Home loan terms and definitions
AAPR:
Average Annual Percentage Rate, also known as the True Rate or Comparison Rate. This is the method used to calculate the true interest rate taking into consideration such things as application fees, ongoing account keeping fees, professional package fees, introductory and honeymoon rates, etc. Excluded are fees such as government fees and discharge fees.
All in One Loan:
A home loan that allows you to deposit funds (e.g. salary) directly into the account with the excess funds available for redraw for daily transactions. The excess funds will reduce your daily interest calculations.
Application Fees:
The initial fee charged to the borrower at settlement to set up and open your home loan account.
Appreciation:
The increasing value of your asset (e.g. your home or vacant land, etc).
Assets:
Objects that you can own that have a value (e.g. your home, shares, cash in bank, superannuation, motor vehicle, etc).
Auction:
A public sale of an asset, where potential purchasers bid for the asset, and ownership being transferred to the highest bidder subject to achieving a preset reserve price.
Balloon Payment:
The outstanding loan balance, generally of a lease, at the expiration of the agreed term.
Basic Variable:
A home loan with minimal features generally at a discounted interest rate to the Standard Variable rate.
Baycorp / Veda Advantage:
The company that maintains the record of credit inquiries conducted by individuals and companies. This information is usually cross- referenced when a loan application is assessed. Formerly known as Credit Reference Authority of Australia (CRAA).
Body Corporate:
An elected group of owners of units within a strata title building who manage the building and common areas.
Bond:
Funds that are paid by the tenant and retained by the Rental Bond Board to protect against non-payment of rent and damage caused to a rental property. Usually expressed as 1-2 months rent.
Break Costs:
The fees that a lender will charge when a loan is fully repaid before the agreed upon term (e.g. fixed rate break costs).
Bridging Finance:
A short term loan to cover a shortfall of funds required to purchase a property (e.g. to borrow funds to purchase a property before your property is sold).
Building Inspection:
An inspection that is commissioned by potential purchasers that reports on the structural condition of the property.
Capital Gain:
The real dollar gain you get when you sell an offset for more than you purchased the asset for.
Capital Gains Tax:
A tax imposed at Federal Government level on the capital real dollar gain of an asset purchased and sold after September 1985.
Capitalisation:
When the interest due is charged but not paid and gets added to the outstanding debt balance of a loan.
Caveat:
A charge that is placed by a third party over an asset, usually a property title, to indicate that they have an interest in that asset. The caveat protects against the disposal of the asset without the consent of the interested party.
Certificate of Compliance:
A certificate that is issued by the local council that attests to the building meets with Council’s building regulations
Certificate of Title:
A legal document describing the ownership, particulars and dimensions of a particular parcel of land.
Combination Loans:
Where more than one loan type is combined within the loan (e.g. 50% of the loan amount as Standard Variable and the other 50% as a Fixed Price loan product).
Commission:
A fee that is charged by one party to another (e.g. a real estate agent may charge a fee to the vendor to sell their property).
Community Title:
A property title that has more than one dwelling constructed on a single piece of land (e.g. a townhouse development where the individual owners are charged a levy for the access and maintenance for such things as swimming pool, bbq area, etc.
Comparison Rate:
The rate that is also called the true rate, which is the actual rate of the loan, not the advertised rate, which takes into consideration in its calculations such fees as application fees, account keeping fees and other lenders fees over the term of the loan.
Construction Loans:
A home loan that pays for the construction costs of building a new home. Payments are generally made in draw downs (see Draw Downs) as construction progresses
Consumer Credit Codes:
A Federal Act of Parliament which governs what lenders have to adhere to in transactions with borrowers.
Contract of Sale:
A legal document which sets out the terms and conditions for the sale and the purchase of real estate property.
Conveyancing:
The term used for the process of transferring the ownership details of real estate property from the seller’s to the purchaser’s name.
Cooling Off Period:
The time period that is set down for the proposed purchaser to withdraw from the sale of real estate property from the seller (vendor). In NSW this is generally 5 days. No cooling off period exists if a property is purchased at an auction.
CRAA:
Credit Reference Authority of Australia. The name of the former agency that held consumer credit inquiry records. Now this function is operated by Veda Advantage (see Veda Advantage).
