Application fee / Establishment fee

Fee charged to cover or partially cover the lender’s internal costs of considering and processing a loan application. The fees are sometimes required to be paid upfront and are not usually refundable unless the loan is refused.

Assets

A list of what an individual currently owns, such as real estate, savings accounts, cars, home contents, superannuation, shares etc.

Capital Gain

The monetary gain obtained when you sell an asset for more than you paid for it. Such gains may be taxable.

Deposit

An initial cash contribution towards the purchase of the property, usually payable on exchange of contracts.

Equity

The value of an asset not subject to any lender’s interest, e.g a property worth $500,000 with an outstanding mortgage debt of $150,000 – equity is $350,000.

Equity loan

A loan that uses the equity in your property to borrow for any personal purpose, including personal investment. It usually operates like an overdraft, where the borrower has a set credit limit to which they can draw funds. The term Equity loan can also refer to a Line of Credit loan.

First Home Owner Grant (FHOG)

Various State Governments provide financial grants to purchasers of their first home, to assist in meeting the purchase costs.

Fixed interest rate

An interest rate set for a fixed period. At the end of the fixed rate period, most lenders will allow you to fix again at the prevailing rates or revert to their standard variable rate.

Freehold title

The form of property ownership where a parcel of land fully belongs to the owner.

Interest Only (IO)

A loan in which only the interest on the principal is repaid with each repayment for a specified period.

Lenders Mortgage Insurance (LMI)

A form of insurance taken out by the lender to safeguard against a financial loss in the event of a security being sold due to the loan going into default. The borrower pays a once-only premium. The insurance covers the lender, not the borrower.

Loan to Valuation Ratio (LVR)

The ratio of the home loan amount compared to the valuation of the security. Commonly called LVR, e.g for a loan of $270,000 on a home valued at $300,000, the LVR is $270,000 divided by $300,000 expressed as a percentage i.e 90%.

Low documentation (Low Doc) loan

Loans available to applicants who may not have up to date or complete financial information available at the time of application.

Mortgage

A form of security for a loan, usually taken over real estate. The lender (mortgagee) has the right to take the property if the mortgagor fails to repay the loan.

Mortgagee

The lender of the funds and holder of the mortgage.

Mortgagor

A person who borrows money and grants a mortgage over their property as security for the loan.

Offset account

A transactional account linked to the home loan. The balance held in this account offsets the balance in the home loan, helping to reduce the interest paid and the overall term of the loan.

Principal

The outstanding loan amount on which interest is calculated.

Principal and Interest (P&I)

A loan in which both principal and interest are paid with each repayment during the term of the loan.

Redraw facility

A loan facility whereby you can make additional repayments and then access those extra funds if necessary.

Refinancing

To replace or extend an existing loan with funds from the same lender or a different lender.

Settlement date

Date on which the new owner finalises payment and assumes possession of land. Sometimes called the “draw down” date, as this is the date the loan is usually fully drawn.

Transfer stamp duty

Calculated on a sliding scale based on the purchase price of the property. Significant concessions on transfer stamp duty may be available for First Home Buyers. The amount varies from State to State.

Title search

A request to the Land Titles Office to ascertain the ownership of a specified property and any encumbrances, covenants and easements that may be recorded on the title.

Valuation

A report required by the lender, detailing a professional opinion of property value.

Variable rate loan

A loan which has an interest rate that varies according to market forces. The interest rate charged is lower than a standard variable rate loan but the loan may have fewer features.