The home loan process is hard enough without having to figure out the meanings of all the phrases and jargon thrown at you. That’s why we’ve compiled the following collection of some common terms, phrases and concepts that you might encounter when researching or applying for a home loan to help you on your way.
Please note that the terminology used by different lenders and banks may vary slightly, meaning these terms and concepts may be used in different ways. We’ve opted for the most commonplace versions of these terms where possible to avoid confusion.
A | B | C | D | E | F | G | I | L | M | O | P | R | S | T | V
Additional repayments are those made towards a home loan outside of the scheduled regular repayments for the loan. These are usually made to help pay off the loan sooner.
Application fee
A fee that you pay for submitting a home loan application or making changes to an existing home loan. Note that paying the application fee doesn’t necessarily guarantee your application will be successful.
One basis point is equal to 0.01%, meaning a change of 25 basis points would be a change of 0.25%. This is generally only used in the context of discussions about interest rates.
Body corporate
A group or legal entity that manages the maintenance of a building and its common areas and facilities on behalf of the unit owners or renters in said building.
Break cost
A fee typically paid in the event that a borrower makes changes to their fixed rate home loan, such as refinancing it or closing it early.
Bridging loan
A bridging loan is a type of home loan designed to help borrowers buy a new property while still in the process of selling their current home.
Building inspection
An inspection of a property carried out prior to it being purchased. It determines the condition of the building and whether it is structurally sound.
A second interest rate which, by law, must be displayed next to any advertised interest rate for a loan product. A comparison rate is designed to show the ‘true cost’ of the loan in question, which it does by factoring in the loan’s fees and ongoing costs. You can compare it against the advertised interest rate to get an idea of the value the loan offers.
Construction loan
A home loan specifically designed and used to fund the construction of a new building from start to finish.
Conveyancing and conveyancers
Conveyancing is the process of transferring legal ownership of a property from its seller to its buyer. Legal professionals who specialise in and practice this area of law are called conveyancers.
Cooling off period
The period of time afforded to a property buyer after signing the sale contract, during which they can withdraw from the sale without legal or financial consequence. Cooling off periods are exclusive to sales conducted via private treaty, and their length will vary by state/territory.
Credit limit
The maximum amount that a potential buyer can borrow against their home loan account, as stipulated in their mortgage contract.
Credit report
A report showing the credit history of a borrower, prepared by an authorised credit reporting agency. It’s used by lenders as part of the serviceability assessments carried out while processing home loan applications.
An agreement that can be used to delay payment of a cash deposit until settlement day. A deposit guarantee is generally utilised when a borrower’s deposit has been verified by the lender but cannot be liquidated in time to be used as an upfront cash deposit.
Drawdown date
The date on which a borrower receives their home loan funds.
The value of an asset, minus any outstanding loans. In the context of a home loan, your equity represents the percentage of the home that you ‘truly’ own versus the portion of the property’s value that’s still owned by the bank.
A grant introduced by the Australian Government to help Australians with their first home purchase. The exact grant amount and eligibility requirements will vary by state and territory.
Fixed interest rate
An interest rate guaranteed to stay the same for a stipulated period, as opposed to a variable rate which has the capacity to fluctuate. A fixed rate home loan can promise unchanging home loan repayments for the duration of the fixed rate period, which can be valuable for new and first-time borrowers.
The fees payable to state/territory and federal government bodies as the result of a property purchase, including stamp duty and mortgage registration fees. These charges will vary by state and territory.
Guarantee
A formal commitment made by a third party that they will assume financial responsibility for a borrower’s home loan if the borrower is unable to meet their repayments.
Guarantor
The name for a third party who has made a guarantee as described above.
A payment option generally available to those on interest only, fixed rate investment home loans. This allows a borrower to make their interest-only repayments for the year as an upfront lump sum rather than a series of ongoing regular repayments.
Interest in arrears
Interest that is charged at the end of the period it pertains to, rather than at the beginning.
Interest only loan
An interest only home loan only requires the borrower to pay off the interest being charged on their home loan, rather than pay off both the interest and the principal of their home loan. A home loan will generally have a stipulated interest only period, and after this period ends the borrower will be required to make standard principal and interest repayments.
Introductory or ‘honeymoon’ rate
A reduced interest rate that may be offered at the start of a loan as a sign-up incentive for new customers. At the end of the introductory period, the interest rate will typically revert to the lender’s standard variable rate.
Investment loan
An investment home loan is designed and taken out for the purpose of purchasing an investment property.
Lenders Mortgage Insurance (LMI)
LMI is an additional lender-imposed cost paid by borrowers with a loan-to-value ratio (LVR) greater than 80%. It provides the lender with a financial buffer in the event that the borrower defaults on their home loan.
