Dictionary2018-05-12T16:42:51+00:00

HOME LOANS GLOSSARY.

A  |  B  |  C  |  D  |  E  |  F  |  G  |  H  |  I  |  J  |  K  |  L  |  M  |  N  |  O  |  P  |  Q  |  R  |  S  |  T  |  U  |  V  |  W  |  X  |  Y  |  Z

A

Accrued interest – An interest that is owned by either party, but is not yet to be paid or charged.

Additional repayments – Any money you pay for a loan that is not part of the monthly minimum repayments.

Administration fee – A fee that is charged every month by the bank or the lender for managing your account and providing you services.

Advocate – A person who legally speaks on your behalf.

Annuity – A regular amount of money that you have to pay over the set time during the life of the individual, and which is normally used for retirement.

Annual percentage rate – A page that will indicate the interest rate that you will have to pay every year for your loan. This rate does not include charges or lender’s fees.

Appreciation – This designates an increase in the market value of the property.

Asset – A property that you provided in order to secure the loan, and in which the lender has full right to tap into if you fail to repay your loan on time.

Australian Business Number (ABN) – A number that has been issued by the ATO (Australian Tax Office) for businesses that have been registered in Australia. This number must be present on every official document or tax-purpose transactions.

B

Basis point – A single basis point has an interest of 0.01%. Therefore, 25 basis points will have 0.25% interest.

Balance – The amount of money you will receive in your bank account and that you will have to pay back by the end of the term.

Bankruptcy – A legal state that will affect those people that have an inability to pay their debt. The person going through bankruptcy will have to give their debts as well as assets to a trustee, who will thereon decide what to do with the remaining assets and whether or not they can be sold in order to pay off the debt.

Benchmark indices – These are used by fund managers, as well as large investors, as a means to measure the share portfolio’s performance across various indices.

Beneficiary – A person or company that was given legal rights to receive certain benefits that were generated by an asset. The asset is usually registered in another party’s name, for instance, a trustee.

Body corporate – A council of owners that was self-elected to manage a building and the common area of a lending enterprise. It is also known as the “Owner’s Corporation.”

Bond – A document that records and acts as proof of a loan for a certain period of time, at a fixed interest rate.

Break costs – The fees that you may be required to pay if you want to terminate a fixed rate loan earlier. This may happen if you want to make additional repayments, pay it in full, refinance, or consolidate a loan. Depending on the size of the loan, break costs can be very significant.

Bridging loan – A short term loan meant to cover the financial gap between acquiring a new company and selling the previous one.

C

Capital – The value of the assets that you bring to the table such as properties, houses, and businesses.

Capped loan – A loan with an interest rate that can’t go over a certain level during a specified amount of time, but which can still go down.

Caveat – It’s translated from Latin as “beware,” and it represent a certain clause in the contract that is a particular requirement for a loan. The borrower needs to be highly attentive of this requirement.

Certificate of title – A legal document that states that a certain property is registered under a certain owner’s name. This paper should also list details of any mortgages the owner may have, as well as other legal clauses such as the caveat.

Chattels – Synonymous with “personal property.” These can be real chattels (such as buildings and fixtures) or personal chattels (such as furniture and clothing).

Chosen obstacle – An obstacle that prevents you from saving money and that happened as a result of something that you chose for yourself (for example, the purchase of a new car).

Co-borrower – Someone who jointly borrows money with another individual. Each borrower is responsible for the loan separately, and the action of one borrower may directly affect the other. As a result, if one of the “co-borrowers” doesn’t pay his share of the loan, the other one will have to pay the amount in full.

Commission – A reward or a sum of money that has been given to a salesperson or an advocate at the end of the collaboration.

Comparison rate – There are many types of loans to choose from, each with different fees and interest rates. Since it can be difficult to compare the overall cost of the loan during its lifetime, the borrower uses a comparison rate to literally compare loans. These rates include anything from interest to lenders fee and other charges that may occur during the lifetime of the loan.

Construction Loan (BICOE) – A loan that allows you to draw funds on-the-go, as the construction of your home progresses (since you need to pay the builders). This option usually comes as a variable interest rate loan.

D

Debenture – A fixed interest asset or security that will be issued in exchange for medium to long term fund investments.

Debit – A withdrawal made from a bank account.

Default – This happens when a person doesn’t meet the requirements of an official agreement (for instance, not making your payments on a loan on time).

Disbursements – Fees and costs that have to be paid during the initial stages of the loan application. They are usually discussed either with your lender or your lawyer, to ensure the legality of the loan.

