Mortgage Glossary
Landlord Central’s comprehensive Mortgage Glossary gives definitions for all the mortgage terms you need to know.
All-in-one home loan: All-in-one home loans are essentially a transaction account and a home loan combined. They allow you to directly credit your salary or other income to the account and then withdraw funds as you need to.
Amortisation: The process of gradually paying a debt, usually by making monthly payments throughout the loan’s term.
Amortisation period: The full term of the loan, in other words the number of years it will take to repay a home loan completely.
Basic variable home loan: Sometimes referred to as ‘no frills’ home loans. A basic variable home loan generally offers a lower interest rate than a standard variable loan but it also offers fewer features and in some cases more restrictions.
Break costs / penalty fees: Relates to the penalty fees charged when a borrower terminates a fixed-rate loan contract before the expiry of the fixed-rate period.
Bridging loan: A short term loan that enables a buyer to pay the purchase price of a new property before they have the funds available from the sale of their existing property.
Combination loan: Also known as a split loan, a combination loan is where various loans come under the same banner to form one loan. The loan may be part fixed and part variable or even part line of credit.
Comparison rate: Used to compare the actual rate loan, taking into account nominal interest rate per annum, the compounding frequency and upfront and ongoing fees, as outlined in the Consumer Credit Code.
Credit history: When you apply for a loan the lender will check your credit history, including any previous loans and credit cards you have applied for, any history of bad debt or bankruptcy and more.
Debt consolidation: Rolling short-term debt into a mortgage so that you only have one large, low-interest rate mortgage.
Debt service ratio: This is a measure of the borrower’s capacity to repay the loan. Lenders calculate the Debt Service Ratio by taking into account a borrower’s expenses as a proportion of their income.
Default: The inability to pay monthly mortgage payments in a timely manner or to otherwise meet the mortgage terms.
Deposit bonds: A deposit bond is an alternative to providing a cash deposit (or cheque) upon the exchange of contracts for the sale of land. The use of a deposit bond requires the specific approval of the seller and needs to be written into the contract of sale.
Discharge fee: A one-time payment charged on the final payout of loan
Equity: Equity is the difference between what your home is worth and how much you owe on it. For example, if your home is worth $300,000 and you owe $100,000, you have $200,000 in equity. And over time, as you reduce the amount you owe on your home or the value of your home grows, your equity increases.
Establishment fee: Fees charged for setting up a loan.
Exit fee: A fee imposed by some lenders when the borrower refinances with another lender within the first few years of the loan.
Fixed interest rate: An interest rate that remains unchanged for a set period.
Fixed rate home loan: A mortgage in which the interest rate does not change during the term of the loan.
Foreclosure: A legal process in which mortgaged property is sold to pay the loan of the defaulting borrower.
Guarantor: A person who guarantee's to pay out a loan for you in the event you are not able to make the repayments yourself. A lender may require someone (i.e. a family member) to guarantee your loan if you would not be eligible for the loan in normal circumstances.
Home equity loan: A home equity account gives you a revolving line of credit secured by the value of your house. This allows you to use the funds for other purposes such as the purchase of a second property, shares or other investments.
Honeymoon rate home loans: This type of loan has rates that are lower for the first six to twelve months. After this period the loan reverts to a standard variable rate and the repayments increase. At the end of the honeymoon period there may be ‘switch costs’ depending upon the type of loan chosen.
Interest: The amount the lender charges you for the use of money you borrowed.
Interest only loan: Throughout the term of the loan, only the interest is paid off. The loan itself (the principal) is repaid at the end of the time limit of the loan.
Lenders mortgage insurance: Insurance that is provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require mortgage insurance to be paid for a loan with a loan to value ratio percentage in excess of 80 percent.
Line of credit: A mortgage loan which allows the borrower to obtain multiple advances of the loan proceeds up to a specified percentage of the borrower's equity in a property.
Loan to valuation ratio (LVR): Loan to valuation ratio refers to the maximum amount lenders will approve against the value of any property taken as security for your home loan. It is simply the amount you are borrowing divided by the purchase price of a property you are buying, or the value of a property you are refinancing. For example, a house valued at $400,000 which you want to purchase with an $80,000 down payment (and therefore a $320,000 loan) will have an LVR of 80 percent ($320,000/$400,000).
Low documentation loans: Low-doc or low documentation loans are useful for borrowers (e.g. self employed) who are unable to substantiate their level of income using conventional documentation required by most lenders.
Mortgagee: Organisation that lends money to a borrower by a mortgage agreement.
Mortgage discharge fee: an administration fee to cover the costs (e.g. documents) incurred in winding up a loan.
Mortgage Offset: A non-interest earning account that is offset against a home loan to reduce the total interest payable.
Mortgage stamp duty: State government tax calculated on the borrower’s loan amount.
Mortgagor: A person who takes out a mortgage on a property he or she is buying. The property is assigned to the lender as security for the loan.
Non-conforming home loan: Non-conforming loans are designed for borrowers that do not meet 'standard' bank criteria, for example seasonal or contract workers or non-residents.
Portable home loan: A portable home loan allows you to sell your house and move to a new one without having to refinance. This saves application and legal fees. Most lenders however insist that the loan amount is the same or less.
Principal: The amount borrowed or still to be repaid.
Principal & interest loan: A loan where you repay a portion of the principal and the interest over the term of the loan by regular instalments.
Redraw facility: If you have made any lump sum and additional principal repayments to your loan account, you can access those extra repayments.
Refinancing: The process of paying off one loan with the proceeds from a new loan, using the same property as security.
Reverse mortgages: Reverse mortgages enable owner-occupiers with no debt on their homes to draw on a portion of their equity, either in a lump sum or in instalments.
Standard variable rate home loan: Standard variable rate home loans are based on the official Reserve Bank rate and, as the name suggests, will vary with time depending on the market. If rates go up so will your repayments and vice versa if they go down. This type of loan is traditionally the most flexible and may include optional features such as the ability to make extra repayments, to redraw funds or to split your loan.
Term: The number of years over which a loan is to be repaid.
Uniform Consumer Credit Code (UCCC): The Uniform Consumer Credit Code is legislation to ensure uniformity amongst all credit providers across all Australian states. For example, all loan contracts must now adhere to a uniform format as specified by the act. It must set out all fees and charges that the borrower (and, if required, guarantor) are liable for under the loan contract.
Variable interest rate: a rate that varies in accordance with the rates in the marketplace.