Glossary
A
| AAPR: | The Average Annual Percentage Rate, also known as the “True Rate”, is used as a tool to assess the average interest payable on a mortgage over a seven-year period. This assessment also includes upfront fees, ongoing fees, and the interest payable on that mortgage over the seven years. |
| Additional or Accelerated Payments: |
This facility allows you to make greater payments than specified on a loan. |
| Account fee: | Many banks/lenders charge one off and, in some cases, ongoing account keeping fees for mortgages. |
| All-in one: | All-in-one loans are usually variable and enable you to deposit all your income into the loan account. You are then able to draw on that money for day-to-day expenses. The purpose of this is to reduce the interest payable because the excess spare funds act as payments. |
| Amortisation period: | This is the term or length of time of the loan as agreed upon. |
| Application fees: | Not all banks/lenders charge an application fee so it is worth checking if the lender you choose is one that charges a fee. In some cases, lenders who do not charge a fee offer a higher interest rate. Your mortgage consultant will explain all this to you. |
| Appraisal: | Is a written report of the estimated value of a property. A qualified appraiser, usually employed by the bank/lender, conducts the valuation. |
| Appreciation: | Is an increase in the value of a property as a result of inflation and market conditions. |
| Assets: | An asset is anything you own that is worth money, including any savings, stocks or funds. |
B
| Basic or ‘no frills’ loans: | Generally tend to be cheaper than variable loans, however these loans tend to be less flexible and offer fewer features, such as redraw facilities or no extra payments can be made. |
| Beneficiary: | The beneficiary is the person that is selected to receive the income from a trust, estate, or a deed of trust. |
| Break Costs: | If you have a fixed rate loan contract and you wish to break the contract before the period expires, you may incur a break fee. |
| Bridging finance: | This type of finance is used for times when finance is needed to buy a new house while waiting for the old one to sell and usually has higher interest rates. |
| Building inspection: | It is encouraged to carry out a building inspection prior to purchasing a house to make sure the house is structurally sound. |
C
| Capital gain: | Is a term that refers to the financial gain obtained when you sell something for more than you paid for it. Usually, the profit you receive from selling the asset incurs capital gains tax, except on the sale of a home that remains exempt from this tax. |
| Capital gain tax: | A federal tax on the monetary gain made on the sale of an asset (excluding your own residence) bought and sold after September 1985. |
| Capital growth: | The difference between the price you pay for an asset and the price you receive when you sell it or the valuation placed on that asset. |
| Capped loan: | A loan where the interest rate is not allowed to exceed a set level for a period of time, but unlike fixed rate loans, is allowed to drop. |
| Caveat: | Is Latin for beware and is a warning on a property’s title that stipulates that a third party has some rights or interest in the property. |
| Caveat emptor: | ‘Let the buyer beware’ – the principle that puts the onus on buyers to be satisfied with any item before buying. |
| Certificate of Eligibility: | A document that is issued by the federal government confirming a veteran’s eligibility for a Department of Veteran Affairs mortgage. |
| Certificate of Title: | A statement that identifies who owns the land and includes details of mortgages, easements, dimensions of the land and whether there are any obstructions on it. |
| Chattels: | Refers to personal property. There are two types of chattels; real chattels which are buildings and fixtures, personal chattels which are clothing and furniture. |
| Combination or Split loan: | This is exactly as it sounds. It is a combination of the several of loans on offer and may have a portion variable, fixed or a line of credit. |
| Comparison rate | As of July 2003 all lenders and brokers must provide a ‘comparison rate’, by law. A Comparison Rate reveals the cost of a loan, allowing you to compare ‘apples with apples’ when choosing a loan. The Comparison Rate takes into consideration the costs associated with setting up a loan including the interest rate, the loan approval fee and any other up-front or ongoing fees. It excludes government fees and charges, because they are standard across all loans. |
| Construction loan: | If you are building a property, a construction loan allows you to draw money as required to assist with building costs. |
| Consumer Credit Code: | is an Act of Parliament that governs the involvement between borrowers and lenders. Credit providers such as banks, building societies etc, must tell you what your rights and obligations are in any credit arrangement. They are required by law to truthfully disclose all relevant information about your arrangement in a written contract, including interest rates, fees, commissions and other information which in the past was often hidden. |
| Contract of Sale: | This is a written statement that is legally binding and outlines the terms and conditions of the sale of property between purchaser and seller. |