Credit:
The amount of money that is borrowed by one party and owed to another under mutually agreed upon terms. May also describe funds that are deposited into an account.
Credit Limit:
The maximum amount of funds available to the borrower that cannot be exceeded in certain loan accounts (e.g. a Line of Credit may have a maximum loan amount or limit of say $300,000 that a borrower may withdraw up to over the term of the loan.
Credit Union:
A financial co-operative that is similar to a banking institution where the ownership is made up of existing members.
Debit:
A withdrawal or payment from a bank account.
Debt to Service Ratio:
The calculation which is used to measure a proposed borrower’s maximum lending capacity.
Default:
The failure to meet a repayment (be it a loan repayment or account due) within the due date or specified period of time.
Default Rate:
The interest charged to repayments that are not paid when due.
Deposit:
An amount of money paid by a party (e.g. an amount of money put into an account or an amount of money expressed as a percentage rate of the purchase price, paid by the purchaser to the seller to secure a piece of real estate property.
Deposit Bonds:
A certificate or guarantee, generally issued by an insurance company to the seller of real estate property, that the purchaser will pay the amount due to the seller on or before settlement. A deposit bond is used as a substitute for a cash deposit that is not available to the borrower before settlement.
Direct Debit:
An amount of funds that are regularly automatically withdrawn from acustomer’s savings account to other nominated accounts or third parties (e.g. a customer may set up an automatic electronic payment to come from their savings account into the home loan account to cover the nominated monthly repayment).
Disbursements:
The break up of payments occurring at the time of a property settlement. This may include government stamp duties, application fees, solicitor charges, etc.
Discharge Fees:
A fee the lender may charge when you fully pay out a home loan.
Discharge of Mortgage:
The process of fully paying out your home loan.
Draw Down:
Progressive payments from your loan account, at each stage of construction, that is paid to the builder or company that is building your home. A draw down may also be funds that are drawn from home loan accounts such as lines of credit or equity loans.
Dual Occupancy:
Where zoning regulations allow for two separate dwellings to exist on a single property title.
Duty (or Stamp Duty):
A State Government Tax that is imposed on financial transactions. When purchasing a property, the State Government may charge Property Stamp Duty calculated on the purchase price of a property and/or Mortgage Stamp Duty calculated on the total amount of funds borrowed from the lender.
Early Repayment Penalty:
A fee a lender may charge the borrower when a loan is fully repaid before the expiration of the full term of the loan.
Easement:
The right to use a part of land that is owned by another person (e.g. the Water Board may require access to your property to maintain water pipes that may run under your property).
Equity:
The homeowner’s financial interest in a property, after taking into consideration the current valuation less the original purchase price and home loan balance.
Equity Loan:
See Line of Credit
Establishment Fee:
A cost the lender will charge to set up the loan.
Exchange of Contracts:
When the buyer and seller of a real estate property mutually agree on the sale price of the property and respectfully sign the contract of sale, one agreeing to sell the property and the other agreeing to buy the property. This property is then taken off the market.
Exit Fee:
A fee a lender may charge the borrower when a loan is fully repaid before the expiration of the full term of the loan.
Features:
Characteristics of the loan (e.g. redraw facility, split loan capabilities, combination loan capabilities, etc).
First Home Owners Grant:
A Federal Government Grant of $7,000 available to first time owner occupied home buyers, available due to the increased cost of housing as a result of the introduction of The Goods and Services Tax.
Fixed Interest (Rate):
The interest rate that is charged to a loan for a particular term. Fixed Rates of 1, 2, 3, 4, 5, 10 & 15 years are common. This interest remains set for that term even though there may be interest rate movements in the market during the term.
Freehold:
The dwelling that occupies a piece of land is owned by that owner indefinitely.
Gazumping:
Where a purchaser offers a price to the seller (vendor) of real estate property, which is mutually agreed upon by both parties and no exchange of contract has occurred, and subsequently the vendor decides to sell to another person.
Gearing:
The ratio of your contribution of funds compared to contributed borrowed funds in any investment.
Giro Post:
Banking functions offered by a Post Office, usually deposit and bill paying facilities.
Government or Statutory Charges:
All home loans and purchase of residential property attract certain government charges (e.g. property stamp duty, mortgage stamp duty, mortgage registration, etc. These vary between states and are set and governed by the individual state government.
