated payments so it’s important to shop around if you want this feature.

Appraisal

The assessment of a property, determining its true value. The lender will send an objective assessor to appraise the home before approving you for a loan.

Bridging Loan

A bridging loan or relocation loan, is a loan that covers the interval between buying a new home and selling your old one. This is a short-term loan on your current property to help finance the purchase of a new one.

Most of the time, borrowers use bridging loans to upgrade to a bigger place before they’re able to sell their old house.

Broker

A professional finance or mortgage broker who can help borrowers find the right lender and loan product for their needs. They know the market and can negotiate for the borrower, meaning they can often save the borrower time and money. If you’d like to compare home loans with the help of a mortgage broker, you can try our free service.

Capital Gain

The amount you receive when selling a house for more money than you paid for it. In some instances you may be subject to capital gains tax, which taxes this profit.

Commission

The fee or percentage you pay to a real estate agent or broker for helping you sell a home or secure a loan.

Comparison Rate

A comparison rate is the rate, expressed as a percentage, that you’ll pay including fees and charges expressed as an annual percentage rate. This is another way to compare a loan before making a decision.

Construction Loan

A loan that covers the construction of a new property or the renovation of an existing one. A construction loan is different to a regular loan in that the lender pays the borrower in stages when they reach certain benchmarks, rather than paying the full amount upfront.

Conveyancer

A conveyancer is a licensed professional who can handle the documentation involved with buying and selling a house. If you’d like more information on conveyancers, check out our article on the role and benefits of a conveyancer.

Default

Missing a home loan payment or not complying with the terms and conditions of your loan will mean you are in default. The most common default is when you have not paid your bills or loans on time. There will be legal ramifications if you don’t settle the default – including the possible loss of your home.

Deed

A property deed is a legal document defining the ownership of property and associated rights.

Deposit

Also called a “down payment.” This is the money you put towards the house you purchase. In other words, it’s the money you pay upfront as opposed to the money you borrow. The standard deposit amount is 20%, but it’s possible, in some circumstances, to secure low deposit or no deposit loans.

Equity

In the case of home loans, equity is the percentage of a home you actually own. Your deposit, the amount you pay towards the principal of your loan, and any improvements you make to the house all increase your equity. If property prices rise you gain equity and if it falls you lose equity in the home.

Establishment Fee

The fee you pay to secure your loan. Some lenders charge this while others do not.

First Home Owners Grant (FHOG)

Each state offers a grant for first-time home buyers who meet certain criteria. You may only receive this grant for your first home purchase. Ahead is a breakdown of the FHOG for each state.


 

Fixed Rate

A fixed rate loan means that the interest on that home loan will be fixed for a set amount of time – usually one to five years, as opposed to being a variable floating rate. Fixing your rate protects you from interest rate hikes in the immediate future but comes with some restrictions e.g. you will pay penalties if you discharge your loan before the fixed rate term expires. On expiry of your fixed rate terms you loan will switch to variable rate.

Guarantor

A guarantor is a person or group of people who back a loan application. They support the loan if the borrower cannot pay back their home loan (defaults). They usually provide additional security to reduce risk to the lender. Once the borrower has built up enough equity in their home or made enough repayments, the lender will often release the guarantor from the contract.

Interest

Interest refers to the rate at which the lender charges the borrower for borrowing money from them. The amount you pay varies by lender, loan type and loan features.

Interest-Only Loan

An interest-only loan is one in which the borrower chooses to only make payments towards the interest (only) with no repayment of principal. Borrower chose to do this to reduce the repayments. The term usually lasts one to five years.

Investors may choose interest-only loans so that they can use their money to repay their non-deductible debt or invest it elsewhere.

Introductory Rate

A low or discounted interest rate that usually lasts around 1-3 years. This will revert to a standard rate loan once the introductory period ends.

Investment Loan

A loan made for investment purposes rather than to someone who plans to live in the home. These loans will often have different interest rates and repayment structures than owner-occupier loans (see owner-occupier loan).

Lender’s Mortgage Insurance (LMI)

An additional fee for insurance that a borrower must pay when they don’t have a high enough deposit. Lenders view low-deposit borrowers as a higher risk, and LMI is one way they mitigate the risk. Typically, LMI applies to those with deposits under 20%.

LMI is insurance that p[roects the lender in the vent you default on your loan and they are unable to recover their money after selling the security.

If you think you might have to pay LMI, know that there are a few things you can do, in some circumstances, to work around it. Here are a few tips on how to avoid lenders mortgage insurance.

Line of Credit

A Line of credit loan or overdraft is a loan that has a set balance that you can draw up to without having to repay any principal.

Loan Term

The maximum length of time the borrower and the lender agree upon until the loan is paid in full. For example, up to 30 years.

Loan to Valuation Ratio (LVR)

The loan amount divided by the security value, expressed as a percentage. The standard maximum LVR without LMI is around 80% (with a 20% deposit).

Low Deposit Loan

A loan that allows borrowers to deposit less than the standard 20%. This loan type usually comes with LMI and a higher interest rate.

Mortgage

A security charge or lien over real estate.

Offset Account

A transactional account that you link to your home loan. The amount of money in this account comes off of the principal of the home loan, meaning you’ll pay less in interest. Some lenders offer a 100% offset account.

Owner-Occupier Loan

A standard home loan, where the borrower intends to live in the house they are purchasing.

Per Annum (P.A.)

Per annum means “per year.” In this case, it often refers to the amount of interest you’ll pay on a yearly basis.

Portability

The ability to transfer your current loan from one property to another without refinancing.

Pre-Approval

Home loan pre-approval is where a lender approves a borrower for a loan amount before the property is determined. This is a conditional approval, and lenders usually give you a time limit on how long it will last. Pre-approvals usually last for 90-days.

Principal

Home loans are made up of two components: Principal and interest. The principal refers to the loan amount, excluding interest.

Principal and Interest Loan

A standard home loan, where you pay for the principal and interest over time – as opposed to an interest-only home loan.

Redraw Facility

A redraw facility is a feature that some loans offer – mostly variable rate loans – that allows you to withdraw funds from your additional principal repayments. Most variable rate loans allow you unlimited redraws, while fixed loans cap you at a certain amount.

Refinancing

A new home loan usually from another lender replacing another loan. Some people choose to refinance to get a better interest rate or different loan features. There can be a few other benefits, too. Read up on other reasons people choose to refinance.

Repayment Holiday

A repayment holiday means exactly what you think: it’s when lenders allow a break from your repayments. A common repayment holiday is a maternity pause or pregnant pause. This gives you a lower payment while you take time off work to have your child

Split Loan

A split loan is a loan is when you have more than one account for the same loan. For example, you may split between fixed and variable rates, giving you the benefits of both types of loans.

Stamp Duty

The state tax you pay when you buy or transfer a property. Some states allow first-time buyers to reduce or eliminate stamp duty.

Variable Interest Rate

A variable interest rate adjusts over time based on the market. With a variable interest rate, your home loan interest rate could go up or down.

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