The A-Z of home loan jargon

A: Application fee, appraisal, amortization

• Application fee: A one-off fee charged by the lender to process your home loan application. It often includes costs for valuations and administrative tasks.
• Appraisal: A professional assessment of a property’s value, typically required by lenders during the loan application process.
• Amortization: The process of gradually paying off a loan through scheduled payments over time.

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B: Bridging loan, break costs, borrowing capacity, body corporate

• Bridging loan: A short-term loan designed to help finance a new property purchase before selling an existing one.
• Break costs: Penalty fees charged for paying off a fixed-rate loan early.
• Borrowing capacity: The maximum amount a lender will let you borrow, based on your income, expenses, and other financial factors.
• Body corporate: A legal entity responsible for managing shared property and facilities in a strata-titled development, funded by owner contributions.

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C: Comparison rate, capital gains tax (CGT), credit history, contract of sale, collateral, conveyancer, conditional

• Comparison rate: Reflects the total cost of a loan, combining the interest rate with most fees.
• Capital gains: The profit earned from selling an investment property for more than its purchase price.
• Credit history: A record of your financial behavior, including repayments and defaults, used by lenders to assess your loan eligibility.
• Contract of sale: A legally binding document outlining the terms and conditions agreed upon between a buyer and seller for a property transaction.
• Collateral: An asset that a borrower offers to a lender as security for a loan, which the lender can seize and sell if the borrower fails to repay the loan as agreed.
• Conveyancer: A professional who manages the legal and administrative aspects of property transfers between buyers and sellers.
• Conditional: A loan approval or agreement that is subject to certain conditions being met, such as providing additional documentation, obtaining property valuation, or securing finance, before the loan can proceed to unconditional approval.

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D: Deposit, debt-to-income ratio, discharge fee, draw down

• Deposit: The upfront amount, usually 5%-20% of the purchase price, that buyers pay toward a property.
• Debt-to-income ratio (DTI): A measure of how much debt you owe compared to your income, used by lenders to assess risk.
• Discharge fee: A fee charged when you pay off your mortgage and close your loan account.
• Draw down: The process of accessing funds from a loan, typically when the lender disburses the approved loan amount to the borrower or directly to the seller during settlement.

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E: Equity, early repayment fee, extra repayments

• Equity: The difference between your property’s value and the remaining loan balance.
• Early repayment fee: A penalty for repaying a fixed-rate loan before its term ends.
• Extra repayments: Additional payments made on top of your regular mortgage repayments to reduce the loan balance faster.

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F: Fixed rate, First Home Owner Grant (FHOG)

• Fixed rate: A loan where the interest rate remains the same for a specified period (e.g., 1-5 years).
• First Home Owner Grant (FHOG): A government initiative offering financial assistance to first-time buyers.

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G: Guarantor, green loans

• Guarantor: Someone who agrees to secure your loan, often a family member, helping you avoid lenders mortgage insurance (LMI).
• Green loans: Home loans with incentives for environmentally sustainable properties or upgrades.

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H: Honeymoon Rate, hardship variation

• Honeymoon rate: An introductory interest rate that’s lower than the standard rate, lasting for a set period.
• Hardship variation: An arrangement with your lender to adjust loan terms temporarily during financial difficulties.

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I: Interest rate, interest-only loan, income assessment

• Interest rate: The percentage charged by a lender on your loan balance.
• Interest-only loan: A loan where you pay only the interest for a set period before principal repayments begin, commonly utilised for investment properties. 
• Income assessment: A lender’s evaluation of your earnings to determine loan eligibility.

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J: Joint tenants

• Joint tenants: A property ownership structure where co-owners have equal shares, with ownership transferring to the surviving owner(s) upon death.

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L: Lenders mortgage insurance (LMI), loan-to-value ratio (LVR), line of credit, low-doc loan

• LMI: Insurance for the lender if you default on the loan, typically required with less than a 20% deposit.
• Loan-to-value ratio (LVR): The loan amount as a percentage of the property’s value, impacting borrowing terms and LMI.
• Line of credit: A flexible loan allowing you to draw funds as needed up to a set limit.
• Low-doc loan: A home loan requiring minimal financial documentation, typically for self-employed individuals or those with non-traditional income sources.

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M: Mortgage broker

• Mortgage broker: A professional who helps you find a suitable home loan from various lenders.

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N: Negative gearing

• Negative gearing: An investment strategy where expenses exceed rental income, offering potential tax benefits.

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O: Offset account, owner-occupier

• Offset account: Reduces the loan balance on which interest is calculated, saving money.
• Owner-occupier: A borrower who lives in the property they are financing.

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P: Principal and interest, pre-approval

• Principal and Interest: A repayment structure where you repay both the loan balance and interest.
• Pre-Approval: An indication from a lender of the loan amount you can borrow, subject to final checks.

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R: Redraw facility, refinancing, rental yield, rate lock

• Redraw facility: Lets you access extra repayments made on your loan.
• Refinancing: Replacing your existing loan with a new one, often to secure better terms.
• Rental yield: The return on investment for a rental property.
• Rate lock: A guarantee from the lender to secure a specific interest rate for a set period, protecting borrowers from rate increases during loan approval.

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S: Stamp duty, split loan, settlement, Section 32, subject to finance, security

• Stamp duty: A state or territory tax on property purchases.
• Split loan: A loan divided into fixed and variable rate portions.
• Settlement: The final step in purchasing a property, transferring ownership.
• Section 32: A vendor's statement in Victoria, Australia, outlining key details about a property, including ownership, restrictions, and zoning, provided before the sale.
• Subject to finance: A condition in a property purchase contract allowing the buyer to withdraw if they cannot secure financing by a specified date.
• Security: An asset, such as a property, pledged by a borrower to the lender as collateral for a loan, which the lender can claim if repayments are not met.

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T: Title deed, term, top-up loan

• Title deed: A legal document proving property ownership.
• Tenure: The length of time agreed upon between the borrower and lender for the repayment of the loan in full.
• Top-up loan: Increasing your existing loan to access more funds.

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U: Unsecured loan, upfront costs

• Unsecured loan: A loan not secured against property.
• Upfront costs: Initial expenses like deposits, stamp duty, and application fees.

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V: Variable rate, valuation

• Variable rate: A loan where the interest rate fluctuates with market conditions.
• Valuation: The lender’s assessment of a property’s value to determine borrowing limits.

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Y: Yield

• Yield: The income return from a property.