GST:
A 10% federal government tax levied on the final consumer of goods and services.
Guarantee:
A contract or undertaking to pay someone else’s debt if they default on such a debt.
Guarantor:
A party who agrees to be responsible for someone else’s debt should they default on such a debt.
Holding Deposit:
A refundable deposit made in good faith, to show the buyer’s intent to purchase. This is not a legal contract and differs from the exchange from a contract of sale, not enforceable by law.
Home Loan:
A loan which uses the value and security of real estate property to secure borrowed funds from a lender.
Honeymoon Rate:
A discounted introductory home loan rate offered by lenders to entice new borrowers into their products, generally 6 – 12 months in duration. This then reverts to a higher interest rate loan at the expiration of the “honeymoon period”.
Interest:
The amount of money that you are charged by a lender to borrow funds from them. Conversely, it could be the rate of return on your funds deposited with a financial institute.
Interest Only:
Payments that are made only on the interest portion of the loan at the exclusion of reducing or making payments against the principle. Generally limited to 1 – 5 year terms.
Internet Banking:
The use of the internet to conduct your banking transactions (e.g. transfer funds between accounts or making internet bill payments).
Introductory Loan / Rate:
See Honeymoon Rate, may also called discounted home loan rate.
Investment Loan:
A home loan secured by a real estate property, where the borrowed funds are used for investment purposes (e.g. loan used to purchase an investment property, or funds used to purchase shares).
Investment Property:
A property which is purchased by a party and owned for investment purposes, whereby rent may be charged and/or the property may appreciate in value. The owner does not live in the property.
Joint & Several Liability:
Where there is more than one borrower on a loan, and both or all parties are legally responsible for the entire debt if one party is unable to pay their commitment.
Joint Tennants:
Equal holding of a property between two or more persons. Upon the death of one of the parties, the property transfers in ownership to the remaining person (e.g. husband and wife).
Land Tax:
A state tax charged by the government on investment properties imposed above a certain value.
Land Transfer Registration:
A state government tax charged on the selling price of the property.
Lease:
A contract allowing persons to reside in a property for a certain period (usually 6 – 12 months) in return for rent charged by the property owner.
Lenders Mortgage Insurance (LMI):
An insurance taken out against the borrower to protect the lender against default (non payment of the loan). It is important to understand that the LMI does not provide you, the borrower, with any form of protection. If there is a shortfall of funds in what the lender has sold your property for and the outstanding loan balance, the mortgage insurer will then pursue the borrower for the shortfall. The LMI is usually paid by the borrower where the LVR is greater than 80% on “full doc” loans and payable over 60% LVR for “low doc” loans.
Liabilities:
A person’s debts or financial commitments (e.g. home loan repayments, credit card repayments, lease payments, outstanding taxation payments, etc).
Line of Credit:
A home loan secured by real estate property, that allows you to access the outstanding balance whenever required, for whatever purposes. Interest is charged on the outstanding balance not the limit. It is similar to a giant overdraft.
Loan Agreement or Loan Offer Documents
The legal contract between the lender and the borrower which sets out the terms and conditions and fees associated with the loan.
Loan to Value Ratio (LVR):
The calculation of the ratio of your borrowed funds compared to the value of your property (e.g. Loan $400,000 / Property Value $500,000
LVR = 80% (400,000 / 500,000)
Low Doc:
A home loan where the applicant does not need any verification of their income, rather they sign a declaration stating their income. This application is popular with the self-employed.
Lump Sum Repayments:
An additional payment made to your loan over and above your usually or monthly repayment.
Maximum Loan Amount:
The maximum amount of funds the lender is prepared to lend to the borrower after assessing the borrowers income, expenditure, deposit and value of the property.
Minimum Loan Amount:
The minimum amount of funds the lender is prepared to lend to a borrower. Usually between $10,000 - $50,000 on home loan products.
Mortgage:
A form of security for a loan usually taken over a real estate property. The lender, the mortgagee, has the right to take the property if the mortgagor, the borrower fails to repay the loan.
Mortgage Offset Account:
See Offset Account
Mortgage Payment:
Usually the monthly repayment charged by the lender to the borrower for a home loan.
