All the home loan, property and finance jargon explained
Asset – an item or property that is owned by you or your company, which has significant value and is available to use as security to your loan.
ANZ – Australia and New Zealand (Banking Group Limited) is considered to be one of Australia’s largest operating banks and is part of the Big4.
APRA – The Australian Prudential Regulation Authority is an unbiased body that oversees banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, friendly societies and most members of the superannuation industry.
Basic variable rate loans – as it carries cheaper rates, this loan is the no frills option with less features than other loan packages, and is suitable for first home buyers who want to save more money.
Big4 banks – refers to the four largest banks currently operating in Australia which include: CBA, ANZ, Westpac and NAB.
Borrowing costs – expenses accrued or charged after borrowing a sum of money.
Bridging loan – a short term loan that you use between buying a new property and selling your current one.
Budget – a simple yet useful and important tool or list that compares expenses to savings to illustrate exactly how much you have spare to spend.
Business loan – a sum of money that is borrowed to start or improve an existing business.
Capital – wealth in the form of money or other assets owned by you, your company.
Capital gain – a profit from the sale of your property or investment.
CBA – Commonwealth Bank of Australia, commonly known as Commbank or Commonwealth Bank was originally founded by the Australian Government in 1911, and is now considered to be one of the Big4 banks in Australia.
Collateral – something pledged as security for repayment of a loan, to be forfeited in the event of a default.
Commercial loan – a sum of money borrowed may be used to fund large capital expenditures and or operations that a business may otherwise be unable to afford.
Commercial property – refers to property that produces a financial return in the form of rent to the owner, usually by being occupied by businesses.
Construction lending – is a sum of money that is loaned where the proceeds are used to finance construction to your land or property.
Contract employee – someone who works under contract for an employer, and is usually hired for a specific job at a specific rate of pay. A contract employee does not become a regular addition to the staff and is not considered a permanent employee.
Co-operative lender – a financial institution that’s run by members for lenders and is not privatised or owned by any one body.
Cost benefit analysis – a broker assessing the cost of establishing a loan – i.e. your deposit covering the costs that you will incur when you take out a loan (costs include lawyers, convayancers, tax etc).
COSL (Credit Ombudsman Service Limited) – an unbiased body that deals with complaints in relation to the financial services and lending industry. It’s primary focus is to provide consumers with an alternative to legal proceedings for resolving finance-related disputes.
Council rates – an annual contribution fee that Local Government charge land-owners determined by a percentage against your property to pay for communal roads and areas. The amount varies from state to state.
Credit history – a file that is kept by a credit agency for up to 7 years regarding your repayment history on loans and credit cards.
Credit limit – refers to the capped amount your lender has allowed you to spend via a credit card, with your spending limitation based on the information in your initial application.
Credit rating – an estimate of the ability of a person or business to fulfil their financial commitments, based on previous dealings or on their credit history.
Debt consolidation – merging your debt into one amount to simplify your repayments.
Debt structure – your borrowing power and financial soundness is determined by a panel of reviewers who take into consideration everything from your personal or business internal financial stability as well as the state of the economy to foresee if you’re able to repay your loan.
Deposit – a sum of money used to secure the purchase of an item or a sum that you put in a bank account.
Depreciation – generally calculated based on either the passage of time or the use of your asset or property.
Emergency funds – your financial planners may suggest to set up an emergency fund that contains enough money to cover at least three months of living expenses. But in the end it is your responsibility to do so.
Equity – the monetary value of an investment less the outstanding loan amount.
Extra repayments – when you pay more than the minimum required amount to the lender in order to pay off your loan faster.
Family equity loan – where a family pledge of a (limited) security guarantee in the form of an asset or property helps you purchase a home without them actually giving you any money towards the deposit.
Family pledge loan – similar to family equity loans, a family pledge loan is facilitated by using the equity in your family’s property to provide security for all or some of your loan.
First home buyer – an Australian who does not have a record of owning a dwelling or land, and who therefore purchases property for the first time.
