Glossary

Accrued Interest
 Interest that has been incurred or earned that is yet to be charged or paid.

Additional Repayments
  The ability to make extra payments into a loan account, which reduces the loan balance but also the term of the loan.

Amortisation
  The progressive reduction of the outstanding balance of a loan by regular payments that include both a principal and an interest component.

Annual Percentage Rate (APR)
  See Interest Rates below.

Application Fees
  Fees charged by a lender to partially or fully cover its internal costs of setting up the loan approval for the borrower.

Arrears
  An overdue account yet to be paid.

Body Corporate
  Individual owners in a block of strata units are required to form a body corporate (referred to as “owners” in New South Wales although this differs from state to state) and elect a council, which will take responsibility for the management of the property.

Break Costs
  Costs associated with paying out a fixed rate loan prior to its maturity.

Bridging Finance
  A temporary loan that usually bridges the gap between the purchase of a new property and the sale of an existing one.

Certificate Of Title
 A document identifying the ownership of land. It shows the owner and any mortgages or other encumbrances. The lender holds this as security for a loan.

Combination Loan
  Also known as a “split loan”, a Combination Loan allows the borrower to split loans between fixed and floating interest rate facilities. This gives the borrower some ability to tailor repayments and have some interest rate stability.

Consumer Credit Code
  An Act of Parliament governing the relationship between borrowers and lenders.

Credit Reference Association of Australia (CRAA)
  The organisation that gathers, records, updates and stores financial and public information about individuals being considered for credit. A lender will usually check the borrower’s details with the CRAA before offering a loan.

Credit Report
  A report prepared by the CRAA outlining certain details relating to an individual’s credit history and used by a lender in determining a loan applicant’s creditworthiness.

Daily Interest
  Interest that is calculated daily on the outstanding loan balance.

Disposable Income
  Income left over after all known expenses and commitments have been paid (such as mortgage repayments, personal loans and bills).

Drawdown
  The disbursement of loan funds provided by the lender.

Early Termination Costs/Fees
  Costs associated with paying out a loan in full before maturity of the term.

Equity
  A borrower’s financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on any debts secured by a mortgage over the property.

First Mortgage
 A mortgage that gives the holder of the mortgage (the mortgagee) first claim on any proceeds from the sale of the property.

Fixed Rate Mortgage
 A mortgage on which the interest rate does not change for a specified period, which may be for the entire term of the loan or a shorter period.

Guarantee
 A promise by one party to answer for the debt or default of another.

Guarantor
 A party who agrees to be held responsible for the payment of another party’s debt.

Income Statement
 An analysis or statement of income and expenditure over a period of time, usually a year.

Interest
 A charge for the use of funds. Interest on a loan is what the lender charges the borrower for the use of the money lent.

Interest Only
 An arrangement, usually for a period of one to five years, whereby payments are made to cover the interest component only, and not the principal.

Interest Rates
 The annual rate of interest of a loan, expressed as a percentage per annum (sometimes referred to an “annual percentage rate”).

Investment Property
 A property purchased to produce income by way of rent, rather than for personal occupation.

Joint Tenants
 The holding of land by two or more persons where there is a right of survivorship. For example, on the death of one joint owner, the land as a whole vests in the survivors and can only be disposed of by the will of the last surviving owner.

 

Land Tax
 Based on the property value, it is a State Government tax which is payable by the owners of the property.

Lender’s Mortgage Insurance (LMI)
  LMI protects a bank against potential loss in the event of default by the borrower, where the sale of a bank’s security fails to clear the loan in full. The insurance protects the bank, not the borrower. In most cases, banks have a preferred LMI provider, and they will require that borrowers purchase insurance from that provider. The lender, not the borrower, arranges LMI although the borrower pays for it.

Letter Of Offer
  A formal offer by a lender stating the terms under which it agrees to lend money.

Loan Repayment Capacity
  The monthly fixed debt commitments divided by the monthly gross income, expressed as a percentage.

Loan-To-Value Ratio (LVR)
  The ratio of the amount of a loan to the value of the security used (such as a house) to secure repayment of the loan.

Maturity
  The date when the debt must be repaid in full.

Mortgage
  A legal document that gives a lender an interest in a security property and allows the lender to sell the property if the money lent is not repaid.

Mortgage Discharge Fee
  The administration fee charged by the lender to cover costs when the loan is repaid. Also, a government charge on registration of a discharge.

Mortgage Insurance (MI)
  See Lender’s Mortgage Insurance above.

 

Portability
 Where a lender allows for an existing property mortgaged to it to be substituted with a new property. Usually subject to terms and conditions, and payment of a fee.

Prepayment Fee
 A charge imposed by a lender on a borrower who wants to pre-pay part or all of a loan.Principal Amount of debt, excluding interest.

Redraw
 Access to additional payments made into a variable and sometimes a fixed-rate loan.

Refinancing
 The process of paying off one loan with the proceeds from a new loan using the same property as security.

Repayment Frequency
 The frequency with which you make repayments on your loan (e.g., weekly, fortnightly, monthly).

Security
 The asset that the lender uses as collateral for the loan. The asset is not released until the loan is repaid in full.

Settlement
 A meeting at which a sale of a property is finalised and title to the property passes from the vendor to the purchaser.

Split Loan
 See Combination Loan above.

Stamp Duty
 A state government tax. In the sale of real estate, it is calculated according to the sale value. In all states (but not the territories), stamp duty is payable on a mortgage and is calculated according to the loan amount secured by the mortgage.

Strata Title
 Generally, this term refers to the subdivision of airspace above the land – you own part of the building, not the land it is built on. Applies to units, apartments and some townhouses. The meaning of this term varies to some extent from state to state

Tenants In Common
 Each tenant (or owner) owns a specified share of the land. Shares can be equal or unequal. Unlike joint tenants, there is no right of survivorship. Each share may be dealt with by sale, bequest, gift etc., as for sole ownership.

Term
 The period of time for which a loan is made.

Torrens Title
 A title to land under a government system of registration; titles are registered each time the property changes hands. Torrens Title is the most common land title in Australia.

Valuation
 A written report from a registered valuer giving an opinion on the value of a property.

Valuer
 A person qualified by education, training and experience to estimate the value of real estate and personal property.

Variable Rate Mortgage
 A mortgage where the interest rate fluctuates with “the market”. The lender may raise or lower the rate at its discretion, usually in response to a change in the official rates set by the Reserve Bank of Australia.

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