Home loan glossary

Application fee: The fee charged to cover the lender’s costs for setting up the loan and producing all the necessary documentation. This fee is also known as the approval or establishment fee.

Arrears: An amount that has not yet been paid and is overdue for payment.

Asset: Something of which you have ownership, such as a bank account, shares and bonds, or physical property like a car, house or land.

Auction: The public sale of a property during which prospective buyers place bids. Auctions take place either on-site or in-room and will be facilitated by the auctioneer. The property will be sold to the highest bidder unless it does not meet its reserve price.

Body corporate: Also known as the owners corporation, the body corporate is a community of owners of a dwelling, such as an apartment, unit or townhouse that has shared communal areas and / or facilities. The body corporate has responsibility for managing the maintenance of the shared areas and facilities, such as the lifts, garden, barbecue area, parking areas, gym or pool. Each owner is a member, and the body corporate will usually require members to pay a regular fee to contribute towards the maintenance costs. Decisions are usually made via a general or committee meeting. Additional responsibilities of the body corporate include resolving any disputes between residents, arranging and keeping records of meetings and expenditure. 

Borrowing power: The maximum amount of money that you can borrow; i.e. the amount that a lender will allow you to borrow. Someone with lots of assets and little or no debt will have more borrowing power than someone with no assets and large debts.

Bridging loan or finance: A short-term loan to cover the gap between the purchase of a new property and the sale of the old property.

Break fee: The fee that your lender can charge if you end your fixed-rate loan before the end of the fixed-rate term specified in your contract. The break fee is designed to compensate the financial institution for any loss it may incur as a result of the fixed-rate loan ending before its agreed term.

Broker: A broker can help arrange your home loan application for a commission fee that is usually paid by the lender. However, some brokers may also charge you a fee. The broker will provide you with the details of home loans from a range of potential lenders for comparison and can help you decide on the right loan for your circumstances. Not all loans in the market are available through a broker.

Brokerage: The business of a broker. This term also relates to the fee charged by the broker for their services.

Budget: An estimate of your income and expenditure for a specific time frame, which enables you to make plans to achieve a financial objective.

Capital appreciation: An increase in the market price of a capital asset, such as property. Capital appreciation is also known as capital growth.

Capital gain: The profit or ‘gain’ from the sale of a capital asset, such as property.

Capital gains tax: A tax on the profit or ‘gain’ from the sale of a capital asset, such as property.

Capital growth: An increase in the market price of a capital asset, such as property. Capital growth is also known as capital appreciation.

Caveat: A legal notice that shows who has an interest in a property or piece of land. To place a caveat on your property or remove a caveat, contact your state's Land Titles Office.

Certificate of Title: The title or ownership details of a property. As soon as a home loan has been repaid, the lender will be removed from the Certificate of Title and the purchaser’s name will be added.

Clearance rate: Expressed as a percentage, the rate is calculated by dividing the number of properties sold at auction by the total number of properties listed for auction. It is often used as an indicator of market inventory and buyer demand. 

Commission: A service charge for handling the purchase or sale process. Buying or selling a property can involve various commission fees, such as the fee paid by the vendor to the real estate agent for selling the property.

Comparison rate: A comparison rate is designed to let you compare the true cost of one loan versus another, to help you avoid choosing a low-rate loan that looks attractive but may cost you more in the long run. It is expressed as an annual percentage rate and includes the loan's interest rate as well as any upfront and ongoing fees and charges. Lenders are legally required to show customers a comparison rate alongside a product's interest rate.

Compound interest: Interest that is payable on the accrued interest as well as the original principal.

Conditional approval: Conditional or pre-approval is an estimate from your lender of the amount you can borrow, provided you meet certain conditions. Obtaining conditional approval involves providing your lender with proof of your income, any additional income or assets, your savings history and your credit card statements for a credit check. The approval process and documentation issued can vary from lender to lender, but conditional approval will be granted with a specific time frame. If you exceed the time frame you can reapply. While conditional approval is not compulsory, it provides real estate agents and auctioneers with evidence that you're a serious buyer, and it can speed up the final approval process. It can also increase your home buying confidence as you will have a firm budget in mind, which is especially important when buying at auction.

Conditions of sale: Specifically relating to a sale by auction, the conditions of sale are the terms by which the vendor proposes to sell the property. These conditions will be made available to you in a document, which you should review in advance of the auction.

Consumer price index (CPI): The CPI measures changes in the price of an average basket of consumer goods and services, such as food and transport. This statistic is often used for identifying the cost of living and the likelihood of inflation or deflation.

Contract of sale: The agreement in writing which details the full terms and conditions for the sale or purchase of property. It is usually prepared by the vendor’s real estate agent, solicitor or conveyancer. A residential property cannot be put on the market until the contract of sale is available.

