Glossary

A

AAPR

Average Annualised Percentage Rate. Sometimes referred to as the compulsory Comparison Rate, this figure takes into account the other costs associated as an average interest rate, to create a level field with which to compare similar loan product interest rates.

Acceptance

Agree to the terms of an offer or contract.

Additional Repayment

Extra funds paid into the loan in addition to the minimum monthly payments.

Affordability

The ratio of average household disposable income to income required to meet payments. The higher the number, the more affordable property is.

Agent

Real Estate Agent. Person/Body authorised to act on your behalf in the sale, purchase or management of property.

All-in-one Loan

Allows you to deposit all of your income into the loan account and then withdraw money from that account for day-to-day transactions. The longer spare funds stay in the account, the greater the interest savings.

Amortisation Period

The period of time a loan is calculated over and repaid.

Application Fee

The fee charged by the lender to cover or partially cover the lenders costs of setting up or establishing the loan.

Appraised Value

Estimate of the value of a property being used as security foe a loan.

Arrears

An overdue account.

Assets

Money, property or goods.

Asset Lender

Lending institution that lends finance based on the value of the asset, which will be held as security.

Assignment

Legal transference of a right or a title to a property to another party.

B

Banker's Lien

The right of the bank to retain a customers securities until a liability to bank is discharged.

Basic Variable

A variable home loan at a reduced rate with fewer features than a standard variable

Bankruptcy

The legal financial state an individual is in when unable to meet debts (for companies it's known as being wound up). The federal court may declare a debtor bankrupt, at either the debtors' or the creditors' instigation; and the debtors' estate will be placed in the hands of an official receiver who will distribute the estate in accordance to the provisions of the Bankruptcy Act

BayCorp Ltd

The company which records and holds credit information on everyone, such as loan application, credit defaults, and son on. Originally known as CRAA, and may often be referred to as the 'CRAA Check'.

Body Corporate

A management corporation, employed on behalf of the owners of units or flats to manage the building and common areas.

Borrower

A person/persons, or entity borrowing money to purchase, pay off, or refinance a product or effect.

Break Costs

Incurred when a loan is paid off before the end of its term.

Bridging Finance

Enables you to cover the purchase of a new property when you are yet to sell another property.

Building Inspection

A qualified building inspection is recommended prior to the sale of a property to insure there are no hidden problems with the property and that you are getting what you pay for

Buyer's Agent or Buyer Advocat

Person to act on behalf of the buyer to find and negotiate on properties the buyer wishes to buy.

C

Capital

The current value of your assets, including car, property, business, money etc.

Capital Gain

The financial gain you get when you sell something for more than you bought it for. May be subject to the capital gains tax; this is paid on the gained amount.

Capped Loan

A loan where the interest rate is not allowed to exceed a set level for a period of time, but unlike fixed rate loans, is allowed to drop.

Caveat

A notice of warning given to a public authority, eg. Titles Office, claiming entitlement to an interest in certain land. The caveat is registered and remains on the books as a warning to anyone who contemplates dealing with the property. It therefore prevents any action being taken without the previous notice of the person entering the caveat (the caveator).

Certificate of Title

Details the land dimensions, encumbrances and ownership details of a property.

Charge (Over Property)

The term used to describe any right established over a borrower's property to secure a debt or performance of an obligation.

Collared Rate

Variable rate loan with a set upper and lower limit beyond which the interest rate cannot move past.

Collateral Security

Additional or supporting security given in addition to the principal security.

Combination Loans

Various loans come under the same banner to form one loan. Also known as a Split Loan.

Commission

Generally the payment that the broker receives from the bank or lending institution, once the client's loan has settled successfully.

Comparison Rate Schedule

TThe annual percentage rate and the respective Comparison Rate, for loan products for specific amounts over specific terms for a particular lender.

