Home Loan Terminology

Account-keeping fees

These are monthly fees charged by some institutions for holding your money and managing your loan account.

Annual percentage rate (APR)

This is the yearly rate at which interest is charged for money you have borrowed. Interest is generally calculated on a daily basis and may be charged monthly, quarterly or annually.

Annum – Year, or 365 days.

Automatic deduct – See Direct Debit.

Bank fees

Charges made by a bank in return for the products and services provided.

Borrower

A person using money that has been loaned to them by a bank or other lender or a person. Another name for a borrower is a debtor.

Borrowing Capacity

How able a person is to repay their home loan and manage their other expenditures.

BSB

A BSB is a number identifying both the bank and the branch of the bank in Australia. Each bank branch has its own BSB and every bank account will have a BSB associated with it.

Cash

Money in the form of notes and coins.

Cash advance

A cash loan withdrawn from a credit card. Credit card issuers charge interest from the date when the cash advance is taken until it is paid back. A transaction fee may also be charged.

Co-borrower

A person who borrows money jointly with you. Each individual is jointly and separately responsible for the repayment of the loan. This means that if one person does not pay, the other person will be required to pay the full amount of the loan.

Commission

A reward or sum of money paid to a salesperson.

Comparison rate

The interest rate for a loan including fees and charges. For example, if a bank advertises a home loan with an interest rate of 5.49% p.a. (per annum), the comparison rate (once fees and charges have been included) might actually be 6.75% p.a.

Contract

A written legal agreement that shows terms and conditions.

Cooling-off period

The period of time during which a person or organisation can decide not to continue with a contract. This may vary from 24 hours to 14 days (depending on the contract). Conditions do apply, so always read the contract and be careful not to give away your right to a cooling-off period.

Credit limit

The maximum amount of money a financial institution will lend you for a loan or credit card.

Direct debit

A regular payment made directly from a bank account and usually at a specified time and on a specified date.

Default

When you fail to meet the terms or requirements of a contract. Not making your scheduled repayments on time is considered a default.

Deposit

An amount of money put into a bank account or money that is left with someone or a company to secure the purchase of an item.

Drawdown

This is when your loan funds are deposited in your bank account, or used by you. For example, the drawdown occurs when your home loan is approved and you pay for the house using the money you have borrowed.

Electronic banking

Making withdrawals, deposits, transfers and account enquiries electronically using Phone or Internet Banking, ATMs or EFTPOS.

Equity

If you have borrowed money to buy a home, equity is the difference between the value of your property and how much you owe on it. If your property is worth $200,000 and you owe $50,000 on your home loan, you have $150,000 in equity.

Establishment fee

A one-off fee that may be charged by lenders for setting up your loan.

Fixed interest

An interest rate that does not change for a specified period.

Fixed term loan

A loan that you must repay within a certain timeframe or term.

Floating loan

See Variable interest and Fixed interest.

Guarantee

A legally binding promise given by a person (the guarantor) to repay a debt, if it is not paid by the borrower. A guarantee can be secured or unsecured.

Guarantor

A person or company that provides a guarantee.

Home loan

A loan for the purchase of property or real estate to be used for your home. See also Mortgage.

Honeymoon rate

A low interest rate for a specified initial or ‘honeymoon’ period on a loan. You can make further payments during the honeymoon period to reduce the amount owing on your loan.

Income

The amount of money you earn as a wage, rental income, interest or government allowances.

Interest

The amount a lender charges you to borrow and use the money, generally represented as a percentage per year.

Interest only

With an ‘interest only’ loan you only repay the interest for a specified period, rather than repaying the principal amount of the loan.

Internet banking

Using an Internet account to manage your banking and financial transactions.

Joint debt

When two or more people borrow money together. Unless the contract limits the amount each party must pay, a lender can recover payment of the whole amount from either party. This is not affected by any private agreement held between the borrowers, nor is it affected by any family law property agreement.

Lease

An agreement between two parties where one party is granted a legal right to use or occupy the property of the other party for a specified period in return for payment.

Loan

Money lent for an agreed period of time, or term. By the end of the period, the money must be repaid, generally with interest. See mortgage, interest and term.

Loan approval fee

This is a fee payable once in relation to the approval of a loan by a lender. The fee usually relates to document search costs, valuations and loan processing. See Establishment fee.

Lump sum payment

A single payment of money towards repaying a loan, usually for a larger amount, in addition to your regular scheduled repayments.

LVR (Loan to Value Ratio)

This is the amount you borrow compared to the value of the property purchased with your home loan, as a percentage. For example, a loan of $80,000 to buy a property worth $100,000 results in a debt to equity of 80%. Also known as Loan to Value Ratio (LVR).

Maturity

The end or expiry of an investment or a loan.

Minimum repayment

The minimum amount to be paid off your loan each month.

Mortgage

A document drawn up between a borrower and lender, giving the lender a conditional right to the property held as security for the repayment of the loan.

Mortgage broker

A person or company that can help you find appropriate home loan or residential investment loan. Mortgage brokers may charge you a fee or be paid a commission by the lender.

Net worth

Your assets, minus how much you owe on your assets is your net worth.

Offset account

This is a bank account that’s linked to a your home or residential investment loan. The balance in the offset account reduces the amount of interest you pay on your loan. You have ready access to your money with an offset account.

Original documents

Documents that are not a copy or reproduction ie. not photocopied or faxed and all signatures are original.

Overdue

Where an amount owed is not paid by the due date.

Per annum (p.a.)

This means ‘for the year’. With an interest rate of 7% p.a. the borrower must pay 7% of the remaining balance owing each year.

Periodical payment

Regular transfers or debits from your account, which you instruct your bank to make to the account of another person or business. Setting up periodical payments with your bank is a very easy and convenient way to manage your money and payments.

Phone banking

A popular way to check bank account and credit card balances, perform transactions, transfer money, pay bills and apply for new products and service over the telephone.

Principal

The amount of the loan (the face value of the loan) upon which interest is calculated and charged.

Redraw

A redraw facility gives you access to any additional funds you have repaid on your loan in excess of your scheduled repayments. It is a convenient way to borrow money back from a bank without having to apply for another loan. This facility may not be automatically available on all accounts, and fees may apply.

Reducible interest

Interest calculated on how much you owe each day. As the amount you owe gets less, you pay less interest.

Refinance

Clearing an existing loan debt with the proceeds of a new loan, usually with a different lender. A smart way you can potentially lower the interest rate you pay is to consolidate your debts into one loan.

Security

An asset offered as security for the repayment of a loan. The security ensures that the lender can recover the full amount of the loan (by selling the asset) if the borrower can’t repay the loan.

Stamp duty

A tax charged by Australian states on certain transactions, such as the purchase of a property or the transfer of certain other assets. The rate of stamp duty is different in each state.

Statement

A record summarising all the transactions that have occurred on your bank account (or any other account) and any fees charged or interest paid each month or each quarter.

Term

A period of time, such as the time in which a loan must be repaid.

Terms and conditions

A set of specific obligations for each party in a transaction or product. Terms and conditions are available from all financial institutions and may also be provided in booklets called Product Disclosure Statements.

Transaction

The movement of money between bank accounts, such as deposits, withdrawals, transfers or purchases.

Utilities

A business that provides an essential service, such as electricity, water or public transport, generally under government regulation.

Variable interest

Where the interest rate may go up and down during the term of the loan.

Will

A legal document instructing how your possessions will be distributed after your death.