Conveyancer: A licensed, qualified professional who manages the documentation for the sale and purchase of property.

Conveyancing: The legal process by which ownership of a property is transferred from one party to another.

Cooling-off period: Applicable only to a private sale, not an auction, a cooling-off period refers to the buyer’s right to change their mind about the property purchase. A cooling-off period is not available in all states. A buyer who changes their mind about a sale will lose a portion of their deposit.

Credit limit: The maximum amount you can borrow.

Credit report: Your credit history is obtained from a credit report that is produced by an authorised credit reporting agency.

Debt consolidation: A form of debt refinancing where one loan is taken out to pay off multiple debts.

Deposit: The amount of money required by your lender before your home loan is granted. This can also be referred to as a down payment. The usual deposit amount is 20 percent of the property price as borrowers generally need an 80 percent loan-to-value ratio (LVR). Lower deposit amounts are possible but may require lenders mortgage insurance (LMI).

Disbursements: Costs that are paid on your behalf, such as stamp duty and registration fees.

Discharge of mortgage / home loan: A discharge of mortgage is the removal of a home loan from the title of a property. The home loan process involves the bank holding the Certificate of Title on your property until your home loan is repaid. Therefore, there are three likely scenarios when you would discharge your mortgage: if you are repaying your home loan in full, if you sell your home, or if you are refinancing.

Drawdown: The payment of loan funds from a loan provided by a bank.

Drawdown date: The date that your loan funds are used for the first time.

Establishment fee: The fee charged to cover the lender’s costs for setting up the loan and producing all the necessary documentation. This fee is also known as the application or approval fee.

Equity: The value of an asset, such as your property, less any outstanding loan amounts. If you wish to ‘release equity’ on your property, this refers to the difference between the current value of your property and the balance to be paid on your home loan.

Exchange of contracts: Also known as passing contract, the exchange of contracts refers to the vendor and the buyer exchanging and signing identical contracts, which makes the sale / purchase legally binding. A ten percent deposit is usually required at the time that contracts are exchanged.

Extra repayments: Some home loans may provide the opportunity for you to make additional repayments above the minimum repayment amount. This enables the loan to be repaid faster and reduces interest charges.

Family guarantee: A guarantee by a family member or members, often the applicant's parents, to pay your home loan if you are unable to make the repayments; i.e. default on your loan. The family member / s may release some equity from their home as additional security to help you to buy your own home.

Family Home Guarantee (FHG): The Family Home Guarantee (FHG) is for eligible single parents and eligible single legal guardians of at least one dependent, such as aunts, uncles or grandparents. Applicants can include those who are not first home buyers. A single parent under the Scheme is one who is either divorced or has never been married. Parents who are not divorced or are in a de facto relationship are ineligible.

First Home Buyers Assistance Scheme (FHBAS): Available in NSW, the scheme offers exceptions or concessions on property transfer duty, such as stamp duty, for eligible first home buyers. Similar schemes exist in other states and territories. Please check with your relevant authority. 

First Home Guarantee (FHBG): The First Home Guarantee (FHBG) is part of the Home Guarantee Scheme (HGS), an Australian Government initiative to support eligible home buyers to buy a home sooner.

Usually home buyers with less than a 20 per cent deposit need to pay lenders mortgage insurance. Under the First Home Guarantee, eligible home buyers can purchase a modest home with a deposit of as little as 5 per cent (lenders criteria apply). This is because Housing Australia guarantees to a Participating Lender up to 15 percent of the value of the property purchased that is financed by an eligible home loan. Check your eligibility at https://www.housingaustralia.gov.au/support-buy-home/eligibility-tool

First Home Owner Grant (FHOG): Introduced on 1 July 2000 to offset the effect of GST on home ownership, the FHOG is a national one-off grant for eligible first home buyers. This national scheme is funded by states and territories and administered under their own legislation. You can apply via your financial institution or Office of State Revenue. Visit firsthome.gov.au.

First Home Super Saver Scheme: The First Home Super Saver Scheme allows you to save money for your first home using your superannuation fund. This scheme, run by the Australian Taxation Office (ATO), aims to help you save faster with the concessional tax treatment of superannuation. Visit ato.gov.au. 

Fixed interest rate: An interest rate that is charged or paid at the same rate for a set period, usually one to five years.

Gearing: Gearing relates to an investment property. The difference between the funds that you borrow and the income you receive from the investment property affects whether your gearing is negative or positive.

Guarantee: A third party, usually family or friends, who offers additional security towards the deposit on a loan. If the borrower defaults, the lender may sell the property, and the guarantee will be required to cover any shortfall on the loan.

Guarantor: The third party, usually family or friends, who adds additional security and may be legally responsible for paying your debt if you are unable to meet the repayments. 

