Home finance terms explained
Acceptance – To agree to the terms and conditions of an offer or contract on a property.
Additional repayments – Extra money you decide to pay off your mortgage (over and above your normal loan repayments).
Amortisation – Reducing the amount of your home loan over time by paying both principal and interest repayments.
Application Fee – The fee charged by a lender to lodge a loan application. Auction – A publicly held sale where a property is sold to the highest bidder.
Appreciation – An increase in the value of a property.
Break cost – A fee charged to end a fixed rate loan before the expiry of the fixed period.
Bridging finance – A type of loan that enables you to buy or build a new home before selling your existing one, without paying two mortgages at the same time (also known as a home-to-home loan or a go-between home loan).
Buyer’s agent – An agent or broker who represents the buyer in a property purchase.
Capital gain – The amount by which a property has increased in value since it was bought. Comparison rate – The true interest rate of a home loan when all fees are also taken into account. It lets you compare different loans which have different fees.
Certificate of currency - A certificate issued by an insurance company showing that a building is insured.
Construction finance – A special home loan you get when you’re building a new home. Instead of paying a lump sum to the owner of the house you’re buying, the lender pays progress payments to your builder as your house is being built.
Contract of sale – A written agreement outlining the terms and conditions of the purchase or sale of a property.
Certificate of title - A document showing a home’s land dimensions and ownership details, as well as any encumbrances.
Conveyancer – When you buy or sell a house, you need to appoint a conveyancer or solicitor to make it official (arrange ‘settlement’), and ensure you legally own your new home.
Default – When you fail to pay your home loan repayment on time.
Deposit (on home loan) – With a standard home loan, the most you can borrow is 95% of the value of the property. You have to come up with the rest yourself before you apply for the loan – preferably from genuine savings. Bluebay Home Loans also offers no-deposit loans, that allow you to borrow 100% of the property’s value.
Deposit (on house) – When you buy a home, you have to pay a deposit to the seller, to show you’re serious about purchasing the home.
Discharge fee – A fee charged by some lenders when you pay off your home loan.
Established property – A house that’s already built (as opposed to one you’re having built).
Equity (home equity) - The difference between what you owe on your home, and what your home is currently worth.
First Home Owner Grant (FHOG) – A grant provided by the government to help first home owners into their own home. See FHOG page for more info...
Formal approval - When the lender formally approves your loan application and offers you unconditional loan approval.
Full doc – “Full doc” stands for “full documentation”. It’s a loan that’s designed for borrowers who can provide full documentation of their income (payslips, tax returns and other financial statements). When you apply for a full doc loan, you get more options and generally a lower interest rate.
Go-between home loan – A type of loan that enables you to buy or build a new home before selling your existing one, without paying two mortgages at the same time (also known as bridging finance or a home to home loan).
Green title – When the owner of a property has full ownership (i.e. they don’t share ownership with someone else). Green title is helpful when making improvements, because no-one else needs to be considered.
Gross income – Your total income before tax.
Home-to-home loan – A type of loan that enables you to buy or build a new home before selling your existing one, without paying two mortgages at the same time (also known as bridging finance or a go-between loan).
Honeymoon rate – A low interest rate offered on introductory loans (the first period of some loans). It can be fixed, capped or variable for the first period of the loan. At the end of the initial period (‘honeymoon period’) the loan usually reverts to the standard variable rate. I Interest only loan – When you make only interest repayments; you don’t pay off any of the principal. Usually a short term arrangement.
Land loan – A loan for a block of land.
Lender’s Mortgage Insurance (LMI) – If you want to borrow more than 80% of the property’s value, you have to pay mortgage insurance (LMI). Mortgage insurance is a one-off payment, usually made when you settle on the property. The amount you pay depends on the loan amount, the value of your property and how much of the purchase price you want to borrow (e.g. 95%). It protects the lender in the event that you can’t meet your repayments and the home is sold with the debt outstanding. M Mortgage Insurance (LMI) – If you want to borrow more than 80% of the property’s value, you have to pay mortgage insurance (LMI). Mortgage insurance is a one-off payment, usually made when you settle on the property. The amount you pay depends on the loan amount, the value of your property and how much of the purchase price you want to borrow (e.g. 95%). It protects the lender in the event that you can’t meet your repayments and the home is sold with the debt outstanding.
