Affinity Mortgage Centre - Glossary of Terms

Glossary Of Terms

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Amortisation: To pay off principal and interest under a loan over a period of time, usually by installments.

Application fee: A fee paid by a borrower to cover the costs of processing a loan and mortgage.

Bank Bill Swap Reference Rate: A market rate of interest that is widely used to price commercial borrowings. The Bank Bill Swap Reference Rate can be found in national newspapers.

Basis Point: A term used to measure the rate of interest. For example, ten basis points equal 0.10%.

Certificate of Title: A document that details the ownership and land dimensions of a property and lists any encumbrances on it.

Comparison Rate: The comparison rate combines the nominal interest rate with foreseeable fees and charges to allow you to compare one loan with another on cost basis.

Consumer Credit Code: The Consumer Credit Code is a law that protects individuals (and strata corporations — but not other companies) who are borrowing money predominantly for personal, domestic, or household purposes. The Consumer Credit Code applies to such loans regardless of the size of the loan and gives borrowers certain s and requires lenders to give borrowers certain information about their loan.

Conveyancing: The process of legally transferring property ownership from the seller’s name to the buyer’s name.

Contract: An agreement between two or more people that is enforceable by law. Contracts may be written, oral, or implied by a person’s behavior.

Contract for Sale: A contract used in the transfer of property, which sets out the conditions relating to the purchase/sale.

Credit Limit: The maximum preset amount a borrower can use on a loan account.

Credit Reference or Credit Report: Before approving a loan, most lenders will require a credit report on the borrower. Credit reports are prepared by authorised credit reporting agencies, such as the Credit Reference Association of Australia. The report sets out the credit history of the borrower. The Lender must get the borrower’s permission in writing before obtaining a credit report.

Daily Interest: Interest calculated on a daily basis.

Debt Service Ratio: This is a measure of the borrower’s capacity to repay the loan. Lenders calculate the Debt Service Ratio by taking into account a borrower’s expenses as a proportion of their income.

Default: Failure to make a loan repayment by a specified date.

Deposit Bond or Guarantee: A guarantee the deposit will be paid, normally out of the loan funds at settlement. There is a fee for using these.

Early Repayment Penalty: If a loan is repaid before the end of its term, lenders may charge an early repayment fee.

Exchange of contracts: An exchange of contracts commits the buyer to buy the property and the seller to sell the property. In some states, the law allows a cooling off period after the exchange of contracts, during which time either party can pull out. Borrowers should ask their solicitor or conveyancor whether the cooling-off period applies in their state.

Equity: The amount of an asset that is owned.

Facility: This is another term used to describe your loan account.

Family Pledge: A family member can “pledge” their property so that the lender reduces their risk by having a second property to support the loan. Usually for first home owners.

Fixed Interest Rate: You can choose to "lock in" your interest rate for a specific period, for example, for 2, 3, or 5 years. Lenders may charge a fee if you "break" this period, so it is important to ask the lender if any fees apply.

Gearing: The ratio of your own loan amount to the value of your security.

Guarantee: A promise to meet the obligations of a third party if that third party defaults. Lenders in some circumstances may require a guarantee.

Guarantor: This is the person giving the guarantee. Most lenders will require the guarantor to get legal and financial advice before giving the guarantee.

Government or statutory charges: All home loans and purchase of residential property will attract certain government charges. For example, stamp duty, mortgage duty, These charges vary from state to state, and are determined by the relevant state government, not the lender.

Honeymoon Rate: Some lenders offer a "discount" or introductory rate for a short period of time, say a year, to entice you to take out a loan with them. At the end of the "honeymoon" period, the interest rate normally reverts to the lender’s standard variable rate.

Interest-Only Loan: Under an interest-only loan, usually the borrower makes no principal repayments. The repayments are for the amount of interest, which has accrued on the loan, which is paid monthly in arrears.

Joint and several liability: When two or more people take out a loan, most lenders require all the borrowers to be responsible for the loan if there is a default. This means that if one borrower defaults, the other borrowers are responsible for that person’s share of the loan. Another example, is where a wife and husband take out a loan jointly and then separate or divorce during the term of the loan — both remain responsible for paying off the loan, unless they have notified the lender and the lender has agreed in writing to change their loan agreement and mortgage.

Lease: A document granting tenancy of a property for a specified period.

Liabilities: Loans, debts, or obligations.

Line of Credit Loan: This is a flexible loan that allows you to access the equity in your home to use as you wish. Interest is usually charged monthly based on the outstanding balance.

Loan Agreement: The contract between the lender and the borrower, which sets out the conditions that apply to your loan. It is important that you read the agreement carefully, and it is wise to get legal and financial advice, before you enter into the loan.

Loan Security Duty: Government stamp duty charged to register your mortgage.

Loan to Value Ratio (LVR): This is the measure of the amount of the loan compared to the value of the property. For example, if you have borrowed $160,000 and your property is valued at $200,000, the LVR would be 80%.

Lenders Mortgage Insurance: Lenders Mortgage Insurance is insurance taken out against the borrower to protect the lender against default. It is important to understand that lenders mortgage insurance does not provide you, the borrower, any form of protection. If the loan is in default, you may still be required to meet any shortfall between the amount owed to the lender and the amount received from the sale of your property. In most cases, the borrower pays the insurance premium.

Lump Sum Payment: An additional payment made by the borrower to reduce the loan amount. These payments are in addition to regular installments.

Mortgage: Security over property given to the lender for the repayment of the loan.

Mortgagee: The lender of money, and the party who has the benefit of the mortgage over your property.

Mortgagor: The borrower.

Mortgage Duty: A government tax which is payable by the borrower on the borrower’s mortgage. The amount of the duty varies from state to state and in some states, mortgage duty may not be payable when the loan is refinanced.

Old System Title: (common law title) consists of a ‘chain’ listing all owners of a property since origin.

Power of attorney: A formal appointment where a person appoints another (called the attorney) to act as their legal representative.

Principal: The amount outstanding on your loan. You pay the lender the interest on the principal.

Principal & Interest Loan: This is the most popular type of loan where you repay a portion of the principal and the accrued interest over the term of the loan by regular installments.

Private Sale: Sale of a property without the involvement of an estate agent.

Private Treaty Sale: A property sale where the buyer negotiates on a price set by the seller, rather than through the auction process.

Redraw Facility: If you have made any Lump Sum Repayments to your loan account, you can access those extra repayments whilst on a variable rate.

Refinancing: This means that you switch your loan from one lender to another.

Reserve Price: Preset minimum acceptable price of seller at auction.

Reverse Mortgage: A facility aimed predominantly at retired people to provide either an ongoing income or a lump sum. The loan is taken against equity in the home, and no repayments are required, but interest will capitalize on the loan.

Search: An enquiry to confirm that a property vendor is in a position to sell a property, also detailing any encumbrances listed against the property.

Security: An asset used to guarantee a loan.

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. The keys to the property are either handed over at settlement, or picked up from the estate agent immediately following settlement.

Settlement Date: Specific date at which buyer is to take possession of property upon finalising payment.

Signatory: 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.

Strata Title: Title that grants ownership of a section or a ‘unit’ of a larger building. This ‘unit’ can be sold or transferred by the owner.

Survey: Plan that details a block of land noting the position of any buildings.

Term: The length of a loan or a defined period within that loan.

Torrens Title: Title that grants ownership of a piece of property. Also known as Certificate of Title.

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.

Zoning: Local authority guidelines as to the permitted uses of land and buildings.