Home loan definitions made simple
Administration fees
Also known as set up costs, administration fees are additional costs that you can expect to form part of your loan contract
Assets
An asset is anything of value that can be converted into cash. As part of your application, lenders will ask for a list of your assets.
Break fees
A break cost is a fee that represents our loss if you repay your loan early or switch your product, interest rate or payment type during a fixed rate period
Capital growth
Capital growth is the appreciation in the value of your property over a period of time.
Capped home loan
A capped home loan limits the amount of interest you can be charged on your monthly mortgage repayments
Cashflow
When it comes to rental property investing, your “cash flow” is the net amount of money that piles up in or disappears from your bank account each month.
Comparison rate
A comparison rate includes the interest rate as well as certain fees and charges relating to a loan. The aim of the comparison rate is to help you identify the true cost of a loan and compare loans and services offered by financial institutions and mortgage providers.
Credit rating
Is an estimate of the ability of a person or organization to fulfil their financial commitments, based on previous dealings.
Credit report
A credit history report provides a ‘picture’ of how you use credit. If you have ever owned a credit card, taken out a loan, or applied for a mobile phone plan you will have a credit history. Your credit history may include information such as loan inquiries, current loans, defaults, bankruptcies, and details about whether you pay your bills on time. This ‘picture’ is used by credit providers when deciding whether or not to approve an application for credit.
Debt consolidation, or combining your debts, allows you to take out a single loan to replace multiple debts. Your individual debts will be paid off, and you'll have one single loan to repay. If done properly, you should benefit from having a new lower monthly repayment and a lower, singular interest rate.
Deposit
The amount of money you have saved to contribute to your home loan. Having a larger deposit in genuine savings is looked on favourably by financial institutions however, it can also be achieved via sale of an asset, a gift, equity in other property or by a guarantor
Early exit fees
Also called “early termination”, “deferred establishment”, “deferred application” or “early discharge” fees. These may be charged if you pay out your home loan in full within a specified period
Equity is the difference between the current value of your home and how much you owe on it
Establishment fee
These are fees that cover the cost of the documentation of the new mortgage.
Fees
These are fees that are typically charged at time that your documentation is set up and can include a range of services such as establishment fees, registration fees, search fees and solicitors fees. You can sometimes expect to be charged fees when you are finalizing your loan, such as early exit fees.
If you're a first home buyer and you're buying or building a new home, you may qualify for a grant under the First Home Owner Grant depending on which state you purchase the property.
A fixed interest rate is an unchanging rate charged on a liability, such as a loan or mortgage. It might apply during the entire term of the loan or for just part of the term, but it remains the same throughout a set period.
FSG (financial services guide)
A guide that contains information about the entity providing you with financial advice. It should explain the financial service offered, the fees charged and how the person or company providing the service will deal with complaints.
Guarantor
Someone who promises to fulfill the borrower’s obligation if the borrower fails to perform. Financial creditors may require the borrower to find a guarantor, who then signs the loan agreement along with the borrower.
A house and land package is when a buyer secures a block of land and the construction of a home in one process but two contracts. A buyer will have contracts for both land and construction, because they are purchasing from two separate entities.
A home loan check list will provide the borrower with all the documentation required to complete the home loan application as well as what things might be required as part of the home loan application process.
A home loan package is a home loan that combines your mortgage with other banking services. This usually includes a credit card, mortgage offset account and savings or everyday banking account. On top of this, a package home loan often gives you a discount both on the standard variable rate and on fixed-rate loans.
Honeymoon period
A honeymoon period is an arrangement that allows for a temporary reduction of interest rates for a period of time at the start of your mortgage – usually ranging from six months to a year
An interest-only mortgage is one where you only make interest payments for a fixed period of time, after which you will begin to pay principal and interest.
If you're a borrower, the interest rate is the amount you are charged for borrowing money – a percentage of the total amount of the loan.
Late payment fees
Are the fees that the home loan provider can legally charge you if you do not meet your regular payments on time.
Legal fees
Legal fees relate to the legal processing of your property purchase by a qualified conveyancer or solicitor. There are generally two components to the conveyancing fee charged by a solicitor or licensed conveyancer: a legal fee and a disbursement fee. Legal fees cover the time and skill of your solicitor/conveyancer; disbursement fees cover any costs incurred by your solicitor/conveyancer in conducting enquiries and searches on your behalf
Lender
A mortgage lender loans out money for borrowers to purchase or refinance a home. In exchange for the loan, they charge interest, which is compounded monthly and paid over the entire length of the loan.
Liabilities
Liabilities include your regular financial commitments such as credit cards and car loans as well as any debts that you may have.
LMI (lenders mortgage insurance)
Lenders Mortgage Insurance (LMI) is insurance that a lender takes out to insure itself against the risk of not recovering the outstanding loan balance if you, the borrower, are unable to meet your loan payments and the property is sold for less than the outstanding loan balance.
Home loan features are the features of your loan. They include: Extra repayments, redraw facility, offset account, split rate option, interest only periods, Repayment schedule, honeymoon period, home loan portability.
