The value of an asset such as a house or a property.
Capital gain
The amount of money made when you sell an asset for more than
you paid for it.
Capital gains tax
A tax payable to the Federal Government of Australia on any
profits made on the sale of an asset bought and sold after September 1985. An
exception to this is profits made on the sale of the house you live in.
Capitalising interest
When the interest owed is calculated and added to the amount
borrowed rather than being paid off each month.
Capped home loan
A home loan with an interest rate that can't get any higher
than a fixed level for a fixed period of time, although it can drop to lower
rates.
Cash-out
When some or all of the money in a loan is provided as cash
that can be withdrawn from the home loan account at any time.
Caveat
Claiming a registrable interest over a property and prevents
further dealings on that property.
Certificate of occupancy
Written authorisation from a local municipality allowing you
to move into a completed or substantially completed building.
Certificate of Title
An official certificate detailing who owns the land and any
restrictions on it.
Clear title
A seller has a clear title when they don't have a mortgage or
other interest in their property preventing the sale.
Collateral security
Additional asset or security supplied by a borrower to obtain
a home loan. You risk losing the asset if the home loan is not paid back in
accordance with the terms of the contract.
Commission
The fee paid to a mortgage broker or real estate agent for
their services.
Comparison interest rate
This figure is an interest rate that takes into account the various different costs
associated with a home loan, and expresses them as an average interest rate.
This creates an even playing field with which to make comparisons between
different loan product interest rates.
Compound interest
Interest that is paid on the accrued and unpaid interest as
well as on the original amount borrowed (which is known as the 'Principal').
Contract
A legally binding agreement between parties that is
enforceable by law.
Conditional approval
Initial approval given on a home loan application further to
certain information being confirmed at a later date such as the valuation of the
property and more income details. You should be able to bid at an auction or
negotiate a house purchase price with conditional approval for a loan from a
financial institution.
Consumer Price Index
A government index that measures changes in the cost of
living over time as seen through changing prices of a basket of typical consumer
goods.
Contract of Sale
A written agreement outlining the terms and conditions for
the purchase or sale of a property.
Conveyancing
The legal process for the transferral of ownership of real
estate from one person or entity to another.
Credit history
A record of an individual's current and previously paid and
unpaid debts. A credit history helps a lender determine whether a potential
borrower has a history of repaying debts in a timely manner.
Credit limit
A preset maximum amount that an individual can borrow.
Credit rating
A rating or score based on an individual’s credit history
that will indicate to a potential lender whether that individual generally pays
its bills or debts on time.
Credit report
A report detailing an individual’s credit history that is
used to determine that individual’s creditworthiness.
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D
Daily interest
Interest calculated on a daily basis on the amount owing on
the home loan. This will therefore vary according to the daily account balance.
Debt servicing ratio
Your long-term debt expenses shown as a percentage of your
monthly income that's used to work out if you can afford the amount that you
want to borrow.
Debtor
An individual or entity that owes money to another.
Deed
A document in writing, which is signed, sealed and delivered by the parties
involved in the property transaction, to prove and testify the agreement of the
parties whose deed it is, to the things contained in the deed.
Deposit
In order to borrow money to buy a home an initial
contribution of money up front, usually between 5% and 10% must be made.
Depreciation
The accounting practice where the cost of a fixed asset
belonging to an individual or a business is spread over the life of that asset.
Depreciation is a non-cash expense which allows the money to be retained by the
business, thus technically allowing the business the capacity to replace the
asset over time.
Default
When a borrower is unwilling or unable to repay a loan or
breaks one of the conditions set out in the home loan contract
Direct Debit
Where the lender deducts payment from the borrower’s bank
account automatically and directly.
Disbursements
Incidental costs incurred by a solicitor such as searches,
certificates, pest reports, that must be paid on settlement of the property.
Discharge of Mortgage
When a home loan is fully repaid and the mortgage is
therefore no longer needed.
