glossary
- Average Annual Percentage Rate (AAPR)
- The Average Annual Percentage Rate (AAPR) reflects the total annual cost of your loan including interest payments and fees. From July 2003 all lenders are obliged to disclose this benchmark rate in their home loans advertising.
- Annual Fee
- An administration fee charged each year on many home, investment, personal and reverse mortgage loans.
- Application Fee
- A fee paid by a borrower for setting up a loan. This can also be referred to as an establishment fee.
- Basic Rate
- Applied to loans often referred to as "no frills loans" which are normally cheaper than a standard variable rate loans, however they do not have feature such as a redraw facility or mortgage offset.
- Cooling Off
- A 5 day period after exchange of contracts during which time the contracts may be cancelled by the buyer.
- Credit Limit
- The maximum loan amount that a borrower can borrow under their home loan contract.
- Credit Reference
- A report provided by an authorised credit reporting agency, that shows the credit history of a borrower. A lender requires permission from the borrower before they can obtain a credit report.
- Default
- Unable to meet debt payment on specific due date.
- Deposit
- A deposit of normally 10% or above, of the total property value is paid by the buyer at the time of exchanging contracts on the purchase of a property. A borrow must take out mortgage insurance if the loan exceeds 80% of the total property value.
- Discharge Fee
- A one-off fee charged on final payout of loan.
- Equity
- The amount of an asset that is owed, for example the difference between the market value of a property minus any outstanding mortgage loan.
- Exit Fee
- Fee imposed by some lenders where the borrower has sought refinance with another lender.
- First Home Owner Grant
- A Federal Government grant given to eligible first home buyers since 1 July 2000.
- Fixed Interest Rate
- An interest rate that is locked in for a specified period of time.
- Gross Income
- Total income before tax.
- Government Charges
- Refers to various charges payable to the government including stamp duty and mortgage registration fees.
- Guarantee
- An agreement by a third party to meet a borrower’s payment requirements should they be unable to pay.
- Guarantor
- A third party who is providing the guarantee for the borrower.
- Honeymoon Rate
- An introductory or low interest rate offered at the beginning of the loan term. The rate may be fixed, capped or variable for a period of 6 to 12 months, after which time the interest rate will revert to a standard variable rate.
- Interest Only Loan
- The borrower is only obligated to pay the interest that is accrued on the loan and no principal payments for a specified period of time
- Introductory Rate
- A low interest rates offered at the start of a loan for a fixed period of time, normally 6 to 12 months. At the end of this period the interest rate will revert to a standard rate.
- Line of Credit
- A fully functional transaction account that has a credit limit attached to it. The borrower can withdraw funds up to the credit limit normally at any time. There is normally no fixed repayment schedule, however the borrower is usually required to make a regular minimum payment to the loan to cover interest and fees.
- Loan Agreement
- A formal contract between the borrower and the lender which outlines the terms and conditions of the loan.
- Loan to Value Ratio (LVR)
- The total amount of the loan divided by the appraised value of the property which is normally determined by the lender. If a property is valued at $100,000 and the loan amount is $80,000 then the LVR would be 80%. 80% is normally the maximum amount a lender will approve before mortgage insurance is required.
- Low Doc
- A flexible loan process usually for the self employed who have income and assets, however are normally unable to provide the standard financial statements required to obtain a loan. As the borrower does not need to provide proof of income they will be required to complete an income declaration form along with a standard loan application.
- Lump Sum Payment
- An extra repayment made to a loan, normally outside of the scheduled repayments.
- Monthly Service
- A fee usually payable each month on a loan account. The fee may vary depending on the type of loan.
- Mortgage
- A type of loan which is guaranteed against the property a borrower is purchasing. Should a borrower not be able to meet their payment schedule then the lender is legally able to sell the property to recoup their money.
- Mortgage Insurance
- One off payment made at the time of settlement which is required for home loans with a loan to value ratio (LVR) above 80%. This insurance allows the lender to protect itself from a default should the borrow be unable to meet their payments
- Net Income
- Gross income less tax.
- Non Confirming Loan
- A loan specifically for people who are unable to provide the standard financial statements or may be unable to meet lenders credit history. Such people attracted to these types of loans are the self employed, people who have recently arrived to Australia or returned after number of years, and the credit impaired. The interest rates for these loans are normally higher in order to reflect the higher risk these borrowers represent.
- 100% Offset
- Assists in reducing the interest costs on a loan by linking the loan to a transaction or deposit account. The loan principal is ‘offset’ by the balance in the transaction account. Interest is calculated on the loan principal minus the balance in the transaction account.
- Pre Approval (or Approval In Principle)
- An initial approval in writing by a lender subject to terms and conditions, which provides an estimate of how much a borrower can borrow before they find a property to purchase.
- Principal
- The amount outstanding on a loan which interest is calculated on
- Property Value
- The value of the property as determined by an independent valuer.
- Refinancing
- To move a loan from one lender to another.
- Redraw Facility
- A redraw facility allows you to make additional repayments on your mortgage. Borrowers can then access these additional repayments should they need to in the future. Terms and conditions normally apply
- Repayments
- The amount that the loan specifies must be paid at an agreed frequency.
- Settlement
- The final step in the process of transacting a property transfer.
