Mortgage & Home Loan Terms Explained

A

Amortisation

The gradual repayment of a loan over a set period through regular payments of principal and interest.

APRA

Australian Prudential Regulation Authority. The regulatory body that oversees banks, credit unions, and other lenders.

Approval In Principle (AIP)

Also known as pre-approval or conditional approval. The lender provides an approval subject to you finding an acceptable property. It's not a guaranteed loan approval but helps you understand your borrowing capacity and shows real estate agents and sellers you're a serious buyer.

Assessment Rate

The interest rate lenders use to assess your borrowing capacity, typically higher than the actual loan rate to provide a safety buffer. The assessment rate is usually 2-3% above your actual rate.

‍

B

Borrowing Capacity

The maximum amount a lender will let you borrow based on your income, expenses, and other financial factors.

Break Fee

A penalty charged when a borrower ends a fixed-rate loan before the fixed term expires. Banks may not charge a break fee where rates have gone up since you fixed your rate.

‍

C

Comparison Rate

A rate that includes both the interest rate and most fees and charges relating to a loan, expressed as a single percentage.

Conveyancer (or solicitor)

A professional that guides you through the legality of purchasing a home. They provide specific advice to you throughout the buying or selling process and prepare and lodge any required documentation. They will liaise with the other parties involved on your behalf. All parties must have one including, buyer, seller and lender.

CCR

Comprehensive Credit Reporting. A system that includes both positive and negative credit information in credit reports.

Cross Collateralisation

Using one property as security for multiple loans, or using multiple properties as security for one loan.

‍

D

Deposit

The amount required by a lender when taking out a home loan. Lenders don’t allow you to borrow 100% of the funds required to purchase a property without providing additional security so you must provide a deposit. Deposit can be savings, a gift or come from loan funds where a property has sufficient equity.

Discharge

The process of removing a mortgage from a property title once the loan is paid off.

DTI

Debt to income ratio. This is a metric lenders use to determine loan eligibility. Lenders have requirements set by APRA to limit DTI of between 6-9 depending on the lender and the circumstances of your loan. DTI is determined by dividing your total debts by your annual income. Let’s say you earn $100,000 per year and your total debts are $500,000. Your DTI would be 5. Income like rental income will be factored in as well as all debts. This includes more than just home loans, Credit cards, personal loans, student/HECS debts etc are all considered in the DTI calculation.

‍

E

Equity

The difference between the market value of a property and the amount still owed on the loan.

Establishment Fee

A one-off fee charged by lenders to cover the cost of setting up a loan.

‍

F

First Home Owner Grant (FHOG)

A government grant given to eligible first home buyers. Generally only available for new builds and is specific to the state the property is being purchased in.

First Home Super Saver Scheme (FHSSS)

A government initiative to help first home buyers get into the property market by allowing additional super contributions which are taxed at a lower rate than can be withdrawn from super when purchasing a property to be used as the buyer's deposit. Specific criteria apply.

First Home Guarantee (FHG)

A government initiative to help buyers purchase a property with a 5% deposit (or 2% deposit for single parents) and pay no lender's mortgage insurance. The government provides a guarantee to your lender in lieu of lender's mortgage insurance.

Fixed Rate

An interest rate that stays the same for a set period, typically between 1-5 years.

‍

G

Guarantor

Someone (usually a parent, sibling or child) who provides additional security for a loan by offering their own property as collateral.

‍

I

IO (Interest Only)

A loan where you only pay the interest charges for a set period, not the principal. The balance of your loan does not decrease as you make repayments.

Investment Loan

A loan used to purchase an investment property rather than a primary residence.

‍

L

LMI

Lenders Mortgage Insurance. Insurance that protects the lender if the borrower defaults, usually required for loans with an LVR above 80%.

LVR

Loan to Value Ratio. The amount of your loan compared to the value of your property, expressed as a percentage. For example, your property is worth $500,000 and you owe $400,000 on your home loan. $400,000 ÷ $500,000 x 100 = 80% LVR.

‍

O

Offset Account

A savings account linked to your home loan where the balance is offset against your loan balance, reducing the interest charged.

OO (Owner Occupied)

A property that serves as the owner's primary residence.

‍

P

P&I (Principal and Interest)

A loan where payments cover both the principal amount borrowed and the interest charges. The balance of your loan decreases as you make repayments.

Portability

A feature that allows you to transfer your loan from one property to another when you move.

‍

R

Redraw Facility

A feature that allows you to withdraw additional payments you've made on your loan.

Refinancing

The process of replacing an existing loan with a new one, usually to secure better terms or interest rates.

‍

S

Serviceability

Your ability to meet loan repayments based on your income and expenses.

Split Loan

A loan divided into multiple portions, typically with different interest rate types (fixed and variable).

Stamp Duty

A tax paid on the purchase of a property to the relevant state the property is located in. Can be affected by several factors such as first home buyer status, owner-occupier vs investment, citizenship etc.

‍

T

Title

The legal document that proves ownership of a property.

‍

V

Variable Rate

An interest rate that can change over the life of the loan based on market conditions.

Valuation

A professional assessment of a property's market value. There are multiple types of valuations including ones completed online without visiting the property and valuations involving the valuer inspecting the property and taking photos to prepare a report.

‍

‍

‍

‍

‍

‍