First Home Owners Grant – a government fee discount with different qualifying regulations in each state and territory available to Australians for the purchase of their first home.
Fixed interest rate – a percentage against an amount of money you borrow that you repay as a fee. You pay the same instalments, which not change over the course of an agreed amount of time.
Funds to complete – The total funds required to complete a purchase transaction. Include the property purchase funds, and all fee’s and charges associated with the transaction.
Furnishings – non-fixed decorative or functional items that adorn your living space inside a home or property.
Heritage Society – an association who is in favour of protecting and conserving existing heritage-listed land and dwellings.
Insurance – an amount that’s paid in instalments to protect a loan or asset.
Interest cover ratio – used to determine how a company can pay interest on outstanding debt. The ratio is usually calculated by dividing a company’s (or your) earnings before interest and taxes by your interest expenses for the same period.
Interest only loans – where for a set term, you pay only the interest on the principal balance, with the principal balance unchanged.
Interest rate – a percentage calculated against an amount of money that you borrow, and is paid as a fee for the use of that amount of money over time.
Investment loans – an amount you borrow specifically used for investment property purposes.
Legal fees – a sum charged by a legal representation, usually a conveyancer, who specialises on the legal aspects of buying and selling property.
Lenders Mortgage Insurance – a percentage against the amount you borrow if no or little deposit is paid by you (up to 20% of the property value). This amount is paid by you in order to pay for the lender’s insurance to protect them in case you falter on your repayments.
Limited guarantor loan – when another person or family member puts up a property they own that they have equity in as security, allowing you to borrow up to 100% of the purchase price of a home without needing a deposit. This will also mean that you will avoid paying the LMI.
Line of credit – drawn from the equity in your property or an agreed amount that your lender has approved. This means you can use just a portion of what you borrowed, and so you only pay interest on money actually withdrawn or used.
Loan application – a document that provides a financial lender important information about a potential borrower, which the lender then bases their decision to lend to that party. Each loan application may or may not be chargeable, even if the application is rejected.
Loan approval – when the documents you’ve filled have satisfied a panel of lenders to permit you to borrow an agreed sum of money.
Low deposit loan – when you have up to 20% of the value of a property as an initial down-payment to secure the purchase of that asset. A higher interest rate is usually charged.
Low doc loan – where you do not need any supporting evidence, just a declaration from yourself and your accountant that you can afford to make repayments for the duration of the loan. This type of loan is suitable for those who are self-employed or have an irregular income.
Loan – a sum of money that you borrow from an authorised financial lender, with terms and conditions that is usually paid back with interest.
Loan repayments – a regular scheduled amount that you pay to a lender to reduce the sum that you have borrowed.
Loan settlement – refers to when your debt or loan has been paid in full.
Loan-to-Value Ratio (LVR) – expressed as a percentage, it refers to the amount of the loan against the value of the property purchased.
Loan portability – is a feature that is sometimes offered by your lender that allows you to carry the terms of the loan to a new property if you decide to move house during the life of your loan.
Lump sum repayments – a single, large sum of money paid toward your loan amount on top of your regular instalments.
Mortgage broker – a person or company connected to many lenders in a non-biased way who will evaluate which loan is most appropriate for your individual situation.
Mortgage registration fee – a fee that can vary from state to state, it’s charged by the State Government for the registration of a home loan in order to verify ownership of a property for any government searches and checks needed by any future buyers of that property.
Moving costs – various expenses that are associated with moving house.
NAB – stands for National Australia Bank and is considered to be one Australia’s largest financial institutions and therefore part of the Big4.
NCCP – The National Consumer Credit Protection Act, suggests that all lenders and mortgage brokers are required to hold a credit license or be registered as an authorised credit representative. This legislation is designed to protect consumers and ensure ethical and professional standards in the finance industry, through the National Credit Code (NCC).
Negative gearing – a tax advantage calculated as a return from an investment property after maintenance and mortgage interest costs.