Home Guarantee Scheme: The Home Guarantee Scheme (HGS) is an Australian Government initiative to support eligible home buyers purchase a home sooner. The Scheme is administered by Housing Australia.

The Home Guarantee Scheme includes the following Guarantees:

• First Home Guarantee (FHBG) – for eligible home buyers.
• Regional First Home Buyer Guarantee (RFHBG) - for eligible regional home buyers.
• Family Home Guarantee (FHG) – for eligible single parents and eligible single legal guardians of at least one dependent.

Home loan: The loan you take out from a bank to purchase a property. This should not be confused with the mortgage, which is the security document.

Interest: Your lender’s charge for the funds that you have borrowed for your loan, or the investment return on funds that are in a savings or deposit account.

Interest only loan: A loan type where only the interest charged on the loan is repaid during a specific period of time. No principal repayments are required during the period, which is usually limited to five to ten years, depending on the loan product and agreement. The amount of the debt remains constant.

Interest only repayments: A repayment plan where only interest payments are made, and the repayment of your loan principal is deferred for a specified time. After the specified time period, you would resume repaying the principal.

Land tax: An annual state or territory government tax that is payable by the owners of the land and is based on the value of the land.

Lease: A contractual agreement that states the terms under which one party agrees to rent a property that is owned by another party. The person renting the property is known as the lessee or tenant and the person who owns the property is known as the lessor or landlord.  

Lender: The bank or financial institution from which you borrow the funds agreed as your home loan.

Lenders Mortgage Insurance (LMI): An insurance premium that covers the lender in case you, the buyer, are unable to cover the shortfall on the sale of the property. LMI may be required if you do not have a 20 percent deposit but wish to borrow 80 percent or more of the property's value. The advantage of LMI is that by lessening the risk for the lender, it allows you to purchase a property with a smaller deposit than would otherwise be required. LMI enables you to get into the real estate market sooner if you do not have a 20 percent deposit. The LMI premium could cost you thousands, but it may be possible to add the cost to your loan.

Line of credit loan: A loan account that allows you to combine your mortgage with a predetermined credit limit using the equity in your home. You can redraw available funds up to the credit limit at any time.

Liabilities: Any debts or financial obligations.

Loan serviceability: Your loan serviceability is calculated by your lender to evaluate your ability to repay the loan. This is likely to be based on a number of factors including your income, your debts and the loan amount.

Loan-to-value ratio (LVR): The LVR is the amount you are borrowing divided by the value of the property, represented as a percentage. For example, if your home loan is $400,000 and your property is valued at $500,000, the LVR is 80 percent.

Mortgage: A mortgage is a security document between the lender and the purchaser. The document specifies that the property purchased is being held as security for the agreed home loan. The home loan should not be confused with the mortgage.

Mortgagee: The bank or financial institution that holds the mortgage (security document) for the buyer’s home loan.

Mortgagor: The property buyer who is borrowing funds via the terms of the mortgage and will be repaying the home loan. If you take out a home loan, you are the mortgagor.

Mortgage registration fee: A fee charged by state and territory governments to register the security for a home loan. This process registers the physical property as the security on your home loan and allows future buyers to check whether any claims exist on the property. The fee amount varies from state to state and is payable when the home loan is established or discharged.

Negative gearing: If the income from your investment property is less than the interest on the loan used to pay for the investment property you have negative gearing.

Off the plan: The option to buy a property from viewing the plans only, without seeing the finished building. A display unit will usually be available for viewing samples of the fixtures and fittings.

Offset account: A non-interest earning transaction account that’s linked to your home loan account. The amount in the transaction account is offset against the outstanding loan balance, with interest being calculated on the remaining amount. For example, a home loan with $500,000 owing, linked to an offset account with a balance of $100,000, will only be charged interest on $400,000. Keep in mind that interest is charged on a daily basis.

Overcapitalising: Spending too much money on renovations so that you become unable to recoup the expense if you decide to sell the property. To prevent overcapitalising, avoid renovation costs exceeding the amount of value that they are likely to add to the property.

Owners corporation: Also known as a body corporate, the owners corporation is a community of owners of a dwelling, such as an apartment, unit or townhouse that has shared communal areas and / or facilities. The owners corporation has responsibility for managing the maintenance of the shared areas and facilities, such as the lifts, garden, barbecue area, parking areas, gym or pool. Each owner is a member, and the owners corporation will usually require members to pay a regular fee to contribute towards the maintenance costs. Decisions are usually made via a general or committee meeting. Additional responsibilities of the owners corporation include resolving any disputes between residents, arranging and keeping records of meetings and expenditure.

Passing contract: Also known as exchange of contracts, passing contract refers to the exchange of the seller’s and buyer’s signed contracts during the conveyancing process.