Compulsory Comparison Rate

Sometimes referred to as the Average Annualised Percentage Rate, the CCR takes into account other costs associated with a loan as an average interest rate, to create a level field with which to compare similar loan product interest rates.

Construction Loans

Specifically granted for the purpose of building a new dwelling. You are generally able to draw down money as required.

Consumer Credit Code

Legislation designed to protect the rights of the individual (personal consumer) by ensuring banks and other financial institutions all adhere to the same rules when providing personal, domestic or household credit. It should provide borrowers with complete and honest information. Also known as the Uniform Consumer Credit Code o UCCC.

Contract of Sale

A written agreement outlining the terms and conditions for the purchase or sale of property.

Cover Note

Temporary insurance taken out on a property before an official insurance policy can be drawn up.

Conveyancing

The legal process for the transferal of ownership of real estate.

CRAA

Credit Reference Association of Australia. The CRRA used to record and hold credit information on everyone. Formerly known as Credit Advantage Limited, CRAA is now called BayCorp Ltd.

Credit History

A thorough check of all financial history of a potential borrower such as past loans and debt.

Credit Limit

Maximum amount the borrower can use at any one time.

D

Daily Interest

Interest calculated on a daily basis - varies according to daily account balance.

Debtor

Someone who owes money to another and can be compelled to perform an obligation.

Deed

A document in writing, which is signed, sealed and delivered by parties thereto, to prove and testify the agreement of the parties whose deed it is, to the things contained in the deed.

Default

Failure to meet debt payment on a due date.

Default Rate

The rate a loan rolls/moves to automatically at the end of any fixed period.

Deferred Establishment Fee

Is charged when you payout your loan within a short period of taking it out, such as three years (not all loans have this fee).

Deposit

The down payment on the purchase of a property normally paid to the real estate agent's trust account to secure the home.

Deposit Bond

Guarantees that the purchaser of a property will pay the full deposit by the due date.

Depreciation

The accounting practice where the cost of a fixed asset of a business is spread over the life of the asset. Depreciation is a non-cash expense that allows the money to be retained by the business, thus technically allowing the business the capacity to replace the asset over time.

Direct Debit

Where the lender debits (deducts) a payment from clients bank, credit union or building society account.

Disbursement

Solicitors incidental costs involved when dealing with client on behalf of Lender, e.g. searches, certificates, pest reports etc.

Discharge

The total repayment of the mortgage.

Discharge Fee

The administration fee for finalizing a repaid loan.

Discount Rate/Introductory Rate

A loan offered at a reduced rate for an introductory period - usually no longer than 12 months to a new borrower.

Dividend

A source of income where company profits are paid out to the company's shareholders.

Drawn Down

Act of transferring money from lending institution to the borrower after the loan has settled.

DSR

Debt Service Ratio.

E

Encumbrance

A charge or liability, e.g. mortgage.

End Loan

The loan amount you are left with after you have sold your existing home and paid the proceeds towards your bridging loan.

Equity

Generally used to donate the financial interest of a person in a property or business enterprise, e.g. a persons equity in his/her house is difference between its value and the amount still owed to a lender . A persons overall equity refers to his/her net financial worth, or the difference between what he/she owns and what he/she owes (i.e. Assets - Liabilities = Equity).

Equity Loan

A loan usually secured by the value of equity you hold in your house.

Establishment Fee

Fees that may or may not be charged to set up a loan (also known as an application fee).

Estate

An interest in land.

Exchange

The legal point of time when the vendor and the buyer swap documentation with a view to settlement.

Expenses

Cost of living per month - i.e. rent, school fees or a car loan repayment.

F

Fee Simple

The estate in fee simple is the highest estate in land, and it is the closest the law comes to recognizing absolute ownership for all practical purposes. However, while we refer to proprietor of an estate in fee simple (who is the owner for all practical purposes), their ownership is not legally absolute, for absolute legal ownership of all rests with the Crown.