Line of credit
A feature which allows a home loan account to be drawn down on and repaid like a credit card, within a pre-agreed credit limit. A line of credit is more commonly seen attached to investment and construction home loans.
Loan agreement
The formal contract that sets out the terms and conditions of a home loan, as agreed upon by both the borrower and the lender.
Loan-to-Value Ratio (LVR)
A borrower’s loan-to-value ratio (LVR) is the outstanding balance of their home loan compared to the value of the property, expressed as a percentage. For example, if a home is worth $500,000 and the outstanding balance of the home loan is $250,000, that borrower’s LVR would be 50%.
Lump sum payment
A once-off, larger-than-usual home loan repayment made on top of a borrower’s regular weekly, fortnightly or monthly home loan repayments.
A monthly fee paid to the lender to cover the administrative costs they incur for holding and managing your home loan. This fee will vary by lender and by home loan product.
Mortgage
A legal agreement between a borrower and lender pertaining to a home loan. It names the property in question as security against the home loan and gives the lender the legal right to repossess the property if the borrower can’t meet their home loan repayments.
An offset account is a home loan feature that gives the borrower a transaction account linked to their home loan. The balance of the account is offset against your outstanding home balance and reduces the amount of interest payable on your home loan.
For example, if you had an outstanding home loan balance of $300,000 and an offset account with $50,000 in it, you’d only be charged interest on the difference between the two values, which is $250,000.
A property is passed in at auction if the highest bid is lower than the property’s reserve price (the minimum price the seller will accept in return for the property). After the property is passed in, the highest bidder will usually be given the first opportunity to negotiate a sale price with the seller.
Pest inspection
An inspection of a property conducted prior to purchase which checks for the presence of pests and termites and any damage done by them.
Portability
The ability to keep your existing home loan product even if you sell your current property or the security against your home loan is otherwise changed.
Pre-approval or approval in principle
Home loan pre-approval is an informal indication made by a lender to a borrower signalling that the lender may view the borrower as a suitable candidate for the home loan they’ve applied for. It’ll usually be given after a brief preliminary assessment of a borrower’s financial situation and does not represent any sort of binding agreement on the lender’s part.
Principal
The sum borrowed from the lender by the borrower via a home loan. A home loan’s principal is different to its outstanding balance, as the latter will include interest charges and fees.
Principal and interest loan
A home loan in which the borrower’s regular home loan repayments go towards both the home loan’s principal and its interest charges, rather than just the latter, as would be the case with an interest-only home loan.
A feature offered by some lenders to fixed rate borrowers that lets them fix their interest rate at the point of loan approval rather than at the point of settlement. Lenders may charge borrowers a fee to lock their rate and offer different rate lock periods.
Redraw facility
A home loan feature that allows a borrower to draw down on or ‘redraw’ any additional repayments they’ve made towards their home loan. Lenders may charge a per-redraw fee for using this feature.
Refinancing
Renegotiating an existing home loan with the same lender or transferring the balance of your home loan to a new lender and new home loan product. Refinancing is usually done to either secure a better deal on your home loan or access additional funding through a larger home loan.
Repayment holiday
A period of time in which the borrower does not have to meet their regular home loan repayments, as agreed by their lender. Repayment holidays are often applied for as the result of financial hardship, and some lenders may only approve a repayment holiday if the borrower is ahead on their home loan repayments.
Repayment
The stipulated monetary amount that the borrower must pay towards their home loan on a weekly, fortnightly or monthly basis, depending on the terms of their mortgage. This amount can either be fixed or fluctuate, depending on whether the borrower has a fixed or variable rate home loan.
Reserve price
The minimum price a seller will accept at auction in return for their property.
The property attached to a home loan, which the lender can legally repossess and sell if the borrower can’t meet their home loan repayments.
Settlement
The point at which the legal transfer of a property’s title and ownership from buyer to seller is completed.
Split loans
A home loan split into two portions, one with a fixed interest rate and one with a variable interest rate. Each is held in its own account and interest is calculated separately on each component before the two amounts are put together to determine the borrower’s total interest charge for the period.
Stamp duty
A government tax charged on the transfer of a property’s legal title from buyer to seller. Stamp duty rates and regulations vary by state/territory, and your total payable stamp duty will be calculated based on the value of the property you’re buying.
The agreed period of time that a borrower has to pay off a home loan.
Title search
A search done on the title of a property to determine ownership, as well as confirm any third-party interests in, or other dealings relevant to, the property.
A report prepared by a registered valuer for the lender during the home loan application process, detailing their professional opinion on the property’s value.
Variable interest rate
A variable interest rate can move up or down based on cash rate changes, which can in turn change the size of your monthly loan repayments.
Vendor
The person or party selling a property.
