Home Loan Definitions
Home Loan Definitions
A lot of banks, credit unions and home loan lender use complicated and confusing wording in their loan information and contracts. They do this partly because it is written by financial people who have trouble communicating with the average person and partly to protect themselves.
If you are reading some of this information and come across words, phrases or abbreviations that you don't know the meaning of then it is a good idea to read through the following list of home loan definitions. Hopefully it will help you to understand your loan contract more thoroughly and clear up any of the confusing terminology that is used by home loan lenders.
| AAPR | This abbreviation stands for Annualised Average Percentage Rate and is the interest rate that is used for comparing loans. This is because it is a calculation of the TRUE interest rate including all fees, honeymoon rates, different compounding periods and many other factors. |
| Additional Repayments | This is where extra money is paid into the loan account, over and above the minimum prescribed repayment. |
| All-In-One Home Loan | This is a loan that includes an everyday transaction account and allows you to deposit your wages and other income into the account reducing the amount of interest that you are charged. You can also withdraw money from the loan account in order to pay your everyday expenses. |
| Application Fee | Fees charged to cover or partially cover the lender's internal costs of setting up a loan approval for a home buyer. |
| Appraisal | This is the same as a Valuation and is a report that estimates the value of a property. |
| Appreciation | The increase in value of an asset over time. |
| Arrears | When a repayment amount is missed and becomes overdue. |
| Asset | A tangible item that you own. |
| Bank Cheque | A cheque that is drawn from a specific bank and is treated as good as cash. |
| Bankruptcy | When someone who owes money has their finances placed into the hands of a receiver because they cannot repay their debts. |
| Basic Variable | This variable home loan has a low interest rate but generally has very few loan features. |
| Break Costs | The fee that is charged when you end a fixed interest rate loan. |
| Bridging Finance | This is a short term loan that is used to fill the gap between when you purchase a new property and when you sell your old property. |
| Capital Growth | This is the amount that an asset (usually your house) has increased in value over time. |
| Cash Flow Positive | This is where the income or rent that you get from an investment property (less any tax deductions) is greater than all of the expenses for the property. |
| Compound Interest | Interest that is calulated on both the original principal amount and also the accumulated interest from previous days/months. |
| Construction Loans | This loan is specifically for building a new house, where you can withdraw money as required to pay the builder in stages. |
| Consumer Credit Insurance | An Insurance policy that covers the debtor ability to make repayments in the event of the debtor's sickness, injury, disability, death or unemployment. |
| Contract | A signed document that is a legally enforceable agreement between individuals or entities. |
| Contract of Sale | This is a written document that includes all of the details about the purchase or sale of a property. |
| Conveyancing | Is the legal process of transferring ownership of a property from one person to another. |
| Countersigned | Additional signature that guarantees the validity of a document. |
| Cover Note | A note of temporary insurance that is issed before the implementation of the actual policy. |
| Credit Limit | The maximum amount of money that a borrower can use at any one time. |
| Daily Interest | Interest calculated on a daily basis, therefore it varies according to the account balance on each day. |
| Debit | A transaction on an account that represents a withdrawal from the account. |
| Debtor | A person or company who owes money to someone else. |
| Default | Failure to meet your debt repayment obligation on the due date. |
| Default Rate | The interest rate that a fixed loan will automatically switch to at the end of the fixed period. |
| Deposit | An amount of money that is paid by the buyer at the time of purchase, normally given as a % of the total purchase price. |
| Depreciation | The decrease in the value of an asset over time. |
| Disposable Income | Regarded as income that is left over after all known expenses have been taken into account (eg: mortgage payments, bills, insurances, etc). |
| Draw Down | This means that you take money out of the loan account, generally in order to pay someone. |
| Equity | The actual amount of an asset that you actually own after taking into account the loan amount outstanding. |
| Equity Loan | A loan that uses all of part of you house as security in order to purcahse something else. |
| Establishment Fee | Fees that are charged to set up a new loan. |
| FIRB | Stands for the Foreign Investment Review Board, who must be notified of property purchases in Australia by non-residents. |
| Fixed Interest | An interest rate that is set and cannot change for an agreed period of time. |
| Garnishee | When money is legally diverted directly from someone's wages in order to pay a debt to someone else. Usually applied by the courts to force payment of money that is owed. |