Mortgagee:
The lender of the funds (e.g. BEAT Home Loans)
Mortgagor:
The person or party that borrowers the funds from the lender.
Mortgage Broker:
Darren Thomas, I will seek out and arrange the best home loan tailored to your circumstances, from a broad spectrum of lenders.
Mortgage Discharge Fee:
A fee charged by the lender to wind up and close your home loan.
Mortgage Insurance:
See Lender’s Mortgage Insurance
Mortgage Protection Insurance:
Covers the borrower’s loan repayments in the event they are unable to make the payments as a result of injury, illness or redundancy. Differs from Lender’s Mortgage Insurance.
Mortgage Registration Fee:
A fee charged by some state governments for the registration of a mortgage.
Mortgage Stamp Duty:
See Stamp Duty on Loan Amounts
Off The Plan Purchase:
The purchase of a property before the completion of construction, generally at a discounted price to the end market value. Usually relates to purchases of units.
Offset Account:
A separate savings account that is linked to your home loan in such away that the interest earned on your savings balance is applied to reduce the mortgage on your home loan.
Ombudsman:
The Australian Banking Industry Ombudsman provides an avenue that borrowers may lodge complaints about their lender and have them independently adjudicated.
Ongoing Fee:
An annual or monthly fee charged by the lender for the use of your home loan.
Overdraft:
The lender sets a credit funds limit that you may not exceed. Usually relates to business credit accounts.
Option:
A legal method by which the purchaser may reserve a property for a period of time under mutually agreed terms.
Passed In:
A property is not sold at an auction, if the highest bid fails to reach a preset reserved price, the property ownership does not change and the property is said to be “passed in”.
Phone Banking:
When banking payments and transfers are conducted via a telephone call, often by automated systems.
Portability:
Where a new property may be substituted for an old property on an existing home loan.
Power of Attorney:
A legal appointment whereby one persons grants another person the ability to act as their legal individual representative in their absence or loss of mental capacity.
Prepayment:
Any amount paid to reduce the principal balance of the loan before the due date or any amount in addition to the usual repayment.
Principal:
The outstanding balance on your home loan.
Principal plus Interest:
The most popular type of home loan where the interest payment and a payment is made to the outstanding balance of the home loan in order to reduce the balance over the term of the loan.
Progress Payments:
See Draw Downs
Pro (Professional) Pack Home Loan:
A variable rate, fully featured home loan (e.g. with offset account, internet banking, redraw, gold credit card, cheque book, etc.) offered by lenders where the borrower is entitled to a discount off the Standard Variable Rate because of the loan size or the borrower,s income capacity. Discounts offered usually vary from 0.5% - 0.7% off the Standard Variable Rate.
Property Management:
Usually a real estate agent that finds tenants for prospective investment properties and arranges to collect the rent on behalf of the property owner.
Rates:
Annual or ongoing fees charged by statutory authorities for their services (e.g. Council rates, Water rates).
Redraw Facility:
The facility on your home loan that allows you to make extra payments above your usual repayments and then allows you to access those extra funds whenever you require them.
Refinance:
To change your home loan, usually from one lender to another.
Rental Guarantee:An undertaking by a developer, guaranteeing a certain return on your investment properties.
Reserve Price:
Preset minimum acceptable price of a seller at auction.
Searches:
An inquiry to confirm that the seller of a property is in a position to sell the property, which details any encumbrances, caveats, or interests listed against that property.
Securitisation:
The process of taking a pool of diverse assets such as different home loans and converting them into a single tradeable security such as a bond, which investors can then purchase and trade.
Security:
An asset, such as real estate property, used as a guarantee for a loan.
Semi-detached:
Two dwellings that share a common wall or walls.
Settlement:
The completion of the sale of the property. The lender will receive the signed transfer and the mortgage, and holds the title deeds until the loan is fully repaid. At this stage the borrower usually collects the keys from their solicitor or real estate agent.
Settlement Date:
The date on which the new owner finalises the property payment and associated duties and fees and takes possession of the property.
Signatory:
Person authorised to sign and access a bank account.
Sinking Fund:
An accumulating fund to which strata owners contribute to cover future maintenance, upgrades or repairs to the buildings.
Solicitors Mortgage:
Mortgages offered through solicitors’ companies as lenders, not by banks, generally at higher interest rates.
