• Glossary of Mortgage Related Terms

    We know we speak a different language so here’s a list of commonly used terms to help you better understand the process of getting a mortgage.

    100% offset This Home Loan option means that the money you have in your transaction account is treated the same as if it was in your mortgage account. This effectively reduces your interest repayments because your total outstanding amount is less, ultimately allowing you to pay your loan off sooner.
    Appraisal (Valuation) The process of working out the value of a property for lending purposes. This service normally attracts a fee. Generally the appraised value is the estimated value of a property which is being used as security for a loan.
    Comparison rate The comparison rate is useful because it helps you compare one loan with another showing you how much you will pay over the life of the loan. The comparison rate calculates fees associated with setting up the loan, such as establishment and service fees. It doesn't include government charges or early pay out fees. It gives you a good indication of the true cost of a loan.
    Contract of Sale This is the written agreement which outlines the terms and conditions for the sale.
    Conveyancing The legal process which the transfer of property ownership follows.
    Cooling off period Depending on the type of contract, the cooling off period is the period of time immediately after the sale. I can be as short as 24hrs and in some cases up to as much as 14 days.
    Direct debit A direct debit is an arrangement between you and a financial institution where an automatic funds transfer takes place from one account to another.
    Disbursements When a solicitor is acting for a client during a property transaction, they perform many incidental tasks, e.g. searches, certificates, past records, etc. All of these things cost money to do. These are all referred to as disbursements.
    Draw down Around about the time of the settlement, there is a transfer of money from a lender to a borrower. This transfer is known as the draw down.
    Extra repayments This is an optional feature of some home loans and allows you to make extra repayments that will reduce your interest.
    Equity Equity is your share of the ownership of a property compared to its total value. e.g. The difference between its value and the amount you owe on the house is described as the equity.
    Establishment fee This is the fee charged when you apply for a new home loan. It is payable on drawdown of funds.  In some cases it is paid up front.
    Fixtures Fixtures is a term which refers to any items that would cause damage to a property if they are removed. If a seller wishes to remove fixtures, it must be noted in the contract of sale and any damage made as a result of the removal needs to be repaired by the seller.
    Fixed Rate Mortgage An interest rate which remains the same for the full term of the fixed period, ie: 3 years , 5 years and some even as long as 10 years.
    Guarantor Should the borrower ever become unable to pay the loan, the guarantor is held responsible for repayment of the loan. The guarantor is pre-organised at the beginning of the loan and must meet certain criteria before the lender will proceed.
    Holding deposit When a property is put under contract, the holding deposit serves as a firm commitment that the purchase will go ahead. It is an amount which the buyer leaves with the seller to secure the purchase.
    Honeymoon period A period of time at the start of a loan term where the interest rate is reduced, bringing the monthly payments down.
    Interest only loan An interest-only loan lets you repay only the interest during the term of your loan. At the end of the loan term, you either repay the principal as a lump sum or refinance the loan. Repayments for an interest only loan are lower than with a standard principal and interest loan.
    Line of credit A line of credit allows you to access to the equity in your property giving you funds at home loan interest rates.
    Loan to value ratio Loan to value ratio (LVR) is the amount you owe on your loan compared to how much your property or asset is worth, expressed as a percentage. A loan of $400,000 used to buy a property of $500,000 for example, has an LVR of 80%. Many banks limit the loan to value ratio based on things like the type of property, its location and the financial capability of the borrower.
    Low Doc Low doc is a loan application method you can use if you are self employed. It means you do not need the standard income verification to apply for a home or investment loan.
    Mortgage This is a legal document binding a borrower to a lender. It gives the lender a conditional right to the property which is held as security for the repayment of the money lent.
    Mortgage Insurance Mortgage insurance gives your lender peace of mind against non-payment or default on a residential property loan. Mortgage insurance makes it possible for buyers to borrow up to 100% of a property’s value.
    Mortgage Rate The interest rate paid over and above the loan principal. Eg. For a mortgage of $100,000 at 6.15%, your monthly payments would be part of the original $100,000, plus 6.15% of that payment (known as the interest).
    Mortgagee This is is the person or organisation who lends the money to purchase the property. If you are the buyer, the mortgagee is the bank.
    Mortgagor The term for the buyer who borrows money to buy is the mortgagor. This is the person or organisation who borrows the money to purchase the property.
    Parental leave It is a feature which is available on some home loans, which allows you to reduce your repayments by up to 50% for as long as 6 months when you have a child.
    Portability An option to allow you to take your home loan with you when you move to another property.
    Principal The principal is the portion of the loan upon which interest is calculated and charged.
    Progress redraws Dependent on your purpose for borrowing, this feature of a home loan is particularly suited to builders where progress payments are required as work is completed.
    Redraw If this feature is available on your home loan, you can access overpaid funds in your home loan for any purpose at any time. To set up a redraw facility fill out the Redraw Authority form.
    Reduced repayment In some cases this feature is available on your home loan. It can reduce your repayments by up to 50% for as much as a 6 months term.
    Repayment holiday Available with many modern day home loans, it will allow you to stop making repayments for a while. Can be very handy should life throw you the unexpected.
    Security Security is the property a lender can claim if a borrower defaults on their loan. The security is usually the property being purchased.
    Serviceability Your capacity to make and meet repayments on a loan, based on your expenses and income.
    Stamp duty A state government tax paid for the 'stamping' of legal documents. Professional advice is a good idea here because the amount varies based on the amount borrowed and the purchase price.
    Strata title A strata title is the certificate of ownership of a portion of a larger development such as a unit in a block flats.
    Title Deed A title deed is a registration document which shows who owns a property.
    Title search A title search is a search of records registered at the land titles office to confirm interests in a particular property. Apart from revealing the owners and the mortgagees, the search also reveals any covenants and easements which affect the estate.
    Top up This is a feature available on some home loans which lets you increase the limit of your existing loan.
    Variable Rate Mortgage An interest rate which is adjusted whenever the prime rate changes.
    Vendor The seller, the person who offers a property for sale.