AAPR: Also referred to as a Comparison rate, the Average Annualised Percentage Rate reflects the total cost of your loan after taking into account other costs like annual and monthly fees. This is then expressed as a total interest rate cost to you over an average loan term.
Acceptance: To agree to the terms and conditions of an offer contract.
Additional Repayment: Additional funds paid off your loan which exceed the minimum monthly repayments.
Amortisation: To pay off principal and interest under a loan over a period of time.
Application fee: A fee paid by a borrower to cover the costs of establishing a loan.
Arrears: Overdue payments which are due to be paid.
Assets: Items of value which you own. Eg Property, Cash, Furniture & Fittings etc.
Balance Sheet: A financial statement confirming assets, liabilities and capital.
Balloon Payment: A final payment finalising a debt in which the amount paid is substantially more than previous instalments.
Borrower: An entity or person/s borrowing money.
Breach of Contract: To break the conditions of a contract which have previously
been agreed to.
Break costs: A cost incurred for paying out a loan balance on a fixed term loan
before the term has expired.
Bridging Finance: A loan taken where the purchaser wishes to buy a new property before selling their existing property. The lender will take security over both properties until the initial property is sold.
Capital: The current value of your assets. Eg Property, Cash, vehicles etc.
Capital gain: The financial gain received when selling an asset for more than you
initially purchased it for.
Capped loan: A loan where the interest rate is set so that it may reduce, but not
exceed a certain level over an agreed period of time. Not found very often any more
Cash Flow: In relation to company accounts, reported net income plus amounts charged off for depreciation, amortisation and extraordinary charges to reserves.
Certicate of Title: A document which details the ownership of land and the dimensions or other details of a property.
Commercial Property: Property intended for use or occupancy by retail and wholesale businesses (e.g. stores, office buildings, hotels and service establishments).
Comparison Rate: See, AAPR.
Consumer Credit Code: The Consumer Credit Code also known as the UCCC is parliamentary legislation which is designed to protect the rights of the consumer by ensuring all lenders adhere to the same rules of lending practice.
Conveyancing: A legal process to transfer ownership of property from the seller to
the buyer.
Contract for Sale: A contract used in the transfer of property, which documents the
conditions for the sale of the property.
COSL: The Credit Ombudsman Service Limited.
Credit Limit: maximum preset amount a borrower can use on a loan account.
Credit Reference or Credit Report: In order to approve a loan, a lender will require
a credit report on the borrower to confirm previous loans applied for or credit difficulties recorded. Credit reports are prepared by authorised credit reporting agencies, such as the Credit Reference Association of Australia. The Lender obtains the borrower’s permission in writing to proceed with a credit report.
Creditor: A party who is owed money
CRS: The Comparison Rate schedule which must be made available by each lender to confirm the annual percentage rate and its corresponding Comparions Rate for loan products offered.
Daily Interest: Interest calculated on a daily basis.
Debt Service Ratio: Lenders calculate the Debt Service Ratio by taking into account a borrower’s expenses as a proportion of their income.
Debtor: A party who owes money to another.
Default: Failure to make a loan repayment by a specified date.
Deferred Establishment fee: A penalty which may be charged when a loan is repaid by the borrower in full. Lenders are no longer allowed to charge an early repayment fee other than in the case of a fixed rate loan.
Direct Debit: A deduction of funds from a customers bank, credit union or building society account.
Disbursements: Fees and charges which are usually imposed by the solicitor when establishing a loan.
Discharge Fee: A fee imposed by the lender to process the discharge of a loan when it is paid out.
Draw down: A draw down is the transfer of money from the lender to a borrower after the loan has settled.
Early Repayment Penalty or DEF: If a loan is repaid before the end of its term, lenders may charge an early repayment penalty.
Equity: The value which an owner has in an asset over and above the debt against it. Eg the difference between the value of a property and the amount still owed on the mortgage.
Facility: A term used to describe a loan account.
First Home Owners Grant: An incentive from the Federal Government giving $7000.00 to first home buyers as a one off payment.
Fixed Rate: An interest rate set for an agreed term. Eg. for 2, 3, or 5 years.
Guarantor: A person giving a guarantee who agrees to pay another person/s debt if they default on their loan payments.
Government Fees: All home loans and purchase of residential property will attract certain government charges at the time of settlement. For example, stamp duty and mortgage duty.
Gross Income: Income before tax, superannuation or payroll deductions.
Genuine Savings: Genuine savings are a requirement where we are borrowing more than 90% of the value of the house and simply put it means savings that have been made and held for at least 3 months.
It shows a capacity to regularly save money and the potential to repay a homeloan as the amount you save and the rent you presently pay may come close to the regular repayment you will commit to. Any gifts or proceeds from the sale of personal items will not be allowed as genuine savings until they have been held in your account for at least 3 months, and where you have made other deposits to increase the balance.