Disposable income
Money left over from an individual’s regular income once they
have paid all known expenses.
Draw down
To draw out available money from the home loan account once
the regular loan repayment amount is made. Also known as a redraw.
Duty (stamp duty)
A separate government tax on each the contracts associated
with a mortgage, the actual property purchase and taking out home and contents
insurance on the property.
E
Equity
The difference between the value of an asset and the amount still owing on it.
Encumbrance
A charge or a liability, for example a mortgage.
Exchange of contract
The legal point of time at which the buyer and seller swap
documents and commence the purchase/sale process.
F
First Home Owner Grant
A one-off state government grant of $7,000, payable to home
buyers on the conditions that that have not owned property before and that they
plan to live in that property.
Fittings
Items that can be removed from a property without causing damage to it, such as the carpet and curtains.
Fixed interest
An interest rate that is locked in for an agreed period of
time (typically 3 or 5 years), which means that it will not change at all during
that period regardless of Reserve Bank or other governmental decisions on
interest rates as a whole. This then means that loan repayments will remain
stable and constant over that period.
Fixtures
These are items that would cause damage to the property if removed such as an oven or a bath(as distinct from
‘Fittings’). Their removal must be stipulated in the contract of sale, and
damage made good by the seller.
Freehold title
The property owner owns the house as well as the land that it
sits on until they choose to sell. There is no time limit on freehold title
ownership (as distinct from leasehold titles).
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G
Gearing
The ratio of deposit to borrowed money in an investment. A
'highly geared' property has a higher than usual amount of money borrowed
relative to the deposit contribution.<
General Lien
Sets out in writing the Bank's right to retain property until
a debt is paid. Includes Power of Attorney and other clauses generally contained
in Bank security forms.
Government Fees/Charges
Often also referred to as “Statutory Charges”, home loans and the purchase or refinance of residential
property attract government charges such as stamp duty and mortgage duty. These
charges are determined by the relevant State government, and will vary from
State to State.
Gross Monthly Income
The amount of income received each month before income tax
and superannuation is deducted.
Guarantee
A legal agreement to pay someone else's debt if they are
unable to do so. Sometimes this is also referred to as a Guarantee and
Indemnity. A parent will often guarantee a loan for a young borrower, who is not
yet as financially stable.
Guarantor
A person who agrees to be legally responsible for someone
else's debt if they don't pay it (as per the above definition of “Guarentee’).
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H
Home equity
The portion of a property that is owned by an individual.
This is calculated as the difference between a property’s appraised market value
and the amount still owed under the home loan on that property.
Home loan
A home loan is a promise of a given property as security in
exchange for being lent the money to buy that property. The lender holds the
title to this property until the loan has been repaid plus the interest on that
loan.
Holding Deposit
A refundable deposit paid by a potential property buyer to
provide the okay for a purchase.
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I
Indemnity
Security against damage or loss to a property, similar to insurance.
Instalment
A regular periodic payment (usually either fortnightly or
monthly) that a borrower agrees to pay to the lender.
Interest
The cost of the home loan. This is the amount that must be
repaid on top of the original amount borrowed.
Interest-only home loan
A home loan where only the interest is paid off for an agreed
(and usually short) term. The payments then increase to cover both the interest
and the original amount borrowed (Principal).
Interest rate
The rate at which interest is calculated on a given loan.
Effectively, the ‘price’ charged by a lender for borrowing a sum of money.
Investment property
A property bought for the sole purpose of making money,
either through renting it or selling it for more than you paid for it. The
buyer/owner does not live in the property.
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J
Joint Tenancy
Joint tenancy is the holding of property by two or more persons in equal shares. If one
person dies, their share is transferred to the remaining joint tenants in equal
shares.
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K
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L
Land transfer fee
A state government charge based on the selling price of a
property.
Land Titles Office (LTO)
The Land Titles Office is responsible for the registration of
land transactions, and charges registration fees like title registration and
mortgage registration.
