This glossary is designed for first-home buyers to get a grasp of the home loan jargon they are likely to come across throughout their homeownership journey.
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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.
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: the difference in the fees, charges and interest rates of different lenders.
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.
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.
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.
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.
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 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.
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.
Interest: the amount of money the lender charges for use of the funds (principal), calculated as a percentage.
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.
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.
Mortgage: a loan provided by a financial institution to purchase a property.
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.
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.
Redraw: A home loan feature that lets you make extra mortgage repayments and draw down on them (make withdrawals) if required.
Refinancing: 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.
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.
Term: the length of the home loan (mortgage), as in a 20-year term or 30-year term.
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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