| Conveyancing: | is the legal process for transferring a real estate ownership from one owner to another. This can be a costly process and is applicable to all States with the exception of South Australia where a Torrens Title is used instead. |
D
| Deed: | A legal document stating an agreement or obligation regarding a property. |
| Deferred establishment fee: | Is a fee that is charged when you pay out your loan within a short period of time, usually up to four years. |
| Default: | When you fail to meet the mortgage repayment on time. |
| Deposit bonds: | Banks and lenders provide deposit bonds as a guarantee that the full payment will be made by the due date. Deposit bonds are used when cash is not readily available for the deposit. |
| Depreciation: | A decline in the value of a property or an asset. |
| Direct debit: | A system where funds are electronically debited from your nominated bank/building society account. |
| Discharge fees: | This is a fee that is charged when closing a loan account. |
| Disposable income: | Any income that is left over after all expenses and bills have been paid. |
| Draw down: | This provides access to available loan funds and usually refers to lines of credit. |
E
| Easement: | A right to use a part of land that is owned by someone else. |
| Encumbrance: | An outstanding charge on a property. |
| Equity: | Is the percentage, or the amount, of your home that you actually own. Equity increases as the mortgage decreases and equity is affected by market values and also home improvements. |
| Establishment fees: | This is a fee that is paid to the bank/lender at the point of setting up the loan. Also known as Application Fee. |
| Exchange of Contract: | This occurs when the vendor and buyer give each other the necessary legal documents (usually occurs via solicitor or conveyancer) and commence the settlement process. |
| Exit fees: | These fees are incurred when a loan is paid off earlier than the agreed upon term and this fee usually applies to fixed interest rate loans. |
F
| First Home Owners Grant: | The First Home Owner Grant (FHOG) scheme was introduced on 1 July 2000 to offset the effect of the GST on home ownership. It is a national scheme funded by the states and territories and administered under their own legislation. Under the scheme, a one-off grant is payable to first home owners that satisfy all the eligibility criteria. |
| Fittings: | These are items that can be removed without causing damage to a property. |
| Fixed rate: | This applies to mortgages where the interest rate is fixed and is not affected by inflation, or deflation, and is for an agreed period of time. Most fixed rate loans can be taken out over a 1, 2, 3, 4, 5, 7, or 10-year period and the interest rate offered to you at the time of applying for the loan will remain ‘fixed’. |
| Fixtures: | These are items that are likely to cause damage to a property if removed. It pays to check what the sale contract specifies. |
G
| Gazumping: | Many buyers have been extremely frustrated with a practice known as gazumping. This is when the seller verbally agrees on a price for a property but then later advises you that someone else wants to buy the home and has offered more money. In some occasions you are given the chance to match or better the increased offer. In most cases, the home is sold for the increased price without you even knowing about it. |
| Guarantor: | This is when someone agrees to be responsible for the payment of another person’s debts should they default on their repayments. |
H
| Home Equity Loan: | This is a loan that assesses the amount of home equity you have and based on that, offers a line of credit that can be used to invest in a property or to renovate for example. These loans are not suitable for everyone, so talk to your mortgage consultant. |
| Honeymoon Rate: | Also known as ‘Introductory Rate’, this is when lenders offer a very cheap interest rate, usually for a one year period. |
I
| Interest: | This is what lenders charge you for the use of their money. |
| Interest only loan: | This type of loan is short term, one to five years, where only the interest is paid during the agreed term. |
| Interest Rate: | The rate at which interest is applied. |
| Introductory Loan: | See our glossary item ‘Honeymoon Rate’. |
| Investment property: | The owner does not live in an investment property and the property is purchased simply for earning a return on the investment, which can be in the form of capital gain or rent. |
J
| Joint Tenants: | This is when there are two or more purchasers to the one property and each purchaser owns an equal share in the property. Upon the death of one owner, their share automatically is transferred to the remaining owners. |
L
| Lender: | As the name suggests, a lender is a bank, building society, credit union or a specialised home lender that lends money. |
| Line of credit: | Line of Credit also known as an equity home loan, is when the lender assigns you a credit limit secured against your property, and when you need cash you draw against that limit, usually by writing a cheque or using a special debit card. As you pay back the loan (the terms of repayment vary), the money becomes available to you to use again. |
| Loan To Value Ratio: | This is a tool used to measure the strength of a loan. The formula used to calculate the loan to value ratio (LVR) is as follows: Mortgage/Property Price X 100 = LVR For example, if a house is worth $320,000 and the mortgage for the property is $220,000, then the LVR equals ($220,000/$$320,000) x 100 = 68.75% |