First Home Owners Grant (FHOG)

A subsidy which the State and Federal Governments offer to people when they purchase their first owner occupied home.

Fittings

Items that can be removed from property without causing damage to it, e.g. carpet and curtains.

Fixed Interest (Fixed Rate)

An interest rate set for an agreed term (1, 2, 3, 4, 5 and 10 are normal terms).

Fixtures

Items that would cause damage to the property if removed. Their removal must be stipulated in contract of sale, and damage made good by the seller, e.g. hot plate and oven, etc.

Freehold

The dwelling and the land on which it stands which is owned by the owner indefinitely.

G

Garnishee Order

A court order taken out by a creditor on a person's employer or banker for the deduction of funds from wages or bank account to repay a debt.

Gearing

The ratio of your own money and borrowed funds in an investment.

General Law System

System whereby all dealings on a property are made in the form of conveyances, whether the transaction is a sale, a mortgage, re-conveyance, etc. Under this system the mortgage is, in fact a transfer of ownership. When a conveyance is prepared, it forms part of a chain of title and must be carefully preserved in order to prove the "root" to title.

General Lien

Sets out in writing the banks right to retain property until the debt is paid. Includes Power of Attorney and other clauses generally contained in bank security forms.

Government Fees

State and Federal government taxes/charges at the time of settlement, e.g. stamp duty.

Gross Income/Profit

Income from a person or company, before tax, superannuation or payroll deductions.

Guarantee

A person who agrees to be responsible for the payment of another persons debts.

H

Holding Deposit

A refundable deposit based on the goodwill of the buyer to go ahead with the purchase.

I

Income

The total of all incoming monies.

Indemnity

Security against damage or loss; sum paid in compensation for loss incurred.

Instalments

Regular loan repayments.

Instrument

Formal legal document in writing, e.g. a deed of conveyance.

Interest

The lenders charge for the use of funds or the return on deposited funds.

Interest Adjustment

This may be charged to compensate the lender for loss of interest revenue when additional repayments are made on a fixed loan.

Interest Only Loans

A loan where the principal is paid at the end of the term and interest is paid during the term. These loans are usually for a short period of time up to five years and for investment purposes.

Interest Only Repayments

The minimum amount that can be repaid on a loan. Only interest is paid and the original loan amount does not decrease.

Interest Rate

A percentage of interest that the borrower pays on the loan.

Introductory Loan/Honeymoon Rate

A loan offered at a reduced rate for an introductory period (usually no longer than 12 months) to new borrowers.

Investment Loan

A type of loan required when purchasing an investment property.

J

Joint and Several Liability

The banks joint account authorities, guarantee form, etc, are framed to ensure that joint account holders with debts due to the Bank of joint guarantors liable to the Bank shall be severally liable, (i.e. individually), as well as jointly . With Joint and Several Liability a creditor has as many rights of action as there are debtors; he can sue them jointly or severally until he has obtained payment, and an unsatisfied judgment against one debtor will not be a bar to an action against the others.

Joint Tenancy

Property in the name of two or more persons, where all persons have an equal interest in the whole property . When one person dies the interest passes to the survivor(s). They are known as joint Tenants or Joint Proprietors of that property.

K - L

Liability

A debt which one is liable for; being responsible only to a limited amount.

Land Tax

A state government tax charged to the owners of any property over a stipulated value, unless it is their principal place of residence.

Land Transfer Registration

Registration of the transfer of ownership in property to the buyer.

Lien

The right to hold property as security against a debt or loan.

Line of Credit

A loan arrangement with a specified credit ceiling to which funds are drawn from.

Loan

An advance of funds from a lender to a borrower on the agreement that the borrower pays interest on the loan, plus paying back the initial amount of the loan, at, or over, an agreed time.

Loan Administration Fees/Loan Maintenance Fees

A fee that is charged to cover the lenders maintenance and administration cost of the loan accounts.

Loan Approval Fee

A fee, which lenders charge to cover the cost of processing a loan application.