Draw down – Even if the loan has been approved, the lenderA won’t just send the cash right into your bank account. They will, however, release the money to the seller when it’s settlement day. That release goes under the name of draw down.

E

Easement – The right to make use of a land that is owned by another individual.

Economic costs – Fees that may be applied if you make the switch from a fixed interest rate to a variable one when you are still in the fixed rate period. These may also apply if you pay extra to your loan before this period ends (see “break costs”).

Equity – This is the entire value of your house, excluding the amount of money that you still have to pay. For example, if the value of your home is $700,000 and you still owe $400,000 to the lender, then your equity is $300,000.

Encumbrance – A great liability or a charge that has been added to your property.

Establishment fees – The money that you will be required to pay when you are setting up a loan.

F

Financial Services Guide – A document that will offer you the information needed to make an informed decision regarding the service of a certain financial provider.

First Home Owner Grant (FHOG) – This is a grant given by the government to eligible people in order to buy their first house. Depending on the state that it’s applied in, the FHOG may have different clauses and requirements.

Fittings – Items or assets that may be removed from the property without it becoming a liability or causing any damage.

Fixed interest rate – An interest rate that will not change for a fixed amount of time (usually between one and ten years). It’s the opposite of a variable interest rate, which can go up or down during the lifetime of the loan.

Floating loan – A loan with a variable interest rate.

Franking credit – The tax that is paid by a company based on the profits prior to paying off the shareholders with the dividends.

G

Garnishee – An official court order that allows you to divert someone’s property or money to another individual, regardless if it’s the whole sum or just part of it.

Gearing – The ratio between your money and the amount you borrowed for an investment. A property that is “highly geared” will have a high ratio of the borrowed funds vs. the already owned ones.

Government charges – These may vary depending on the state that you live in. They include mortgage registration fees, land transfer, and stamp duty.

Guarantor – The individual that agrees to help you get a home loan. This will generally include taking some responsibility if you fail to pay the loan on time. The guarantor will be required to bring assets that the lender can tap into or sell if you default on the loan.

H

Holding deposit – A deposit that has been put down at the beginning of the collaboration as a token of goodwill. This deposit is refundable and can be taken back once the purchase has been completed.

Honeymoon rate – Also known as the “Introductory rate,” this is a special low interest rate that is applied during a specified time of the loan. It also permits you to make further repayments so that you can reduce the amount you owe.

I

Indicator Lending Rate (ILR) – The initial rate that acts as the basis of variable interest rates, as well as other loan terms.

Inclusions – Belongings that are to be sold along with the property (for example TVs, stoves, refrigerators).

Income – The total sum of money that you earn, including the rental income, wages, government allowances, and interest. For companies or businesses, the income is the revenue, minus the expenses.

Inflation – The process during which the prices of the services and goods will rise over time.

Interest – The amount of money that a lender will require the borrower to pay alongside the actual amount that you borrowed. This money is taken as a guarantee, as well a result of the fact that you are using the lender’s money.

Interest-only loan – A loan which only has you paying the interest on the loan for a certain amount of time, without having to pay the principal as well (the actual amount that you borrowed from the lender).

Introductory rate – A low interest rate that is offered at the beginning of the loan for a certain amount of time. After the introductory period has ended, the rate converts to a variable interest rate. This rate is also known as a “Honeymoon Rate.”

Inventory – The full list of items that will be included alongside with the property.

Invoice – The bill that announces you of the repayment that you have to make for the services or the products that you received.

J

Joint debt – This applies when two (or more) individuals apply for the same loan together and get the same debt. Unless there’s a clause in the contract that specifies how much money each individual is required to pay, the lender can take the repayment from either party of the loan.

Joint income – The total income of the borrowers that applied for a joint home loan.

K

L

Land surveyor – A specialised individual that can mark out the boundaries of a certain property. It’s a very important role since they are the ones who can legally determine where you can build the fence or build the house.

Land tax – A State Government tax that has to be paid by the ones who own an investment property of a certain value. The higher the value of the property, the higher the tax.

Lease – An agreement where one party grants another legal right to use a property that they want for a specified time in return for regular payments.

Legal entity – An organisation or an individual that will be held legally accountable for everything that happens in a corporate (or incorporate) body.

Lenders Mortgage Insurance (LMI) – Nowadays, lenders will not offer you a mortgage if you don’t have at least 20% of the home’s value deposited in an account. Still, the LMI can be a very efficient way around this, since it protects the lender in the event that you default on your mortgage. The fee for an LMI is usually required when the loan-to-value ratio goes over 80%.

