Alan Hartstein
Athena CocovesThis glossary of home loan terminology is designed for first-home buyers to grasp the mortgage jargon they are likely to come across throughout their homeownership journey.
A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z
A
Amortisation: the process of paying off a mortgage in regular fixed increments, usually fortnightly or monthly over an agreed-upon term.
Auction: the public sale of a property where would-be buyers compete to buy the property, with ownership going to the highest bidder, subject to agreement by the seller.
B
Bad-credit loan: Mortgages for those with a poor credit history, usually obtained from non-bank or private lenders with higher accompanying interest rates and fees.
Best interests duty: A mortgage broker’s obligation to provide the best available advice to their customers.
Bridging loan: A short-term loan that allows you to buy a property before you have sold your existing one. The time period in Australia is usually up to six months.
Building and pest inspection: a process where experts, for a fee, determine the condition of a property before purchase to alert the buyer of any flaws.
Buyer’s agent: a licensed real estate professional who works for the buyer to search for a property, evaluate its worth and negotiate a sale. Sometimes called a buyer’s advocate.
C
Capitalised interest: the unpaid interest on a mortgage that is added to the principal. The process is also referred to as capitalisation.
Cohabitation agreement: a cohabitation agreement is a contractual arrangement that outlines the rights and responsibilities of two people preparing to live together which includes provisions for dividing assets in the advent of a separation.
Collateral: the security you put up for a loan. In the case of your home loan, the property itself generally acts as security, or collateral, for the loan. Alternatively, if you have a guarantor (a family member who vouches for your loan), they will need to provide collateral to guarantee your loan should you fail to make repayments.
Comparison rate: a figure representing the actual cost of a home loan — beyond just the interest you pay. A comparison rate includes all mandatory fees, charges and interest on the loan and is displayed as a percentage.
Conditional approval: a note from the lender indicating the amount they are likely to lend you following the validation and assessment of the information you’ve provided, including a credit check. A conditional approval note is what you’d take with you to an auction.
Conveyancing: the process of transferring a property from one owner to the next by a solicitor and the fees associated with the process.
Cooling-off period: a period following the exchange of contracts where the buyer can still pull out of the deal at minimal expense due to usually unforeseen issues. The cooling-off period differs from state to state and is a maximum of five business days in Australia.
Council rates: rates paid by all homeowners in a council area for services such as maintaining local roads and open spaces such as parks and gardens.
Counter-offer: a response from the seller to the buyer’s initial offer, proposing different terms or conditions. This can then set off a round of counter offers from both parties.
Credit report: a comprehensive record of your credit history and overall creditworthiness. Your credit report determines your credit score and rating. A good credit score increases your chances of securing a loan.
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D
Depreciation: a strategy used to depreciate the value of a property over time for tax purposes.
Deposit: a payment of anywhere between 5% to 20% of the value of the property, which is usually a prerequisite to obtaining a loan for the remainder of the value of the property and payable upfront when purchasing a property.
Discharge of a mortgage: the process of removing the mortgage from your property’s title when you’ve paid off your home loan. Lenders charge a fee for discharging a mortgage.
Disclosure: what property sellers are required to tell prospective buyers including things such as the state of the property, its title, and any outstanding debt on the property amongst other things
E
Establishment fee: a one-time fee charged at the start of your home loan application for the processing and documentation of your loan. This is also called a home loan application fee. The cost typically ranges from $200 to $700. Lenders often offer products where the application/establishment fee is waived.
Equity: the difference between the market value of your property and the amount you still owe on your loan. For example, if your property is valued at $500,000 and you still owe $300,000 on your loan, you have $200,000 in equity.
Exit fees: costs associated with ending your mortgage before the agreed-upon term. Check with your lender to minimise these sorts of fees as much as possible.
Expression of interest: terminology related to making an offer to buy a house. An expression of interest falls somewhere between a private treaty and an auction where the vendor markets the property without a price and with a certain deadline to complete the sale, so buyers are encouraged to offer their best price up front and not negotiate.
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F
First Home Guarantee Scheme: a federal government initiative where the government acts as loan guarantor, designed to help first-home buyers to purchase their first home with a deposit as low as 5% without having to pay mortgage insurance.
First Home Owner Grant: a one-off assistance payment of $10,000 provided by the NSW state government to assist purchasers of new homes or homes requiring extensive renovation. You’ll need to check with your lender regarding eligibility and whether it applies to the property you wish to purchase.
First Home Super Saver Scheme: a federal government initiative that allows you access to your own superannuation contributions, not those of your employer, to use towards your home loan deposit.
Fixed interest rate: a rate that remains constant for a set period. If you have a home loan with a fixed interest rate, your repayment amounts won’t change over that period.
For sale by owner: The sale of a property by the owner directly to a buyer without the use of a real estate agent.
G
Gazumping: accepting a verbal offer for a property then taking a higher offer from someone else prior to contracts being exchanged.
Guarantor: a family member who agrees to provide financial security, often in the form of their own property, as security for your home loan. They become responsible for your loan if you can no longer make repayments, for whatever reason.