Low Doc Loan

Low Doc loans are offered by select lenders if a borrower lacks the standard income statements or tax records that verify their income - due to self employment or no set salary.

LVR

(Loan to Value Ratio) The ratio of amount lent, to the valuation of the property (i.e. $100,000 at 80% LVR = $80,000).

M

Maturity

The date a debt or investment must be paid in full.

MIOS

Mortgage Industry Ombudsmen Service.

Mortgage

A form of security for a loan usually taken over real estate. The Lender, the mortgage has the right to take (repossess) the real estate if the mortgagor fails to repay the loan.

Mortgagee

The lender of the funds.

Mortgagor

The person borrowing money in the terms of the mortgage.

Mortgage Broker

A person or organisation marketing numerous loans from a panel of lenders who select the best loan or loans for borrowers from this selection.

Mortgage Discharge Fee

An administration fee to cover the costs (eg. documents) incurred in up a loan (This fee is not charged on every loan).

Mortgage Offset Account

By offsetting all available funds in your transaction account against the loan, you can lower the interest you pay.

Lenders Mortgage Insurance

This is taken out by lenders, but is paid for by the borrowers, to cover themselves if the borrower defaults on their loan, and property sale proceeds don't cover the outstanding amount (usually charged above 80% of the value of the property).

Mortgage Manager

A company responsible for managing every facet of a borrower's loan. Often sources loans from mortgage originators.

Mortgage Originator

Retail, and more often, wholesale lender who sources securitised funds in order to package them as loans.

Mortgage Protection Insurance

Different to mortgage insuranceand covers borrowers loan repayments in the event that they are not able to meet their them, through illness or redundancy, for example.

Mortgage Registration Fee

A state government fee for the registration of a mortgage.

N

Negative Gearing

Gearing your investment so that the costs to maintain it (loan repayments, council rates, maintenance, etc) outweigh the income produced by the investment, leading to a reduction in taxable income.

Net Income

The income received by an individual after tax has been taken out.

Net Profit

The profit remaining in a business after all expenses have been taken out, but before tax.

No Deposit Home Loan

A loan that select lenders offer where no deposit is required allowing a 100% loan of the entire property value.

No Doc Loan

No Doc loans are offered by select lenders if a borrower has no income statements or tax records that verify their income. This particular loan requires borrowers to sign an agreement stating that they will be able to service the loan (ie. meet the repayment requirements).

Non Conforming Borrowers

Applicants who fall outside the normal eligibility requirements of mainstream lenders.

Non-Conforming Loans

Where standard loan criteria can not be met by borrower ie. credit card defaults or no standard income.

O

Off The Plan Purchase

Buying a property from the plans only, not the finished product.

Offset Account

A savings account linked to your mortgage in such a way that the interest earned on your savings is applied to reduce the interest on your mortgage.

Ongoing Fee

Any loan maintenance fee charged regularly over the life of the loan and charged monthly or yearly.

Overdraft

A pre arranged limit to which a person can exceed an account balance.

P - Q

Passed In

A property is passed in at auction if the highest bid fails to meet the reserve price.

Portability

Where a new property can be used as security for an existing loan i.e. when a loan is transferred to a new security property without needing to repay the loan, reapply, or restructure.

Power Of Attorney

A written authorisation to another person or persons, to perform certain acts for the signer, as they were the signer.

Pre-Approval Loan

Before looking or making an offer on a property, you are able to be conditionally or unconditionally approved by a lender allowing you the security of knowing what you are eligible to borrow.

Principal

The capital sum borrowed on which interest is paid during the term of the loan.

Principal and Interest Loan

A loan which both the principal and interest are paid during the term of the loan.

Private Treaty Sale

A property sale where the buyer negotiates directly with the seller, as opposed to an auction sale.

Progress Draws

Payments made to the builders at the completion of each stage of construction where you only use a portion of your loan at a time.

