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Finance Glossary
 

To offset the impact of the introduction of the goods and services tax (GST), the Commonwealth has requested that the States and Territories assist first home buyers through the establishment of the First Home Owner Grant (FHOG).

A

Additional payments: The facility to make extra payments on your home loan account which reduces the term of the loan.

Agent: An agent is someone who acts on behalf of another person or organisation. A real estate agent acts on behalf of a landlord or owner in the letting or sale of property.

Amortisation period: The length of time a borrower has to repay the loan in accordance with the arranged terms (otherwise known as the loan term).

Application fees: Fees charged to cover a lender’s internal costs of setting up a loan.

Appraised value: An estimate of the value of a property being used as security for a loan.

Appreciation: The increase in the value of property caused by economic factors such as inflation, and market conditions.

Arrears: An overdue amount that has not yet been paid.

Assets: Money, property or goods owned.

B

Body corporate: A corporation of the owners of units within a strata building. The owners elect a council responsible for the management of the building and common areas.

Boundary: A line separating adjoining properties.

Break costs: Penalty charges for "breaking" or discontinuing the agreed fixed term of a loan.

Building inspection: This inspection is generally carried out prior to the purchase of a property to ensure the building is structurally sound. Contracts of sale can be made subject to the satisfactory building inspection.

Building regulations: Rules of a legal or statutory nature by which local councils control the manner and quality of buildings. They are designed to ensure public safety, health and minimum acceptable standards of construction.

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C

Capital gain: The monetary (financial) gain obtained when you sell an asset for more than you paid for it.

Capital gain tax: A federal tax on the monetary gain made on the sale of an asset (excluding your own residence) bought and sold after September 1985.

Capped loan: A loan where the interest rate cannot exceed a set level for a period of time, but unlike fixed rate loans, can fall.

Chattels: Chattels are personal property, such as clothing, appliances and furniture. Chattels include movable possessions which may be included in the sale (eg. Furniture).

Certificate of Title: A document identifying the ownership of land. It shows who owns the land and whether there are any mortgages or other restrictions on it. This document (if issued) is usually held by the lender as security for a loan.

Clear title: A seller has a clear title when there are no restrictions (such as an outstanding mortgage) preventing the sale, and when ownership of the seller has been established.

Commission: The fee or payment made to a real estate agent for services.

Consumer Credit Code: An Act of Parliament governing the relationship between borrowers and lenders.

Contract of Sale: A written agreement outlining the terms and conditions for the purchase or sale of property.

Conveyance: The transfer of ownership of property from the seller’s name to the buyer’s name.

Conveyancing: The legal process for the transfer of ownership of real estate.

Cover note: A guarantee of temporary property insurance before the implementation of a formal policy.

Credit: Borrowed money or other finance (eg. Hire purchase) to be paid back under an arrangement with a lender.

Credit Reference Limited: Credit Reference Limited (previously called The Credit Reference Association of Australia or CRAA) holds details of the credit history of all Australians.

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D

Debtor: Someone who owes money to someone else.

Deed: A legal document that states an agreement or obligation regarding a property.

Default: Failure to abide by the terms of a mortgage or loan agreement. A failure to make loan payments (defaulting on the loan) may result in the mortgage holder taking legal action to repossess the mortgaged property.

Deposit: A deposit is normally paid by the buyer at the time of exchanging contracts. Normally a minimum o 5-10% of the total purchase price is required.

Deposit bonds: Guarantees that the purchaser of a property will pay the full deposit by the due date. Institutions providing deposit bonds act as a guarantor that payment will be made.

Disbursements: Miscellaneous fees and charges incurred during the conveyancing process, including search fees and charges paid to Government authorities

Discharge fees:
An administration fee to cover the costs incurred in finalising a loan account.

Discharge of Mortgage: A document signed by the lender and given to the borrower when a mortgage loan has been repaid in full.

Disposable income: Any income left over after all known expenses have been met (eg. loan payments, bills).

