Finance Terminology

A

AAPR

This stands for the Average Annual Percentage Rate. It’s a term we use to describe the “true rate” of a loan. We use the AAPR when we rank
loans in our Toolbox software. We use it to work out the real cost of a loan, because it takes into account honeymoon rates, ongoing fees,
introductory offers and discharge fees as well as the advertised interest rate. The AAPR calculation is based on the actual loan amount
and how much is charged for it over a 7 year period. The AAPR doesn’t include government fees, exit or early repayment fees and service
fees like redraw and internet usage charges.

Agent

Someone who acts on behalf of another person or organisation. For example, a real estate agent acts on behalf of a landlord or owner when leasing
or selling a property.

Amortisation period

Also known as the loan term. It’s the agreed length of time that a borrower has to repay a loan. It’s set during the application and approval
process.

Application fees

The fees a lender charges to set up the loan. It’s generally to cover the lender’s internal costs.

Appraised value

The estimated value of a property being used as security for a loan.

Appreciation

The increase in the value of a property.

Arrears

An outstanding or overdue amount.

Assets

Money, property or goods owned.

Auction

A public sale where a property is sold to the highest bidder.

B

Body corporate

All the unit owners within a strata building. The owners elect a council responsible for the management of the building and it’s common areas.

Breach of contract

Breaking the conditions of a contract.

Break costs

Penalty charges for ‘breaking’ or ending a fixed term loan before the agreed date.

Bridging finance

A loan used to cover the finance gap that can happen when a buyer purchases a new property before selling an old one. Higher interest rates
are usually charged for this form of finance, and it has to be paid back after an agreed time.

Building inspection

An 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

Legal or statutory rules set up by a local council to control the manner and quality of buildings in it’s jurisdiction. The rules are generally
designed to ensure public health and safety as well as acceptable standards of construction.

Building society

A financial institution owned by its customers or “members”. It offers banking and other financial services, especially mortgage lending.

C

Capital gains

The financial or monetary gain obtained when an asset is sold for more than its original price.

Capital gains tax

A federal tax on the monetary gain made on the sale of an asset bought after September 1985. The tax does not apply to the gains made on the
sale of an owner-occupied residence, so it generally applies only to investment properties.

Capped loan

A loan where the interest rate cannot exceed a set level for a period of time but, unlike fixed rate loans, can fall.

Caveat

A caveat lodged upon a land or property title indicates that a party, that is not the owner, claims some right over or interest in the property.

Certificate of Title

A record of all current information relevant to a particular property or piece of land. This includes, current ownership details, any registered
encumbrances or caveats and any lot or plan details. A lender usually holds this document as security. Once the loan is fully repaid, the
Certificate of Title is returned to the borrower.

Chattels

Chattels are items of personal property, such as clothing, appliances and furniture. In real estate terms chattels are usually movable items
which may be included in the sale, such as furniture.

Commission

The fee or payment made to a real estate agent for services.

Contract of Sale

A written agreement outlining the terms and conditions for the purchase or sale of a property.

Conveyance

The transfer of property ownership and changing the title of a property from the seller’s name to the buyer’s name.

Conveyancing

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

Cover note

A guarantee of temporary property insurance before the implementation of a formal policy.

Credit

Borrowed money or other finance to be paid back under an arrangement with a lender.

Credit union

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

Creditor

A person or organisation who is owed money.

D

Debtor

Someone who owes money to someone else.

Deed

Another word for title. It’s a legal document that states all information regarding the ownership of a property or piece of land.

Default

Failure to abide by the terms of a mortgage or loan agreement – such as not making loan minimum required repayments. Defaulting on a loan may
result in financial penalties and, in extreme cases, the mortgage holder taking legal action to repossess the mortgaged property.

Deposit

An amount paid by the buyer at the time of exchanging the contract for sale. It acts as a commitment to buy. Normally a minimum of 5-20% of
the total purchase price is required.

Deposit bond

A guarantee from a financial institution that a deposit will be paid to a seller. It’s useful for buyers with savings in a term deposit because
it can be offered at the time of exchange – instead of a cash deposit. Which means the buyer doesn’t have to break the term deposit and
lose any interest accrued. The buyer must pay the full purchase price of the property, including the amount of the deposit, at settlement.
In the event that buyer does not settle on the property the seller will be paid the deposit amount by the financial institution.