A low documentation (low doc) home loan is a mortgage that can be taken out using different income verification documentation to that required by a full documentation (full doc) home loan.These are often used by self-employed borrowers, who may find it difficult to provide conventional proof of income.
Lump sum
A lump sum payment that the borrower contributes as a deposit and/ or to other costs associated with the loan.
LVR (loan to value ratio)
LVR stands for 'loan to value ratio'. It shows the value of your home loan as a percentage of the property's value.
National Credit Code
The National Credit Code (Credit Code) regulates all consumer lending, including new loans for residential investment property by non-corporate borrowers (individuals). The Credit Code is a schedule to the National Consumer Credit Protection Act 2009 (Cth) (NCCP Act).
NCCP
The NCCP (National Consumer Credit Protection Act 2009 (Cth) (NCCP Act) is a nationally consistent legislation that is designed to protect consumers and ensure the finance and credit industries operate in an ethical manner, according to professional standards. Its aim is to provide borrowers with rights and protection, both when a loan is applied for and during the term of the loan.
An offset mortgage is where you have savings and a mortgage with the same lender and your cash savings are used to reduce – or 'offset' – the amount of mortgage interest you're charged. ... This means you won't pay interest on the mortgage debt of the equivalent amount of the savings.
Pay slips
Issued by your employer, pay slips are one of the ways used by home loan providers to confirm and verify your income.
PAYG
When your employers pay you, they must withhold a certain amount of tax from your pay. they then send this tax to ATO. The ATO calls this pay as you go (PAYG) withholding.
POI (proof of income)
Proof of income is a document or set of documents that someone, like a lender requests to verify your income and determine your ability to pay the home loan
Home loan portability is a feature that allows you to keep the same home loan product, but change the supporting security (property). It can save you the time and costs of refinancing.
Principal
The principal is the amount you borrowed and have to pay back, and interest is what the home loan provider charge you for lending you the money.
Principal and interest
A home loan with repayments of both principal and interest is one in which you pay interest and also repay part of the amount borrowed (principal) at the same time. The lender will usually work out the minimum principal and interest repayments needed to repay the loan within the selected term.
Proof of savings
As a general rule, lenders will accept as genuine savings any funds that amount to 5% or more of the purchase price. These include: Savings held or accumulated over at least three months.
A redraw facility allows you to withdraw money you've contributed towards your home loan over and above your minimum required repayment.
Redraw fees
Fees that may be associated to using your redraw facility.
Repayments
Your mortgage repayments are the money you pay regularly to service your loan. This usually means paying down the money you first borrowed (the principal) plus any interest charged.
Responsible lending
Responsible lending laws were introduced in 2009, after the Global Financial Crisis. The obligations mean lenders must undertake a series of checks before handing out credit or a loan to prevent people accessing money they can't afford to pay back.
A reverse mortgage is a type of home loan that is specifically designed for pensioners and retirees who are typically asset rich but cash poor. Also known as senior's loan and senior's finance, reverse mortgage is the most popular form of home equity release in Australia.
ROI (return on investment)
Return on investment (ROI) measures how much money, or profit, is made on an investment as a percentage of the cost of that investment.
A second mortgage is a loan made in addition to the homeowner's primary mortgage.
Security
Property security (or mortgage security) is the way that banks guarantee an asset against your home loan. It gives the lender confidence to provide you with a loan, because the money they lend is "secured" against a property asset that is worth more than the loan.
A person is self-employed if they run their business for themselves and take responsibility for its success or failure. Someone can be both employed and self-employed at the same time, for example if they work for an employer during the day and run their own business in the evenings.
Stamp duty
Stamp duty is a tax we pay when buying a house. The exact amount depends on the state or territory you live in and the price of the property you're buying, and sometimes exemptions apply.
Unsuitability test
The test for unsuitability is that at the time the credit was granted or the limit increased the consumer could not afford to meet his or her financial or personal loan obligations under the credit card contract without substantial hardship.
Valuation
Home loan provider valuations are used to determine the Loan To Value Ratio in a home loan application and will impact the amount that a lender is willing to lend. Bank valuations are for mortgage purposes only, so you shouldn't rely on them for any other purpose.
Valuation fee
The fee you pay for a property valuation. Home loan provider valuations are used to determine the Loan To Value Ratio in a home loan application and will impact the amount that a lender is willing to lend. Bank valuations are for mortgage purposes only, so you shouldn't rely on them for any other purpose
A variable interest rate is simply one that goes up and down rather than always staying the same. That means that if you take out a home loan with a variable interest rate your minimum monthly repayment may vary over the life of your loan.
Vendor
In property sales the vendor is the name given to the seller of the property. This does not mean they are the owner or full owner. A person may have a mortgage which means a bank owns most or all of the property but he can still, with their permission, sell it.
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What's the Yellow Line?
There are a vast range of products and banks are extremely competitive. It is best to seek professional financial advise to ensure you obtain the most appropriate home loan product for your needs.
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