Property

A person's property is "that is his/her own to do what he/she likes with". It may be tangible or intangible, and may be given a monetary value (eg. house, car or goodwill). Property may be classed 'real' which relates to land or interests in land (except leaseholds) and buildings, etc, or 'personal', which relates to other kinds of property such as cars, bank account, and leasehold interests in land.

R

Redraw

Borrower is able to draw/take out on pre paid funds.

Refinancing

To replace or extend an existing loan with funds from the institution or another.

Rental Guarantee

A promise by a developer guaranteeing a certain level of return on an investment property. Usually stated as a percentage of the purchase price, it generally relays to investment properties purchased off the plan.

Repayment Period

The repayment frequency throughout the life of the loan. I.e weekly fortnightly or monthly.

Reserve Price

A specified minimum price acceptable to a seller at auction.

Residential Investment Loan

A loan funding a property bought for investment purposes.

Reverse Mortgage Loan

On option for people 60 years and above to use the equity in their home to secure a loan. No repayment needs to be made until the property is sold in which case the whole loan amount must be repaid including the interest.

S

Search

An examination to confirm that the vendor is in a position to sell the property and that there are no encumbrances on the property.

Securitisation

The packaging of cash flow producing assets into a marketable security, e.g. property, roads, bridges, etc. The process where mortgage backed securities (in the form of a bonds) are sold directly into capital markets, investors in the bonds comprise superannuation funds as well as other major institutions.

Security

An asset that guarantees the lender their borrowings until the loan is repaid in full. Usually the property is offered to secure the loan.

Serviceability

Ability of borrower to make and meet repayments on a loan, based on the borrowers expenses and income(s).

Settlement

Finalisation of payment by the new owner, and assumption of possession.

Split Loan

Selective lenders offer loans where you can split the loan amount into several accounts i.e. fixed or variable.

Stamp Duty

A state government tax on the mortgage amount and purchase price.

Standard Variable

A variable home loan with comprehensive features. This is often the variable rate fixed rate loans roll to at the end of the fixed term.

Strata Title

A title that records your ownership of a 'unit' of a larger property. Unlike a strata title, the owner becomes a shareholder in the company that manages the common area.

Surety

Person who makes themselves responsible for anothers payment of debt, also known as guarantor.

Survey

A plan of a property showing how the building and the boundaries around it are situated.

Susceptibility Report

Shows likelihood of future pest infestations.

T

Tenants In Common

Property in the names of two or more persons and in which each has separate and distinct share. When one person dies his share is not passed to the survivor(s) but becomes part of their estate for disposal according to their will.

Term

The length of a home loan or specific portion within that loan.

Third Party Security

Security provided for a mortgage by a third party (someone different from actual borrowers) who is legally different from the borrower or debtor.

Title Deed

Registration showing the ownership of property.

Title Search

Process to ensure that the venor has the right to sell and transfer ownership.

Title Transfer Fee

A fee charged when purchasing a property for the transfer of the title deed for the property.

Torrens System

System whereby ownership and all dealings on a property are detailed on the one document, i.e. a certificate of title or deed of grant. Under this system a mortgage is a charge or encumbrance on the title. Registration is compulsory to effect legal transfer of an interest in property and each time the property is sold, mortgaged, or a mortgage discharge, the transaction is recorded on the certificate of title.

Transfer

The document registered with the land titles office that confirms the change of ownership as noted on the certificate of title.

U

Uncommitted Monthly Income

Total income available once all monthly expanses are taking out.

Unencumbered

A property free of liabilities, restrictions or mortgages.

V

Valuations

A report as required by the lender, detailing a professional opinion of a properties value.

Variable Interest Rate

A rate that changes in accordance with rates in the marketplace.

Variation

Changing any part of the original loan contract.

Vendor

Person selling a property who is its current owner.

W - Z

Zoning

Local authority guidelines as to the permitted use of land.