M
| Maturity: | This is the date by which the loan must be paid in full. |
| Maximum loan amount: | After assessing your disposable income, deposit and the purchase price of a property, you will be advised of the maximum amount you can borrow. |
| Minimum repayment: | This is the least amount you are required to pay each month on your loan. |
| Mortgage insurance: | If you are borrowing more than 80% of the property value the bank/lender will most likely request that mortgage insurance is taken out. It is important to note that this form of insurance protects the lender and not you, the borrower. |
| Mortgage offset account: | This is a savings account that runs in conjunction with a home loan where the interest earned on that account is applied to the interest that is paid on the loan. By doing this, you are depositing extra money on to the mortgage, which you can access when needed, and reduce the interest that is charged on your mortgage |
| Mortgage protection insurance: | Also know an income protection insurance, this insurance is often recommended as it covers you if you are unable to meet repayments due to serious illness or redundancy |
O
| Overcapitalising: | This occurs when you spend more money on your home than you are likely to get back if you sell the property. |
P
| Portability: | This option allows you to keep your existing home loan if you move house, without having to refinance. |
| Prepayment: | A payment made before the due date of the loan or in addition to the minimum repayment. This can sometimes incur a penalty fee so be sure to check the terms and conditions of the loan. |
| Principal: | This is the capital sum borrowed. |
| Principal & interest loan: | This is a loan where both the interest and the principal is to be repaid. |
R
| Re-amortise: | This is when you recalculate the minimum repayments and is usually done if the loan amount has changed significantly. |
| Redraw facility: | This feature allows you to make extra payments on your mortgage and then borrow from that money if needed. Redrawing may extend the life of the loan and increase your repayments. |
| Refinance: | Occurs when you replace or extend an existing mortgage by arranging for a new mortgage, with the same or different lender. |
| Reserve Bank: | Is the body that is responsible for the maintenance of Australia’s financial system, and for setting the official short-term interest rates on which many variable-rate home loans are based. |
| Reserve price: | This is the minimum price a seller is willing to accept at an auction. |
S
| Searches: | Research that is undertaken by solicitors to confirm information about the property or the purchaser, prior to settlement. |
| Serviceability: | A borrower’s ability to make repayments (service) on the loan when payments are due. |
| Settlement: | The date where the balance of the contract price is paid and the property officially becomes the buyers. |
| Split loan: | A loan that consists of part fixed rate and part variable rate. |
| Standard Variable: | A variable loan that has extensive features, which is unlike a basic variable. |
| Stamp Duty: | This State Government tax is paid by the purchaser and is calculated as a percentage of the purchase price. |
| Strata title: | Strata title has enabled the subdivision of land and buildings into lots and common property. The “lots” are the units or other areas owned by owners. Apart from the unit there can be areas like laundries, car spaces, garages and marinas which form part of the lot. The common property is everything that does not form part of a lot and is owned by the owners corporation (all the owners collectively). |
T
| Tenants in common: | Two or more purchasers owning the one property in any share proportion they choose. When a tenant in common dies, their share in the property passes in accordance with their will. Unlike joint tenants where the share passes to the other owners or joint tenants. |
| Term: | Also known as the life of the loan and refers to the length of time for which the loan is to be repaid. |
| Title deed: | This legal document advises of ownership of a property. |
| Torrens Title: | Torrens Title is the most common form of property title in Australia. All previous and current owners are listed on the one deed, as are all previous mortgagees etc. Also know as “RPA” standing for “Real Property Act”, the legislation that governs the operation of Torrens Title |
| Transfer: | This document confirms a properties change of ownership with the Land Titles Office. |
U
| Unencumbered: | This is a property that has no outstanding charges, liabilities or restrictions on it. |
V
| Valuation: | A report undertaken by a registered valuer that stipulates the value of a property. Often there is a fee that the bank/lender may charge for this service. |
| Variable rate: | This is a rate that increases or decreases depending on money market interest rates. |
| Variation: | This term refers to any changes made in a loan contract. |
| Vendor: | The party that is selling the property. |
Y
| Yield: | Income that is earned from a property that is typically expressed as a percentage of the value of the investment. |
Z
| Zoning: | This is a statutory explanation that provides an account of the uses of a property as determined by local council and planning authorities. |