Lending-speak translated to plain English

Glossary of Terms

Alt Doc/Low doc loan – where you do not need any supporting evidence, just a declaration from yourself and your accountant that you can afford to make repayments for the duration of the loan. This type of loan is suitable for those who are self-employed or have an irregular income.

Asset – an item or property that is owned by you or your company, which has significant value and is available to use as security to your loan.

Bank Valuation – an estimation of the worth of a property, carried out by a professional property valuer appointed by the lender. Be aware you do not receive a copy of the valuation as it is for bank purposes only.

Basic variable rate loans – as it carries cheaper rates, this loan is the no frills option with less features than other loan packages, and is suitable for first home buyers who want to save more money.

Borrowing Power explained -Income (wages & other money earned) minus lender set living expenses and any liabilities such as credit cards, loans etc. What is left is assessed as how much you can use towards what you can borrow

Borrowing costs – expenses accrued or charged after borrowing a sum of money.

Bridging loan – a short term loan that you use between buying a new property and selling your current one.

Budget – a simple yet useful and important tool or list that compares expenses to savings to illustrate exactly how much you have spare to spend.

Business loan – a sum of money that is borrowed to start or improve an existing business.

Capital – wealth in the form of money or other assets owned by you, your company.

Capital gain – a profit from the sale of your property or investment.

Collateral – something pledged as security for repayment of a loan, to be forfeited in the event of a default.

Commercial loan – a sum of money borrowed may be used to fund large capital expenditures and or operations that a business may otherwise be unable to afford.

Commercial property – refers to property that produces a financial return in the form of rent to the owner, usually by being occupied by businesses.

Construction lending – is a sum of money that is loaned where the proceeds are used to finance construction to your land or property.

Contract employee – someone who works under contract for an employer, and is usually hired for a specific job at a specific rate of pay. A contract employee does not become a regular addition to the staff and is not considered a permanent employee.

COSL (Credit Ombudsman Service Limited) – an unbiased body that deals with complaints in relation to the financial services and lending industry. It’s primary focus is to provide consumers with an alternative to legal proceedings for resolving finance-related disputes.
Council rates – an annual contribution fee that Local Government charge land-owners determined by a percentage against your property to pay for communal roads and areas. The amount varies from state to state.

Credit history – a file that is kept by a credit agency for up to 7 years regarding your repayment history on loans and credit cards, enquiries, Directorships etc

Credit limit – refers to the capped amount your lender has allowed you to spend via a credit card, with your spending limitation based on the information in your initial application.

Credit rating – an estimate of the ability of a person or business to fulfil their financial commitments, based on previous dealings or on their credit history.

Credit Scoring–

Cross Securitised –

Debt consolidation – merging your debt into one amount to simplify your repayments.

Deposit – a sum of money used to secure the purchase of an item or a sum that you put in a bank account.

Depreciation – generally calculated based on either the passage of time or the use of your asset or property.

Equity – the monetary value of an investment less the outstanding loan amount.

Extra repayments – when you pay more than the minimum required amount to the lender in order to pay off your loan faster.

Family equity loan – where a family pledge of a (limited) security guarantee in the form of an asset or property helps you purchase a home without them actually giving you any money towards the deposit. Family pledge loan – similar to family equity loans, a family pledge loan is facilitated by using the equity in your family’s property to provide security for all or some of your loan.

First home buyer – an Australian who does not have a record of owning a dwelling or land, and who therefore purchases property for the first time.

First Home Owners Grant – a government fee discount with different qualifying regulations in each state and territory available to Australians for the purchase of their first home.

Fixed interest rate – a percentage against an amount of money you borrow that you repay as a fee. You pay the same instalments, which not change over the course of an agreed amount of time.

Funds to complete – The total funds required to complete a purchase transaction. Include the property purchase funds, and all fee’s and charges associated with the transaction.

Genuine savings – A term used in lending where the client(s) must contribute a minimum of 5% of the purchase price from their own resources. Example is of you purchase for $300,000, 5% of $300,000 is $15,000 you need saved. Keep in mind that this 5% only makes up part of the minimum deposit needed for the purchase, but is a necessary part for many lenders. These Genuine Savings need to be evidenced by providing 3 FULL consecutive months of savings statements showing funds being held in the account for 3 months or saved gradually over this time. The funds can be from:

• Sale of shares
• Term Deposits
• Equity in another property they own
• Sale of a real estate asset

Note: Many lenders will not allow Genuine Savings to be made up of:

• Sales of cars or other non real estate assets
• Personal loans
• Gifts of funds
• Life insurance gains
• Borrowed funds
• Lump sums of funds that cannot be verified, ie: You earn $1,000 per week yet $2500 is deposited every 2 weeks. Be aware of depositing large sums in acct at once.

Interest only loans – where for a set term, you pay only the interest on the principal balance, with the principal balance unchanged.

Interest rate – a percentage calculated against an amount of money that you borrow, and is paid as a fee for the use of that amount of money over time.

Investment loans – an amount you borrow specifically used for investment property purposes.

Legal fees – a sum charged by a legal representation, usually a conveyancer, who specialises on the legal aspects of buying and selling property.