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H
Home and contents insurance: an insurance policy taken out to insure against loss or damage of property through things such as a fire.
Home equity loan: a type of loan that uses the equity built up in your property to purchase an investment property or make renovations or investments. The money you borrow is then added back onto your mortgage.
I
Interest: the amount of money the lender charges for using the funds (principal), calculated as a percentage.
J
Joint tenancy: a type of mortgage where two people, usually spouses or partners, own a 50% share in a property and pay off the mortgage equally. On the death of one partner, half of the house passes automatically to the surviving partner, under what is known as the right of inheritance, which is exclusive to a joint tenancy.
L
Land tax and title registration: an annual tax on your land levied by state and territory governments above a certain value threshold, depending on where you live.
Lender: the financial institution providing the home loan (mortgage).
Lenders mortgage insurance (LMI): insurance to protect your lender against the risk of you defaulting on your loan (ceasing to make payments). Mortgage insurance is only applicable if you pay less than a 20% deposit on your loan.
Line of credit loan: a type of financing that allows you to use your home equity to access funds when needed. You can withdraw money either for a pre-arranged amount every month or whenever you require it up to your credit limit.
Loan to value ratio (LVR): the ratio of your loan amount compared with the value of the property. For example, if your loan value is $400,000 and the property is valued at $500,000, your loan is 80 per cent of the value of the property, giving you an LVR of 80.
Lowballing: the process of offering an amount way below the property’s value to test the water.
M
Monthly service fees: a fee your lender charges for the service and administration of your home loan. It typically ranges from $5 to $15.
Mortgage: a loan provided by a financial institution to purchase a property.
Mortgage broker: an intermediary between lenders and buyers. A mortgage broker finds the best possible mortgage for a buyer and is paid a commission by the lender.
Mortgage calculator: a tool available on lenders’ websites that allows you to determine your repayment amounts over the course of your mortgage once you key in the loan amount, the length of the mortgage and a fixed or current interest rate.
Mortgage registration fees: a state-government fee to register the physical property as the security on the home loan. This allows any future buyers to check any claims that may exist on the home, payable when the loan is established.
Mortgage stress: the financial burden experienced by homeowners who spend a disproportionate amount of income paying off a home loan.
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N
Non-bank lender: A financial institution or individual that provides a mortgage outside of the traditional banking system.
P
Partially fixed interest rate: a hybrid mortgage comprising fixed and variable rates.
Pre-approval: an approval in principle from your lender indicating the amount they will lend you to purchase a property.
Principal: the amount still owing on the loan, or the property, after you’ve paid the deposit.
Private mortgage lender: A non-bank institution that provides home loans outside of traditional banking.
Private Treaty: negotiating a sale price for a property with the seller without going to auction. The majority of properties in Australia are sold through private treaty.
Property valuation fee: a one-off fee charged to cover the cost of a lender valuation of your property used as a safeguard to ensure the amount borrowed and your deposit is appropriate for the property being purchased, usually around $100 to $300 depending on the type of property, location and value.
R
Real estate agent: An individual licensed to sell and lease residential and commercial property in Australia.
Redraw: a home loan feature that lets you make extra mortgage repayments and draw down on them (make withdrawals) if required.
Refinancing: the process of switching to a new home loan with a different lender that may offer you more favourable terms and conditions.
Repayments: amounts of the mortgage that need to be paid regularly, usually fortnightly or monthly, until the principal (the amount owing on the property) is repaid in full.
Reserve: the minimum amount the seller is willing to sell the property for at an auction.
Right of inheritance: when an individual in a joint tenancy mortgage arrangement automatically inherits the other half of the property on the death of their partner.
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S
Sale contract: the legally binding document that proves that a property has changed hands from the seller to the buyer.
Search processing fees: costs paid to your lender to perform a title search or any other searches related to your application or before bidding at auction, generally costing about $50 each.
Second mortgage: an additional loan against your first property usually taken out with a second lender. They are deemed high risk and usually attract higher fees and interest rates and should generally only be used in cases of financial emergencies.
Settlement: the legal process of transferring ownership of a property from the seller to the buyer, which usually occurs around six weeks after the initial documents for the sale of the property are exchanged. The settlement date can be longer or shorter as long as both parties agree to it.
Stamp duty: a tax levied by the state government on the buyer of a property and payable upfront, usually between 1.5% and 3% of the property’s value. Some stamp duty concessions may be available to first-home buyers.
Strata fee: a monthly contribution made by apartment owners, payable to the strata operating fund of an apartment block for the upkeep of common areas and to contribute to a reserve fund.
Switching fees: costs associated with switching your loan from a fixed-rate to a standard variable rate, for example, either with your current lender or a new one.
T
Tenancy in common: a type of mortgage where two or more people, friends or relatives, purchase a property together. Unlike a joint tenancy mortgage, an individual in a tenancy in a common arrangement does not automatically inherit a share of the property on the death of another mortgagee.
Term: the length of the home loan (mortgage), as in a 20-year term or 30-year term.
V
Variable interest rate: an interest rate that changes whenever interest rates move up or down, meaning your repayment amounts change simultaneously.
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About the Author
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