Net income – refers to your available income from salary or property? after deducting depreciation, interest, taxes and other expenses.
Non-bank lenders – are lenders who do not hold an Australian banking licence and who do not represent a mutual bank, building society or a credit union. A non-bank lender usually sources their own wholesale funding and then lends out their funds making a margin on the difference.
Offset account – a savings account that is linked to a home loan. It reduces your interest payable because the interest is only charged on the net balance of your savings account.
Panel of lenders – referring to usually more than one person who represents the financial institution you are applying for a loan from who will assess your application in a group effort.
Parental guarantee- refers to when your parents or other family members help you secure a loan in your name by offering you to use the equity in their home for some or all of your loan.
Personal loan – smaller amount of money borrowed compared to a home loan. Used to purchase items like, holidays, cars and medical procedures.
Pest and building inspections – a recommended pre-purchase property inspection report, usually paid by you, which identifies structural and pest infestation on the property.
Pre-approval – a pending loan whereby the loan documents have passed and a loan is available when the borrower is ready to use it or purchase an asset.
Principle – refers to the actual sum that you have borrowed or otherwise, the body of the loan. In contrast, the additional part you need to pay when you borrow money is the interest, which acts as a fee that is calculated as a percentage, usually against the original sum of the loan until the end of the term.
Principal and Interest – a loan where both principal and interest are paid together for an agreed amount of time, sometimes for the life of the loan.
Property transfer stamp duty – a taxation charged by the State Government when you purchase a property.
Property portfolio – is a collection of property investments owned by an individual, a group or a company.
Redraw facility – where you can access additional payments you’ve made previously on a loan.
Regional bank – usually operates in a limited area or part of the country rather than nationally.
Refinancing – when you acquire a new loan to take over an older one for the same asset.
Renovation loans – a sum of money borrowed as a short term loan to pay for maintenance or structural changes to your property.
Rental yield – a measure of the percentage of income return you earn from your property.
Removalists – companies who specialise in helping people move from one home to another.
Reserve Bank of Australia (RBA) – its duty is to contribute to the financial stability in Australia, and is influenced by things like employment and overall Australian welfare. The RBA create the daily cash rate which will affect the direction of the interest you pay on your property.
Residential property – a dwelling that is either occupied by tenants or inhabited by a person, group of people or family who may own the property and is generally used for non-business purposes.
Reverse mortgage – when retirees unlock the equity in their home and borrow against the value of their home and repay the loan when they sell their property. (is there a set timeframe?)
Self managed superannuation fund loan – a self managed super fund (SMSF) loan is a home loan for those who wish to invest their superannuation in property.
Settlement date – the agreed date which the seller must deliver the property that was sold, and the buyer must pay the final amount that is owed.
Smaller banks – considered as safe financial institutions as they’re held to the exact same regulatory standards as the Big4 banks. Many are owned by the larger banks and are used to serve niche parts of the market.
Split loans – allows you to borrow part of your mortgage on a fixed interest rate and the remainder on a variable interest rate – all under the one loan product.
Stamp duty – a State Government tax based calculated by a percentage against the monetary value of the property you purchase.
Standard variable rate loans (SVR) – usually with a variety of features, including making extra repayments and redraw advance repayments, this type of loan is suitable for both investment and personal purposes.
Strata fees – when collective owners of a building pay a fee, usually quarterly, into an account that pays for the overall maintenance and other expenses related to the building.
Superannuation – a compulsory, regular payment made into a fund by an employee towards your future pension.
Sweat Equity – an interest in a property earned by a tenant in return for labour towards upkeep or restoration.
Vacant land loan – a sum of money that you borrow to pay for a block of land that you intend on building on in the near or distant future.
Valuation – an estimation of the worth of a property, carried out by a professional (certified?) property valuer.
Variable interest rate – a percentage charged against the sum of money borrowed as a fee paid at regular instalments, that may increase or decrease according to the cash rate.
Westpac – stands for Western-Pacific, is considered to be one of Australia’s largest operating banks and is part of the Big4.