Direct debit

Regular electronic debiting of funds from a nominated cheque or savings account.

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 terminating 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

A person’s remaining income after all known expenses, such as loan payments and bills, have been met.

Draw down

To access available loan funds. Draw down usually refers to a construction loan, or a line of credit. That is a loan where the limit is set,
but the amount is not accessed all at once. The borrower draws down or uses the funds as required, up to the set limit.

E

Easement

A right to use a part of land owned by another person or organisation, for example to access another property.

Encumbrance

An outstanding liability or charge on a property.

Equity

The amount of a property actually “owned” by the owner. It’s the current value of a property less the amount still owed on its mortgage. Equity
usually increases as the principal of the mortgage is paid off. Market values and improvements to the property can also affect equity.

Establishment fees

Fees charged by a lender to cover the cost of setting up a loan.

Exit or early repayment fees

Penalties charged by some lenders when a loan is paid off before the end of its term.

Extra repayments

These are regular additional repayments on a home loan account, above the minimum required repayment, which can reduce the term of the loan
and the interest payable.

F

First Home Owners Grant

A grant from the Federal and State Governments. It was introduced as compensation for the increased cost of housing after implementation of
the Goods and Services Tax (GST) on 1 July 2000. It’s only for buyers that have not previously bought property in Australia.

Fittings

Items not intended to be removed from a property when it’s sold, for example fixed carpets, lights, curtains and stoves.

Fixed rate

An interest rate that applies to a loan for a set term. Both the interest rate and loan repayments are fixed for the agreed term, regardless
of any interest rate variations in the home loan market. The agreed term is usually anywhere between 1 and 7 years.

Freehold

Complete ownership of a property and the land that it’s built on.

G

Gazumping

When a seller accepts an offer from a buyer but then proceeds to formalise the sale of the property to another buyer with more favourable terms.

Guarantee

A contract to pay someone else’s debt if they don’t pay it.

Guarantor

A person or organisation that agrees to be responsible for the payment of a loan – if the actual borrower defaults or is unable to pay.

H

Home equity

The amount of a property actually “owned” by the owner. It’s the current value of a property less the amount still owed on its mortgage. Equity
usually increases as the principal of the mortgage is paid off and when property market values increase.

Home loan

The funds borrowed to purchase a property. The property acts as security for repayment of the loan. The lender holds the title or deed to the
property. It’s also known as a mortgage.

I

Installment

The regular payment that a borrower agrees to make to a lender.

Interest

The amount charged for the money borrowed from a lender.

Interest only loan

A loan where only the interest is paid for an agreed term, usually 1 to 5 years. The principal is then repaid over the remaining term of the
loan by the conversion of repayments to principal and interest.

Interest rate

The percentage of the loan amount, used to calculate the interest to be paid for a loan.

Introductory loan

A loan offered to new borrowers at a reduced rate for an introductory period – usually 6 to 12 months. It’s also called a discounted or honeymoon
rate.

Investment property

A property purchased for the sole purpose of earning a return, either in the form of rent or capital gain. The owner does not live in the property.

J

Joint tenants

Equal holding of a property between two or more people. If one party dies, their share passes to the survivor or survivors.

L

Lease

An agreement between a property owner and a tenant. It allows the tenant to occupy and use a property for a set period in exchange for a set
rent.

Lender’s Mortgage Insurance (LMI)

Insurance which covers the lender if a borrower defaults on a loan and the sale of the property doesn’t cover the outstanding debt. It’s usually
required for the loans the lender considers more risky. For example, when the amount borrowed is over 80% of the property value. Only the
lender is covered by this insurance. It offers no protection to the borrower.

Line of credit loan

A flexible loan arrangement with a specified limit to be used at a customer’s discretion.

Lump sum repayments

Additional ad hoc repayments, made over and above the minimum loan repayment required.

LVR

Abbreviation for the term Loan to Value ratio. It is the percentage of the loan amount compared to the value of that property. So if a house
is worth $160,000, and the mortgage is $100,000, then the LVR is 62.50%. Most lenders require a borrower to take out Lender’s Mortgage
Insurance if the LVR is 80% or more.

M

Maturity

The date when a debt must be paid in full.

Maximum loan amount

The maximum amount that can be borrowed. It’s based on a borrower’s disposable income, deposit, and the purchase price of the property.