Lease
A contract allowing a person to live in a property owned by
someone else, under specific terms and conditions.
Lender
Any person (or institution) that lends money to a borrower in
exchange for interest payments. Sometimes referred to as a home loan provider.
Liabilities
A debt which a person, business or entity is responsible for
repaying at some pre-determined point in the future.
Line of credit loan
A flexible loan, often in exchange for a less competitive
interest rate, that allows a borrower to withdraw money (up to a certain limit)
as needed.
Loan maintenance fee
An ongoing monthly management fee charged by many home loan
provider over the life of the loan.
Lenders mortgage insurance (LMI)
Insurance paid by the borrower to protect the lender against
the event that a borrower does not repay a loan in full. It does not protect or
cover the borrower at all.
Loan
An advance of funds from a lender to a borrower on the
agreement that the borrower pays interest on the loan, plus paying back the
initial amount of the loan at or over an agreed time.
Loan-to-value ratio
The ratio between the amount you borrow and the total value
of the property.
Lump sum repayments
Any extra repayment made by the borrower, in addition to the
regular loan repayments. These reduce the amount of the loan and save the
borrower money in interest payable. Many lenders will charge a fee for making
such an extra-ordinary payment.
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M
Market value
The highest price for a property that a willing buyer would
pay and the lowest a willing seller would accept.
Maturity
The date at which the home loan must be repaid in full.
Maximum home loan amount
The maximum amount that a borrower can borrow based on their
individual circumstances as determined by a lender.
Minimum home loan amount
The minimum amount that a borrower can borrow based on their
individual circumstances as determined by a lender.
Minimum repayment required
The amount a borrower is legally required to repay each month
(or fortnight) in order to pay off a home loan within the agreed period of time.
Mortgage
A loan that is secured against real estate. If a borrower can
not keep up mortgage repayments the lender is entitled to sell this real estate
to get their money back.
Mortgage broker
An individual or company that brings borrowers and lenders
together. Brokers shop around for the most appropriate lender for the borrower's
circumstances, and may be paid a commission for their services, usually by the
lender.
Mortgage repayment
A regular, scheduled payment (fortnightly or monthly) that
usually includes an amount to pay off both the original home loan amount
('Principal') and its incurred interest.
Mortgage protection insurance
Insurance to cover home loan repayments in the event that a
borrower loses their income through serious illness or redundancy.
Mortgage registration fee
A state government fee for registering a loan. The amount
differs by state.
Mortgage stamp duty
A state government charge on a home loan contract. Amounts
vary from state to state and is sometimes waived in individual circumstances.
Mortgagee
The Lender of the funds.
Mortgagor
The person borrowing money in the terms
of the mortgage.
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N
Negative amortisation
This is where the monthly payments on the mortgage do not
cover the full interest cost. The remaining interest is added to the unpaid
Principal balance.
Negative gearing
This is where the rental income from an investment property
doesn't cover its mortgage costs. This is done in order to reduce the investor’s
taxable income.
Net Income
The income received by an individual after income tax and
superannuation has been taken out.
O
Offset sub-account
An everyday account linked to a home loan that allows the
borrower to use savings to bring down the interest charged on the home loan.
Off plan purchase
Buying a property before it has been fully built by viewing
the plans only. This will usually result in a cheaper purchase price than
waiting for building to be complete.
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P
Passed in
A property is 'passed in' at auction if the highest bid
doesn't meet the seller's minimum (reserve) price.
Partial Discharge
When a borrower applies for the lender's consent to release
one or more mortgaged properties from the home loan contract. This can only
happen when there is at least one mortgaged property still remaining.
Power of Attorney
A written legal document authorising one person to act on
behalf of another.
Portability
The ability to keep the same home loan even if you sell a
property and buy a different property.
Primary borrower
If more than one person is borrowing money, this is the
borrower who earns the most money.
Principal
The original sum of money borrowed, not including any
interest paid.