Loan to Value Ratio (LVR) – How much of the purchase price you want to borrow. E.g. If you want to borrow $160,000 to buy a property worth $200,000, the LVR would be 80% (160,000/200,000 x 100).
Low doc home loan – A home loan that requires fewer official documents than a normal home loan, but often has a higher interest rate. Low doc home loans are usually for people who are self-employed.
Mortgage offset – A transaction account, linked to your home loan, that you can deposit your surplus cash into. Any money in the deposit account reduces (or ‘offsets’) the loan principal, even if only temporarily. So while ever it’s there, you pay less interest. Your interest is calculated on the loan principal minus the balance in the account. For example, if the principal on your loan is $180,000 and you have $5,000 in the transaction account, your interest will be calculated only on $175,000 ($180,000 - $5,000). (Also known as an offset account.)
Negative gearing – Negative gearing happens when you have an investment (e.g. a rental), and the money you earn from that investment (e.g. rent) doesn’t cover the cost of keeping the investment (e.g. mortgage repayments, rates, maintenance, etc.). In other words, when you’re making a loss on an investment... at least until you sell. Come tax time, your income tax is calculated on your income minus your investment losses. So you may pay less tax.
Offset account – A transaction account, linked to your home loan, that you can deposit your surplus cash into. Any money in the deposit account reduces (or ‘offsets’) the loan principal, even if only temporarily. So while ever it’s there, you pay less interest. Your interest is calculated on the loan principal minus the balance in the account. For example, if the principal on your loan is $180,000 and you have $5,000 in the transaction account, your interest will be calculated only on $175,000 ($180,000 - $5,000). (Also known as a mortgage offset.)
Politically Exposed Persons (PEPs) - PEPs include the following individuals, or their spouse, de facto partner, child and a child's spouse or de facto partner or parent:
- head of State or head of a country or government;
- government minister or equivalent senior politician;
- senior government official;
- judge of the high court of Australia, the Federal Court of Australia or Supreme Court of a State or Territory;
- the Governor of the Reserve Bank;
- senior foreign representative, ambassador or high commissioner;
- high-ranking member of the armed forces; or
- board chair, chied executive, or chief financial officer, or any other position that has comparable influence in, any State enterprise or international organisation.
PEPs may be members of a partnership, trustees or beneficiaries of a trust or officeholders of companies, associations or registered co-operatives.
Pre-approval - When a lender advises you in writing how much they will lend you, subject to their terms and conditions. Principal & Interest loan - A loan in which you make both principal and interest repayments.
Redraw facility - Allows you to access any additional repayments you’ve made on your home loan. Refinance - To move your home loan from one lending institution to another.
Self-Managed Super Fund (SMSF) – If you want to buy a property through your super fund, it has to be a self-managed fund. Service fee – Some lenders charge a service fee to cover the cost of administering and maintaining your home loan account.
Settlement – When you’re buying a house, and the transaction is completed. In other words, settlement is when the house legally becomes yours. Your lender makes final payments on your behalf, in exchange for the relevant documents of ownership.
Split loan – A loan where you pay a fixed rate on part of the principal and a variable rate on the rest. Or it might alternatively be a combination of a standard home loan and a line of credit home loan.
Stamp duty – Whenever you buy a house or a block of land, you have to pay a state government tax on it. This tax is called stamp duty, and it’s calculated on the purchase price.
Standard variable rate - The rate which lenders usually apply to their ‘premium’ home loan product. The product usually has features like a redraw facility, portability, salary account and mortgage offset.
Strata title - Title that is commonly used for units, which forms part of the owners’ corporation.
Switching fee - A fee charged when you already have a loan from a lender, and you change to another type of loan (e.g. variable rate loan to fixed rate loan).
Tenants in common – When two or more people own a property together (whether they have equal or unequal shares).
Vacant land – Land that has no buildings on it.
Valuation - A report detailing a professional opinion of a property's value. A lender will require a valuation before approving your loan application.
Valuation fee – A fee to cover the cost of valuing a property.