Minimum loan amount

The minimum amount that can be borrowed.

Minimum repayment required

The amount a borrower is contractually obliged to pay each month, in order to repay a loan within an agreed term.

Mortgage Broker

A person or organisation offering to organise or sell loans on behalf of a group of lenders.

Mortgage offset account

A savings account linked to a home loan. The interest earned by the money in the savings account offsets – or reduces – the interest due on
the home 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 Protection Insurance

This insurance covers loan repayments should a borrower become sick, injured or redundant and unable to work. It is also called income protection
insurance. This insurance covers the borrower not the lender.

Mortgage registration fee

A State Government charge for the registration of a loan. Because the property acts as security for a home loan, the government requires a
home loan to be registered so that all claims on a property can be checked by any future buyers of that property.

Mortgagee

The lender of home loan funds.

Mortgagor

The owner or owners of the property offered as security for a loan.

P

Passed in

A property is ‘passed in’ at auction if the highest bid fails to meet the reserve price set by the seller.

Portability

Allows a different property to be substituted as security for an existing loan. Useful if you are buying a new home but don’t want to set up
a new mortgage.

Principal

The amount owing on a loan, on which interest must be paid.

Principal & Interest loan

A loan in which both the principal and interest are repaid, during the agreed term of the loan.

R

Re-amortise

To recalculate the minimum repayment required to repay the outstanding balance of a loan over the remaining period. This generally happens
when the loan term is extended or if the loan amount has significantly increased or decreased compared to the original loan amount.

Redraw facility

A component of a variable rate loan which enables a borrower to make extra repayments on the loan but later redraw this money if needed.

Refinance

To switch mortgage providers and arrange a new loan for the same property.

Reserve price

At an auction, this is the minimum price acceptable to the seller of a property.

S

Searches

Research carried out, prior to the settlement of the property, to confirm information about the property. Searches are usually arranged by
a solicitor.

Security

An asset that a borrower gives a lender the rights to – so the lender can be confident of getting the money back, one way or another if the
debt is not re-payed as per the loan agreement.

Settlement

There are generally two types of settlement that happen with most property purchases: Settlement of the property is when the balance of the
purchase price is paid to the seller. The buyer receives the keys and becomes the legal owner of the property. Then there’s settlement
of a loan coincides with settlement of the property. It’s when the lender transfers the borrowed funds to the seller or the seller’s mortgage
holder.

Split loan

Generally a loan that is part variable and part fixed, but it can also be a loan with multiple variable parts. Borrowers wanting to use equity
in a property to invest in the share market may make “multiple variable splits” to better track the return on their investment.

Stamp duty

A State Government tax based on the purchase price of the property. It’s also payable on mortgages in some states. Each state and territory
has different rules and calculations. To estimate the amount of stamp duty you may have to pay, use our stamp duty calculator.

Strata title

The most common title associated with townhouses and home units. It acts as evidence of a unit’s ownership. In a strata plan, individuals each
own a small portion of a strata building such as a unit – which is identified as ‘lot’ on the title. All owners in a strata plan share
common property such as external walls, windows, roof, driveways, foyers, fences, lawns and gardens.

T

Tenants in common

A form of agreement often used when friends or family purchase a property together. It details the equal or unequal holding of property by
two or more people. If one person dies, their share passes according to their Will or the law, rather than to the owner of the other share.

Term

The duration of a loan, or a specific period within that loan. This is usually written in months for example, 360 months equals 30 years.

Title deed

Document disclosing the legal description and ownership of a property.

Title fees

Charged by a state or territory’s Titles Office for title searches, property ownership transfers, the registration of new mortgages and the
discharge of old ones.

Transfer

A document registered with the Titles Office that confirms the change of ownership or a property.

U

Uniform Consumer Credit Code (UCCC)

This is the legal framework that governs the relationship between borrowers and lenders. It requires all credit providers such as banks, building
societies, credit unions, finance companies and businesses, to explain the borrowers rights and obligations, disclose all relevant information
about a loan in a written contract – including interest rates, fees, and commissions.

V

Valuation

A professional opinion of a property’s value.

Variable rate

A rate that goes up or down depending on money market interest rates.

Variation

A change to any part of a loan contract.

Z

Zoning

Statutory descriptions of the allowable uses of land as set out by local councils or planning authorities.

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