Principal & Interest home loan
The most common type of loan, this is where repayments cover
both the original amount borrowed ('Principal') and the interest that will be
charged over the term.
Prepayment
An additional ad hoc payment made on top of the minimum
ongoing payments in order to reduce the principal amount borrowed.
Progress Payments
If a purchased property is under construction, certain sums
of money may need to be paid to the builder as the building is being
constructed.
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Q
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R
Re-amortise
This is the calculation that occurs when a borrower wishes to
change the amount of money they are borrowing in order to work out the revised
minimum monthly payments required to pay back the new outstanding balance of the
loan.
Redraw facility
A flexible home loan feature allowing the borrower to borrow
back money that has already been paid on a home loan.
Refinancing
Making a change to either the loan amount or the existing
loan provider.
Rental guarantee
A specific level of income earned on an investment property,
guaranteed by the property developer.
Repayment holidays
An element of flexibility built into some loan products that
allow for a break from repayments for a certain period of time when the borrower
might need the money for something else.
Reserve price
The minimum price that a vendor will agree to sell their
property for at auction.
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S
Searches
An examination conducted by a solicitor to confirm that the
vendor is in a position to sell the property and that there are no unpaid debts
on the property.
Security
An asset that guarantees the Lender their borrowings until
the loan is repaid in full. Usually the property that the money is being
borrowed to finance is offered to secure the loan.
Seller
The person selling a property, often also referred to as a
vendor.
Servicing
The ability to pay all costs associated with a home loan.
Serviceability
The ability of a borrower to meet repayments on a loan, based
on the borrower’s expenses and income.
Settlement
Settlement occurs when the lender’s funds are exchanged to
the vendor and in turn ownership of the property is transferred from the seller
to the new buyer.
Split home loan
Where part of a home loan is set up on a fixed interest rate
and part is set up on a variable interest rate.
Stamp duty
Stamp duty is a state government tax which is payable when a
property is transferred. It is calculated on the purchase price of the property
and is paid by the buyer. Stamp Duty varies between states and territories.
Stamp Duty is also payable on a mortgage, calculated on the amount being
borrowed, and is also payable on Home and Content Insurance on the property.
Standard variable rate
An interest rate offered by a lender that is subject to
changes in the official Reserve Bank interest rate and will rise and fall
accordingly.
Statutory charges
All home loans and purchase/refinance
of residential property attract government charges such as stamp duty
and mortgage duty. These charges are determined by the relevant State
Government, and will vary from state to state.
Strata title
Property ownership associated with apartments and units where
there are common areas that are shared (eg a garden, a stairwell, elevators).
Surety
A person who makes themselves ultimately responsible for another's debt payment in the event of default, also
knows as a guarantor.
Survey
A plan showing the boundaries of a property and any buildings
on it.
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T
Tenants in Common
Property in the names of two or more persons and in which each has a separate and
distinct share. When one person dies, his/her share is not passed to the
survivor(s) but becomes part of his/her estate for disposal according to his/her
will.
Term
The amount of time within which the home loan must be repaid.
Title deed
A registration document that identifies the owners of a
property.
Title fees
Fees charged by each state's Titles Office for services
including registration of the new mortgage, title search, and transfer of
property ownership.
Title Search
The process to ensure that the vendor has the right to sell
and transfer ownership of the given property.
Transfer
A document registered with the Land Titles Office that
confirms a change of ownership as noted on the Certificate of Title.
U
Unencumbered
A property free of liabilities, restrictions or mortgages.
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V
Vendor
The person selling a property who is the current owner.
Valuation
A report as required by the Lender, detailing a professional
independent opinion of a property's value.
Variable interest rate
An interest rate that will increase or decrease with changes
in financial market conditions. Repayments will accordingly change to cover the
new interest rate.
Variation
A change to any part of a home loan contract.
Variation fees
Fees to make a change on a home loan contract.
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W
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Z
Zoning
Statutory rules allowing only certain types of uses f