Line of credit – The amount of money that you can borrow and whose interest is paid only when part or the entire line of credit has been assessed.

Loan – A sum that is given to someone for a specified amount of time. The borrowed money will have regular repayments set, usually with an added interest in the mix.

Loan to Value Ratio (LVR) – The amount of money you get from a loan compared to the assets purchased or the value of the property. It is also commonly known as a “Debt to Equity” ratio.

Low documentation loan – A loan that is generally given to people that are self-employed and do not have the legal documents required to prove their income.

Lump sum payment – A generally large payment that you add to a loan in addition to your scheduled payments.

M

Margin – The difference between interest indicator rate of the lender and the rate paid by the borrower.

Market value – The highest estimated price that a buyer would be required to pay for a property.

Maturity – A set date when the debt must be repaid in full.

Minimum repayment – The smallest amount of money that a borrower can pay on a loan so as to not receive a penalty.

Mortgage – A loan you receive in order to buy a home, with the actual house acting as security.

Mortgage broker – The person that will help you find the most suitable mortgage for your needs. A mortgage broker may require a fee for their services or receive payment as part of a commission.

Mortgage discharge fee – A fee that will be required at the end of a loan repayment process. This will cover the costs needed to finish a loan that has been previously secured with a mortgage.

Mortgage protection insurance – An insurance that may cover some (or all) of the repayments in case you become injured or are for some reason unable to work and provide income.

Mortgagee – The person or company offering the mortgage.

Mortgagor – The person who borrows the money and benefit from the mortgage.

Mutual funds – An account that is managed by a group of two or more individuals and that is used as a financial investment.

N

Negative gearing – A possible tax advantage that may appear when the returns of an investment property don’t cover the costs of the maintenance or the costs of the mortgage interest.

Net income – The total value of your income once deductions and taxes have been subtracted from the gross income.

Net worth – The total value of your assets minus how much you owe in rapport to them.

Not Negotiable – The words that are written on bills of exchange or cheques, stating that payments should only be made by the person named and only in the required amount.

Novated lease – A written agreement where the employer agrees to meet the requirements of a lease while their employee remains underemployment (for example, in case of a car lease). The employee will then give part of their salary to the salary to the employer in order to repay them for the lease.

O

Off-the-plan purchase – Buying a property (generally, an apartment) before it even gets built, only by looking at the plans of the building.

Offer to purchase – A legal document that states the price for purchasing a certain property.

Offset account – A separate savings account that you link to your home loan. The charged interest rate of the loan is offset against the interest rate you have on savings – therefore reducing it. When the interest you have to pay is the same as the interest that you earn from your savings account, you have 100% offset.

Ordinary share – The most common share type which is the equivalent of equity within a company.

Overdraft – A credit extension that has been created by drawing more money from an account than your balance allows you to.

Overdue – An overdue repayment is the amount of owed money that has not been repaid by the due date and still remains to the day.

P

Personal loan – A loan that is given for purchases such as assets or vacations. You receive a certain amount of money that you have to return in instalments calculated at the beginning of the loan.

Portability – The possibility to “shift” a loan from a security to another (regardless if it’s term deposit, property, etc.). For example, you may use your loan to purchase a new house, and then you can swap the initial loan security (which was a deposit or an asset) to your new house.

Positive gearing – This happens when you borrow in order to invest in something that will earn you more money than you have to pay in fees and interest.

Prepayment – The additional payments that you make to a loan and are above the ones specified in the monthly requirements of the loan.

Principal – The actual amount of money you owe on your home loan, without including the interest rate. Usually, the principal will get smaller and smaller over the life of the loan, unless you opted for an interest-only loan. In that case, the principal will be paid later on in the loan.

Principal and Interest repayment – A payment structure where you contribute in both interest and principal, chipping away at the total amount of the loan. These are the most common types of repayments.

Product Disclosure Statement (PDS) – A legal document (or more of them) that describes a certain service or products, including their benefits, features, costs, and associated risks.

Property value – This will state exactly how much the property is worth. Lenders will generally mention the “assessed value” of a certain property, which is, in fact, their valuation for it. These valuations are generally done by a specialist in valuations.

Q

Quarter – A three-month period. For example, every business should submit a Business Activity Statement every quarter.

Quick deposit – A feature that enables you to simply leave your check at a branch without having to wait until you are served.