Split Loan:
A combination of loan types forming one loan (e.g. part Standard Variable and part Fixed Rate, or part Principal and Interest and part Interest Only.
Stamp Duty on Loan Amount:
A state government tax levied against the total loan amount or limit.
Stamp Duty on Lenders Mortgage Insurance Premium:
A state government tax levied on the premium paid for mortgage insurance.
Stamp Duty on Property Purchase:
A state government tax levied on the purchase price of the property.
Standard Variable:
A variable rate home loan usually loaded with features (e.g. redraw, offset, internet banking etc), which differs from a less featured discount or basic variable home loan. Generally the lender’s bench rate home loan, to which discounted rates are then deducted for other home loan products.
Strata Title:
The most common title associated with town houses, villas and units. Individuals each own a small portion of the entire complex such as their unit or townhouse, but do not own the common property such as external walls, windows, roofs, driveways, fences, gardens, etc but is shared by the owners.
Survey:
An architectural plan that shows the boundaries of a block of land and the location and position of any building or services (e.g. water pipes) on that land.
Tenancy:
The legal right to occupy a building, used in leases or other agreements.
Tenants In Common:
The specified portion of each ownership of property where two or more owners exist. If one party dies, the ownership of that party is divided according to law (e.g. probate).
Term:
The agreed upon duration of the loan, usually 30 years, for a home loan. Borrowers may repay the loan quicker if they wish.
Title Deed:
Legal document noting the description and ownership of a property.
Title Fees:
A state government fee that is payable to the State’s Title Office for a title search, transfer or ownership of property, registration of a new mortgage and discharge of an old one.
Title Search:
Investigative process to ensure that the vendor has the right to sell and transfer ownership.
Torrens Title:
Records the ownership of a piece of land, also known as a Certificate of Title.
Town House:
Usually a two storey dwelling amongst other same dwellings, similar to a small house, registered under a strata title.
Transaction Fees:
A fee charged by a lender to perform certain transactions on your bank account (e.g. ATM withdrawal, redraw, BPay, etc).
Transfer:
A document registered with the Title Office that confirms the change of ownership of property as noted on the Certificate of Title.
Unencumbered:
A property that is owned outright free of any other entitlements (e.g. when you fully pay off your home loan and the bank hands the title deeds back to you, you then own the property outright).
Valuation:
A report usually conducted by a suitably qualified valuer that details their opinion of the property value.
Variation:
A change to any part of the loan contract (e.g. you may wish to increase your borrowings during the normal term of the loan).
Variable Interest Rate:
A variable rate home loan is where the interest rate is calculated against the Reserve Bank of Australia’s (RBA) official bank rate. When RBA announces an increase in rates, the Variable Rate that a lender charges will increase, and conversely when the RBA decreases rates the lender will decrease their Variable Rate. This differs from a fixed rate, where the interest rate remains fixed for that period, even though there may be interest rate movements announced by the RBA.
Veda Advantage (Baycorp or CRAA) Report:
Formerly Credit Reference Association of Australia (CRAA) or Baycorp, which is an independent organisation that collects data on individuals’ credit applications, impairment listings, bankruptcy, late payments, defaults and unpaid credit accounts which is available to borrowers and lenders provided you have granted them permission to access your details.
Vendor:
A party who offers a property for sale.
Villa:
A single storey dwelling, usually amongst a group of similar dwellings usually registered under strata or community title.
Zoning:
Legal descriptions of the allowable uses of land as set out by local councils or planning authorities (e.g. residential, rural, industrial and commercial permitable uses of land).
Mates Rates Home Loans in the Hills district of Sydney, NSW is located on the corner of Windsor and Acres Road in Kellyville
Our refurbished office is located on the corner of Windsor road and Acres road in Kellyville and is well situated for personal visits from our clients living in Baulkham Hills, Beaumont Hills, Bella Vista, Carlingford, Castle Hill, Cheltenham, Cherrybrook, Dural, Epping Galston, Glenhaven, Glenorie, Glenwood, Kellyville, Kellyville Ridge, Kenthurst, North Rocks, Pennant Hills, Round Corner, Rouse Hill, Thompsons Corner, West Pennant Hills and Winston Hills