Positive gearing: If you have borrowed money to invest, for example in an investment property, and the income from the investment is greater than your interest and expenses you have positive gearing.

Pre-approval: Also known as conditional approval, pre-approval is an estimate from your lender of the amount you can borrow, provided you meet certain conditions. Obtaining pre-approval involves providing your lender with proof of your income, any additional income or assets, your savings history and your credit card statements for a credit check. The approval process and documentation issued can vary from lender to lender, but pre-approval will be granted with a time frame. If you exceed the time frame you can re-apply, but bear in mind that reapplication may incur an additional fee. While pre-approval is not compulsory, it provides real estate agents and auctioneers with evidence that you're a serious buyer, and it can speed up the final approval process. Having pre-approval can also increase your home buying confidence as you will have a firm budget in mind, which is especially important when buying at auction.

Price guide: For the private sale of a property, the estate agent is likely to have an information sheet detailing the expected price of the property. They may also include the prices at which similar properties within the area have sold.

Principal: The amount owed on your loan. Interest is calculated on the principal.

Principal and interest repayments: A repayment plan where you are able to start repaying the principal as well as the interest.

Private sale: A private sale, which is also known as private treaty sale, involves liaising with a real estate agent on the vendor’s behalf or sometimes liaising directly with the vendor to purchase a property. The vendor, together with their real estate agent, will establish the terms of sale in the contract of sale document and they will also set the price of the property. You may be able to make an offer accordingly and negotiate the price with the vendor, usually via their real estate agent.

Property value: Your bank or lender will determine your property’s value by carrying out their own valuation or by using an external valuer or the property’s purchase price.

Redraw facility: A facility that allows you to access any additional repayments that you have made to your home loan. Additional payments can lower the interest that you pay on your loan. Redraw is often only available on variable rate loans or with limited access for fixed rate loans.

Refinancing: You refinance when you pay off or extend an existing loan and set up a new loan with the same bank or a different financial institution.

Repayments: The amount that you must pay within the time frame specified in your loan contract, for example, monthly.

Repayment frequency: The schedule for making your repayments, which could be weekly, fortnightly or monthly, depending on your loan contract.

Reserve price: The minimum price for which a vendor is willing to sell their property at auction.

Reverse mortgage: This type of mortgage is often used in retirement and allows you to borrow money using the equity in your home as security. Interest is charged like any other loan, but you do not usually need to make repayments while you live in your home. The loan must be repaid in full if you sell your home or die or, in most cases, if you move into aged care. Typically, you are charged a higher interest rate on a reverse mortgage than for a standard home loan.

Security for a loan: An asset, for example, property, that’s used to secure your loan. If the loan is not repaid, the lender may take possession of and sell the asset to get their money back.

Settlement: The process of buying / selling a property. Property settlement is usually conducted between the legal and financial professionals representing both your interests and those of the vendor. During settlement the ownership of the property passes from the vendor, as the seller, to you, as the buyer. Your conveyancer or solicitor will arrange the conveyancing and your lender will pay the balance of the sale price.

Split loan: Refers to a loan that has a certain portion at a fixed rate, and the remainder at a variable rate.

Stamp duty: The tax on written documents and certain transactions imposed by the state government, such as car registrations, mortgages and property transfers.

Stamp duty calculator: A calculation tool to help you estimate your stamp duty liability. Stamp duty will vary depending on the value of the property and the state government.

Strata title: A building, flats or units divided into blocks, each of which has a title and common property that is part of the land and building in the strata plan.

Surplus: Surplus funds relate to any money remaining after all liabilities, such as rent, mortgage, bills, taxes and insurance, have been paid. Having a surplus means that your budget is healthy.

Term: The time frame of your loan, which is usually up to 30 years.

Title search: A search undertaken of records registered at the land titles office to determine any interests in the land of a particular property.

Top up: An increase to your existing home loan to free up extra cash by borrowing extra money against your home loan, providing you have enough equity and are able to make the extra repayments.

Transfer of land: A document registered in the Land Titles Office which recognises and acknowledges a change in property ownership. This is also noted on the Certificate of Title.

Valuation: A report written by a registered valuer detailing their professional estimate of the property's value.

Variable interest rate: Where interest is paid or charged at a rate that may go up or down during the specified term.

Vendor: The seller of the property.

Vendor’s statement: Also known as 'Section 32', the vendor's statement is a document that's prepared by the vendor’s legal professional to disclose information about the property. The information included cannot be discerned from the buyer’s inspection of the property but is information of which the buyer should be aware. The vendor must provide a vendor’s statement to prospective buyers before any contract of sale is signed. As a buyer, you should have the vendor’s statement checked by your own conveyancer or legal professional.

Zoning: Refers to the use of land and its designated areas as controlled by local councils and / or planning authorities. The most common zoning categories are commercial and residential.