Ideally genuine savings must be kept in a separate account with few – if any – withdrawals. Make regular deposits. If you can try to look at the figure you need to save and the time frame in which to do so. Divide it up and work out how much you need to save each pay period. It is easier to forgo the movies or a night out if you know your goal and you know it’s for a short time only.
Genuine savings can include shares which have been held for at least 6 months.
Honeymoon Rate: Some lenders offer a ‘discount’ or introductory rate for a short
period of time. At the end of the ‘honeymoon’ period, the interest rate will usually
revert to the lender’s standard variable rate.
Interest: A lenders charge for the use of funds or the return on deposited funds.
Interest-Only Loan: Under an interest-only loan, usually the borrower makes no principal repayments. The repayments are for the amount of interest only, which has accrued on the loan. These loans are usually for a short period of around 1 to 5 years.
Interest Rate: The rate at which interest is applied.
Liabilities: A debt which one is liable for. Eg. Mortgages, personal loans, credit cards
etc.
Line of Credit Loan: This is a flexible loan that allows you to have funds transferred
to your cheque account when required.
Loan: An advance of funds from a lender to a borrower on the agreement that the
borrower pays interest on the loan, plus pay back the initial amount of the loan at or
over an agreed time.
Loan Agreement: The contract between the lender and the borrower which sets out
the conditions that apply to the loan.
Loan to Value Ratio (LVR): The percentage of the value of the property that you
propose to borrow.
Lender’s Mortgage Insurance (LMI): LMI is literally an insurance policy for the
lender in case of default. It allows the lender to make a claim for the entire monies
owing plus any costs. The Insurer will then sell the house and if there is still a short
fall they will still look to you for payment
LMI does not protect the borrower but in many cases the borrower must pay the
premium. Without LMI lenders would not let you borrow more than 80% of the value of your
proposed purchase so we have to try and think of it as a tool to get us into the home. Like any insurance policy, the price of the LMI policy is based on each applicants particular circumstances and we can only ever estimate what that premium might be.
LMI can also vary from lender to lender, something a broker can help you asses.
Lump Sum Payment: An additional payment made by the borrower to reduce the loan amount. These payments are in addition to regular installments.
Maturity: The date a debt or investment must be repaid.
Mortgage: A form of security for a loan over property given to the lender for the repayment of the loan.
Mortgage Guarantee Insurance: An Insurance protecting the lender against loss in the event that the borrower defaults on the repayments or other covenants of the mortgage. The borrower will remain liable for their default.
Mortgage Manager: A company responsible for the day-to-day management of loan.
Mortgagee: The lender of the funds.
Mortgagor: The person borrowing money in the terms of the mortgage.
Net Income: The income received by an individual after tax has been taken out.
Net Profit: The profit remaining in a business after all expenses have been taken out, but before tax.
Owner Occupied: Property that is lived in by its owners.
PAYE: Abbreviation for Pay-As-You-Earn, a taxation procedure for wage and salary earners under which income tax is deducted in installments from periodic pay.
Principal: The capital sum borrowed on which interest is paid during the term of the loan.
Principal & Interest Loan: A loan where you repay a portion of the principal and the interest over the term of the loan by regular installments.
Redraw Facility: If you have made any lump sum and additional principal repayments to your loan account, you can access those extra repayments whilst on a variable rate.
Refinancing: This means that you switch your current loan from one lender to another.
Regulated Loans: Loans which are considered for personal use and is governed by regulations of the Consumer Credit Code.
Secured: To take guarantee over property for purposes of protecting a loan.
Security: An asset used to guarantee a loan.
Serviceability: Ability of borrower to make and meet repayments on a loan based on the borrowers expenses and income(s).
Settlement: Is the completion of the sale or purchase of a property. When the final payments are made at settlement, the lender will receive the signed transfer and the mortgage. The lender will hold the title deeds and the mortgage until the loan is repaid.
Settlement Date: A specific date at which buyer is to take possession of property upon finalising payment.
Signatory: A person authorised to access an account.
Stamp Duty: Stamp duty is a state government tax which is payable when a property is sold. Stamp duty is calculated on the purchase price of the property and is paid by the buyer. Each state and territory has a different rate of duty.
Standard Variable Rate: An interest rate, which is applied to a loan. These may have features such as redraw facility, construction, split loans options and mortgage offset.
Term: The length of a loan or a defined period within that loan. Transfer: A document registered with the Land Titles Office noting the change of ownership.
Valuation: A professional opinion of the value of a property.
Variable Interest Rate: This is a fluctuating rate of interest charged by lenders. Variable interest rates change as official market interest rates rise and fall.
Vendor: The seller of a property.
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