Lenders Mortgage Insurance – a percentage against the amount you borrow if no or little deposit is paid by you (up to 20% of the property value). This amount is paid by you in order to pay for the lender’s insurance to protect them (not you) in case you falter on your repayments.

Line of credit – drawn from the equity in your property or an agreed amount that your lender has approved. This means you can use just a portion of what you borrowed, and so you only pay interest on money actually withdrawn or used.

Loan application – a document that provides a financial lender important information about a potential borrower, which the lender then bases their decision to lend to that party. Each loan application may or may not be chargeable, even if the application is rejected.

Loan approval – when the documents you’ve filled have satisfied a panel of lenders to permit you to borrow an agreed sum of money.

Low deposit loan – when you have up to 20% of the value of a property as an initial down-payment to secure the purchase of that asset. A higher interest rate is usually charged.

Loan – a sum of money that you borrow from an authorised financial lender, with terms and conditions that is usually paid back with interest.

Loan repayments – a regular scheduled amount that you pay to a lender to reduce the sum that you have borrowed.

Loan-to-Value Ratio (LVR) – expressed as a percentage, it refers to the amount of the loan against the value of the property purchased.

Loan portability – is a feature that is sometimes offered by your lender that allows you to carry the terms of the loan to a new property if you decide to move house during the life of your loan. (is this right? or is it: customer mobility between banks, or both?)

Lump sum repayments – a single, large sum of money paid toward your loan amount on top of your regular instalments.

Mortgage broker – a person or company connected to many lenders in a non-biased way who will evaluate which loan is most appropriate for your individual situation.

Mortgage registration fee – a fee that can vary from state to state, it’s charged by the State Government for the registration of a home loan in order to verify ownership of a property for any government searches and checks needed by any future buyers of that property.

Moving costs – various expenses that are associated with moving house.

NCCP (National Consumer Credit Protection Act) – suggests that all lenders and mortgage brokers are required to hold a credit license or be registered as an authorised credit representative. This legislation is designed to protect consumers and ensure ethical and professional standards in the finance industry, through the National Credit Code (NCC).

Negative gearing – a tax advantage calculated as a return from an investment property after maintenance and mortgage interest costs.

Net income – refers to your available income from salary or property? after deducting depreciation, interest, taxes and other expenses.

Non-bank lenders – are lenders who do not hold an Australian banking licence and who do not represent a mutual bank, building society or a credit union. A non-bank lender usually sources their own wholesale funding and then lends out their funds making a margin on the difference.

Offset account – a savings account that is linked to a home loan. It reduces your interest payable because the interest is only charged on the net balance of your savings account.

Panel of lenders – referring to usually more than one person who represents the financial institution you are applying for a loan from who will assess your application in a group effort.

Parental guarantee– refers to when your parents or other family members help you secure a loan in your name by offering you to use the equity in their home for some or all of your loan.

PAYG – employed, pays group certificate

Pest and building inspection – a recommended pre-purchase property inspection report, usually paid by you, which identifies structural and pest infestation on the property.

Pre-approval – a pending loan whereby the loan documents have passed and a loan is available when the borrower is ready to use it or purchase an asset.

Principle – refers to the actual sum that you have borrowed or otherwise, the body of the loan. In contrast, the additional part you need to pay when you borrow money is the interest, which acts as a fee that is calculated as a percentage, usually against the original sum of the loan until the end of the term.

Principal and Interest – a loan where both principal and interest are paid together for an agreed amount of time, sometimes for the life of the loan.

Property transfer stamp duty – a taxation charged by the State Government when you purchase a property.

Property portfolio – is a collection of property investments owned by an individual, a group or a company.

Redraw facility – where you can access additional payments you’ve made previously on a loan.

Refinancing – when you acquire a new loan to take over an older one for the same asset.

Renovation loan – a sum of money borrowed as a short term loan to pay for maintenance or structural changes to your property.

Rental yield – a measure of the percentage of income return you earn from your property.

Removalists – companies who specialise in helping people move from one home to another.

Reserve Bank of Australia (RBA) – its duty is to contribute to the financial stability in Australia, and is influenced by things like employment and overall Australian welfare. The RBA create the daily cash rate which will affect the direction of the interest you pay on your property.

Residential property – a dwelling that is either occupied by tenants or inhabited by a person, group of people or family who may own the property and is generally used for non-business purposes.

Settlement date – the agreed date which the seller must deliver the property that was sold, and the buyer must pay the final amount that is owed.

Split loans – allows you to borrow part of your mortgage on a fixed interest rate and the remainder on a variable interest rate – all under the one loan product.

Stamp duty – a State Government tax based calculated by a percentage against the monetary value of the property you purchase.

Standard variable rate loans (SVR) – usually with a variety of features, including making extra repayments and redraw advance repayments, this type of loan is suitable for both investment and personal purposes.

Stand alone –

Strata fees – when collective owners of a building pay a fee, usually quarterly, into an account that pays for the overall maintenance and other expenses related to the building.

Unconditional –

Vacant land loan – a sum of money that you borrow to pay for a block of land that you intend on building on in the near or distant future.

Variable interest rate – a percentage charged against the sum of money borrowed as a fee paid at regular instalments, that may increase or decrease according to the cash rate.