| Gearing | The ratio of your own money to borrowed money in a particular investment. |
| Interest Only Loan | A loan where you only make repayments of the interest amount during the term and the principal remains the same. |
| Introductory Loan | Also referred to as a 'Honeymoon Rate' it is where the lender provides a reduced interest rate for a short introductory period (usually 12 months). |
| Lease | This is a legal contract between a tenant and landlord which details certain conditions including the amount of rent to be paid. |
| Lender's Mortgage Insurance | This is an insurance policy that protects the lender from loss should you default on the loan and they are force to sell it. |
| Liability | An amount that you owe to a lender or another person. |
| Line of Credit | This type of loan is secured against your house and you can withdraw and pay back money as you see fit (up to a predefined credit limit). |
| LVR | Also known as Loan to Value Ratio. It's the ratio of the amount borrowed relative to the valuation of the asset (always given in terms of a percentage). |
| Market Rent | This is the estimated rent that you would receive if you leased out your propertytoday. |
| Maturity | The date when a loan finishes and the debt must be paid in full. |
| Median Price | This is an estimation of the general price for houses in an area and is calculated by placing all the house sale prices in ascending order and then taking the middle price on that list. |
| MFAA | This stands for the Mortgage & Finance Association of Australia. This industry body has professional mortgage and finance companies as it's members, who adhere to certain service standards in order to give consumers piece of mind. |
| Mortgage | This is a form of security that the lender takes over a property whenever a loan is taken out, and allows the lender to sell the property if the borrower doesn't meet the repayments. |
| Mortgage Broker | A person or organization that offers a service where they will select the best loan for a borrower from a panel of lenders. |
| Mortgage Discharge Fee | This fee is charged when you finish or close a loan. |
| Negative Gearing | This is where the expenses for an investment propert are higher than the rent. |
| Offset Account | This is a savings account that is connected to your loan account so that any amount in the savings account will reduce the amount of interest payable on your mortgage. |
| Ombudsman | The Australian Banking Industry Ombudsman is a government agency that provides a place where customers can make complaints about finance companies and have the complaint dealt with independently. |
| Ongoing Fee | Any loan fee that is charged regularly over the life of a loan. |
| Online Banking | Banking transactions such as transfers, payments and withdrawals that can be made via the Internet. |
| Overdraft | This is a facility where you can withdraw more money than you have up to a predefined limit. |
| Portability | With this loan feature you can substitute the property that is being used as security in a loan with a new property (ie: you can take your loan with you to your new home). |
| Principal | The capital sum that was borrowed and which interest is paid on. |
| Redraw Facility | A loan facility where borrowers are allowed to make additional repayments and then, when needed, access these extra funds by making a withrawal from the loan account. Some facilities will have fees for each withdrawal or a limitation on the minimum amount that you can redraw. |
| Refinancing | To borrow money from the same or another financial institution and use those funds to pay out an existing loan. |
| Security | An asset that the lender uses to guarantee the loan until such time as the borrowed amount is repaid in full. |
| Serviceability | This is an indication of the borrower's capacity to repay the loan, usually taking into account their income less any living expenses. |
| Settlement Date | The date on which the loan begins, the finances are settled and the new owner takes possession of the asset. |
| Standard Variable | This is a variable home loan that has a slightly higher interest rate and fees because it includes other features like an offset account, redraw facilitiy, etc. |
| Term | The length or duration of the home loan. |
| Transaction Fee | A fee that is charge for each and every transactions that you make (ie: withdrawal, transfer & deposit). |
| Unregulated | A loan contract, mortgage, guarantee or financial document where the Consumer Credit Code does not apply. |
| Vacancy Rate | The percentage of properties in a specific area that are vacant at any one time. |
| Valuer | A professionally qualified person who's job is to estimate the value of specific asset. |
| Valuation | Estimate of the value of a asset being used as security for a loan. |
| Variable Interest Rate | An interest rate that will vary over time accordance with the rate set by the Reserve Bank of Australia. |
We hope that you appreciate and are able to make the most of the Home Loan Definitions that is used in Australia. At Australian Loans we pride ourselves on providing accurate and helpful information about home loans, so if there is anything that you think is unclear of needs to be added then please let us know by filling out the form below.
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