A handy glossary of mortgage-speak

Accelerated payments Payments made in advance of your loan schedule.
Application fee A one-off fee you pay the lender to review your application. It’s usually only payable if the bank approves your loan.
Arrears The amount of loan repayment that’s overdue.
Balloon payment A large single payment on your loan – typically near the end of the term – to clear your remaining debt.
Basis points One basis point equals 0.01% in interest rates. So, if for example, the Reserve Bank cuts interest rates by 25 basis points, they’re cutting it by 0.25%.
Break costs The costs associated with refinancing your loan or switching to a variable rate loan before the end of the fixed rate period.
Bridging finance A short-term loan which can be taken out while you’re waiting for your old home to be sold. Bridging loans do not offer as many features as standard home loans.
Cash rate The rate at which the Reserve Bank lends money to commercial lenders. It affects home loan interest rates.
Caveat emptor Latin for ‘Let the Buyer Beware’. It recognises that it is the buyer’s responsibility to ensure a property is fit for purpose before purchasing it.
Chattels A legal term for property other than land, such as movable and physical items (e.g. furniture).
Comparison rate The loan’s interest rate once the effect of fees and charges has been removed.
So a loan with high fees and charges would have a comparison rate that’s higher than the advertised interest rate.
Compound interest Interest paid on the accumulated interest as well as principal.
Conveyancing The legal process of transferring property from the seller to the buyer.
Cooling off period The amount of time, after signing a contract to purchase a property, in which the buyer can cancel the contract without legal recourse.
CRAA Stands for ‘Credit Reference Association of Australia’. This institution holds records on credit payments and defaults for everyone who has borrowed money in Australia.
Credit rating Credit reports are more often used in Australia. You don’t have a rating as such, but any credit defaults you may have are recorded.
Default Failure to make a home loan repayment by its due date.
Deposit The amount of money that you put in to purchase the property. Loans with deposits of 20% or more generally don’t require lender’s mortgage insurance.
Drawdown date The first date you are able to access loan funds – either to pay for the property or to pay builders in a construction loan.
Early termination payment Fees paid if you pay off a loan before the specified period. This is used to help the lender recoup interest they would have collected if the loan went for the expected term.
Equity The amount of value held in your property over and above that which the lender has a mortgage over. If your home is worth $200,000 and you currently owe $150,000, you have $50,000 equity.
Equity loan See ‘Line of Credit Loan’.
Fixed interest loan A type of loan where the interest you pay remains the same for a period set by the borrower (usually one, two, three or five years).
Fixtures Items that would cause damage to a property if removed.
Guarantor An individual or company that promises to pay off your loan if you’re unable to.
Honeymoon period A period at the beginning of a loan where interest rates are lower than usual. The rate usually switches to ‘standard variable’ after the honeymoon period.
Interest-only loans A loan that doesn’t require you to make payments on the principal. Interest-only loans are often used by property investors and those planning to sell within a short time.
Introductory rate A loan that offers an interest rate lower than usual for a set period at the beginning of the loan. Often referred to as ‘honeymoon rate’.
Investment loan A loan used to make an investment.
Land tax State government tax on the purchase of land. Land tax varies among states.
Lenders Mortgage Insurance (LMI) Insurance taken out by lenders to protect themselves from defaults by the borrower. LMI is generally required for home loans with a Value Ratio (LVR) above 80%.
Line of credit A transaction account that has a credit limit attached to it. As the borrower, you can generally withdraw funds at any time up to the credit limit. There is usually no fixed repayment schedule – but you may be required to make payments to at least cover the interest and fees on the loan.
Loan agreement
(or facility agreement)		 A formal contract between you and your lender which sets out the terms and conditions of the loan.
Loan to Value Ratio (LVR) The total amount of the loan divided by the appraised value of the property. For example, if a property is valued at $300,000 and the loan amount is $240,000 then the LVR is 80%.
Lump sum payment An extra repayment made to a loan outside of the scheduled repayments.
Monthly service fee A fee that is payable each month on a loan account. Fees vary for different types of loans.
Mortgage A document that creates a security interest over a property to a creditor as security for a loan.
Mortgagee A person who holds a mortgage as security. For example, if a bank holds a mortgage, the bank is the mortgagee.
Mortgagor A person who gives a mortgage. For example, a borrower who provides a mortgage over their house as security for a loan is the mortgagor.
100% offset Helps reduce interest costs by linking the loan to a transaction or deposit account. The balance in the account ‘offsets’ the loan principal – and interest is calculated on the principal minus the balance in the account. For example, if the principal on your loan is $180,000 and you have $5,000 in your offset account, interest is only calculated on $175,000.
Portability The ability to ‘move’ your loan from one security (e.g. property) to another. For example, you can usually take your current loan with you when buying a new home.
Pre-approval
(or approval in principle)		 The initial approval process which estimates how much you can borrow (before finding a property), based on the information provided to the bank.
Prepayment The additional payment(s) you make to a loan outside of the scheduled principal and interest repayments.
Principal The amount owing on your loan. (Interest is calculated on the principal.)
Principal and interest loan A loan where the repayments are made up of principal and interest.
Property value The value of the property as determined by a valuer.
Rate lock Allows you to lock in the interest rate that is quoted to you at the time of loan approval for up to three months. If interest rates change before the loan drawdown date, you are guaranteed the original rate (provided it’s within the three months). You may need to pay a rate lock fee.
Redraw A loan feature that allows the withdrawal of funds paid in advance, if the borrower is far enough ahead of their scheduled repayments.
Refinancing Paying off an existing loan and establishing a new one.
Repayments The amount you must pay at an agreed frequency (e.g. fortnightly or monthly) according to your loan contract.
Repayment holiday If you’re ahead of your repayments, you can apply for a break in making loan repayments.
Security The asset you use to secure repayment of a loan. For example, your property.
Settlement The completion of the process to sell or purchase a property.
Split loans Splitting a loan into more than one loan account. For example, a fixed rate loan account and a variable rate loan account.
Stamp duty The sum of money paid to the government by the buyer when property is sold. The amount varies for each state and territory.
Tenants in common The holding of property by two or more people in equal or unequal shares.
Torrens title Title that grants ownership of land.
Transfer A document registered in the Land Titles Office recording the change of ownership.
Term The length of a loan (e.g. 30 years).
Valuation The value of a property as determined by the bank or an independent valuer.
Variable interest rate Your loan’s interest rate could move up or down. If interest rates change, your minimum repayments could too.
Valuation fee A fee that your lender may apply to cover the cost of valuing the property.