R

Rate of Return – The change measured in percentage of the value of an investment of an asset within a specified amount of time.

Rebate – The total amount of money that is refunded or returned.

Receipt – A document that shows an invoice has been repaid. Receipts usually have a reference number, as well as details regarding the amount that has been repaid. See “Invoice.”

Redraw facility – Allows you to have access to additional payments you make on a loan with a variable interest rate.

Reducible – Something that can be brought down and reduced in size (for example, the price).

Refinancing – Adding or replacing an existent loan so that you can obtain a lower interest rate, lengthen your maturity, or consolidate your debts.

Repayment frequency – The regularity of the repayments that you are required to make over a specified amount of time, which is to be discussed between the lender and the borrower at the beginning of their collaboration.

Rollover – The continuation of a deposit or the renewal of a loan that usually includes an interest rate revision.

S

Savings – Money that has been set aside for later use, and which is usually deposited in a savings account.

Security – An asset (usually property such as a car or a house) that has been purchased generally with the funds from the loan, which the lender can sell in case you default on your loan.

Settlement – The transaction that brings the selling process to an end. That is when the buyer may take ownership of the property.

Shareholder – A person that provides part of the company’s capital, and then receives a share of the investment profits in dividends.

Simple interest – An interest that has only been paid alongside a set principal, without being re-invested.

Split loan – The instance where two or more loans are used for funding the same property.

Stamp Duty – A territory or state government tax (depending on the location of the property) that is assessed and paid based on the amount secured by the loan or mortgage. The higher the secured amount, the greater the Stamp duty on the payable mortgage.

Standard variable loan – A loan with variable interest that may include features such as a redraw facility or an offset account.

Statement – A record that provides a summary of every transaction that happened on your account, including the interest that has been paid and the fees that have been charged.

Strata title – Offers ownership or a single unit from a larger building, as well as a body corporate membership.

Stratum title – Similar to Stratum title, only that the owner goes past being just a member of the common area management, becoming a shareholder.

Superannuation – A tax-effective savings form where you set money aside for your retirement. Employers will usually be required to contribute with a small percentage of their salary to the superannuation fund. This money will be invested and will become available for you once you retire.

Switching – The moment when a borrower makes the change from one type of loan to another (for example, moving from a variable loan to a fixed rate one).

T

Tax audit – The analysis of your tax situation conducted by the Australian Taxation Office. This will ensure that you adhered to tax loans, making you look more trustworthy when you intend to take out a loan.

Term – A set time frame, usually the amount of time that you have in order to fully repay a loan.

Term deposit – This is a savings account that provides a fixed interest rate in return for offering funds for a certain amount of time.

Terms and conditions – Details of a contract that outline certain obligations that each party needs to respect in regards to the product or the transaction.

Title search – The research process during which you find out whether a seller has the legal right to sell the property or not. Not only will you be looking for ownership, but you will also be searching for legal restrictions that may prevent them from selling the property.

Transaction – The movement of money such as withdrawals, deposits, or transferring it from one bank account to the other.

Trust – An entity that has been created in order to hold possessions for the benefit of specified groups or individuals. These trusts are usually managed by a trustee.

Trust account – This is an account that is generally used by specialised people such as accountants, lawyers, and stockbrokers in order to manage the financial assets of their clients.

U

Underwriting – The practice where a person with the title of Underwriter accepts the risks associated with an insurance contract. This will benefit them by minimising the exposure of the insurer to loss.

Unencumbered – A property that has no liabilities, restrictions or encumbrances whatsoever.

Unsecured loan – This is a loan that has been provided by the lender without having any securities or collateral (for example, credit cards). Since the risk is much higher, unsecured loans will also come with a higher interest rate.

Utilities – A business that functions under government regulation that offers all the mandatory services such as water and electricity.

V

Valuation – An opinion of a property from a professional, brought together as a report so that the lender can see and analyse.

Value – In a context where GST (Goods and Service Tax) is involved, the value of a property is its price minus the GST.

Variable interest rate – A rate that is always fluctuating according to the changes on the market, with the possibility of going either up or down during the loan’s term.

Vendor statement – A list of material belongings found on a certain property that the seller made for the buyer.

W

Will – A legal document that will state how you want your belongings to be handled and distributed after you die.

Withdrawal – The act of taking money out from an account.

X

Y

Yield – The return of an investment that occurs every year and that is shown as a percentage.

Z

Zoning – Guidelines from local authorities that will tell exactly how much land you should use.

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