Draw down: To access available loan funds, usually referring to a staged loan for property constructions, or lines of credit where the limit is set and the borrower can use the funds as required.

Duty (or Stamp Duty): A state Government tax on financial transactions. For the purchase of real estate, it is calculated according to the property value. It also applies to the amount of the mortgage.

E

Easement: A right to use a part of land which is owned by another person or organisation (eg. for access to another property).

Encumbrance: An outstanding liability or charge on a property.

Equity: A home owner’s financial interest in a property. Equity is the difference between the price for which a home could be sold and the amount still owed on its mortgage. Equity usually increases as the outstanding principal of the mortgage is reduced through regular payments. Market values and improvements to the property also affect equity.

Establishment fees: Fees payable to a lender to cover the costs of setting up a loan.

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F.


First Home Owners Grant:
The First Home Owners Grant is a grant from the Federal Government which is available as compensation for the increased cost of housing after implementation of the Goods and Services Tax (GST) on 1 July 2000. The grant of $7,000 is available for first home buyers.

Fittings: Items not intended to be removed from a property on sale (eg. fixed carpets, lights, curtains, stoves).

Fixed rate: An interest rate that applies to a loan for a set term. Both the interest rate and loan repayments are fixed for the agreed term, regardless of any interest rate variations in the home loan market. The agree term is usually 1, 2 ,3, 4 or 5 years.

G.

Guarantee: A contract to pay someone else’s debt if they don’t pay it.

Guarantor: A party who agrees to be responsible for the payment of another party’s debts should that party default.


H.

Home Equity: The value of a homeowner's unencumbered interest in their property(s). Equity is the difference between the home's fair market value and the unpaid balance of the mortgage and any outstanding debt over the home. Equity increases as the mortgage is paid or as the property enjoys appreciation.

Home Loan: A home loan requires you to pledge your home as the lender's security for repayment of your loan. The lender agrees to hold the title or deed to your property until you have paid back your loan plus interest.

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I.

Installment: The regular periodic payment that a borrower agrees to make to the lender.

Interest: The amount you are charged for the money advanced to you by a lender.

Interest only loan: A loan where only the interest is paid for an agreed term (usually a short period of one to five years) or during a construction period. The principle is then repaid over the remaining term of the loan by the conversion of repayments to Principle & Interest.

Interest Rate: The rate at which interest is applied.

Introductory Loan: A loan is offered at a reduced rate for an introductory period (usually 6 to 12 months) to new borrowers. Also called a discounted or honeymoon rate.

Investment property: A property purchased for the sole purpose of earning a return on the investment, either in the form of rent or capital gain. The owner does not live in the property.


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J.

Joint tenants: Equal holding of a property between two or more persons. If one party dies, their share passes to the survivor/s.


L.

Lease: A document granting a period of tenancy of a property under specific terms and conditions.

Line of credit loan: A flexible loan arrangement with a specified limit to be used at a customer’s discretion.Lump sum repayments: Additional ad hoc repayments, made over and above your minimum repayment requirement.

LVR: This is the general term for the Loan to Value ratio. This measure is used to determine the percentage of the equity in a mortgage against the value of the security. eg. If a house is worth $160,000, and the mortgage over the property is $100,000, then the LVR is 62.50%. Typically, lenders consider 80% as the point at which Mortgage Insurance is required. Sometimes referred to as LTV


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M.

Maturity: The date at which a debt must be paid in full.

Mortgage: A form of security assigned to the mortgage for a loan, usually taken over real estate (such as your home).

Mortgage broker: A person or organisation offering to organise or broker loans from a group of lenders.

Mortgage insurance: This insurance is taken out by the lender to cover themselves in the event that the borrower defaults on their loan and the sale of the property is unable to cover the outstanding debt. Mortgage insurance premiums are usually paid by the borrower when the amount borrowed is over 80% of the property value. There is no protection for the borrower.

Mortgage manager: A company responsible for managing every facet of a borrower’s loan. These often source loans from mortgage originators.

Mortgage offset account: A savings account run in conjunction with a home loan. The interest earned on the account is applied to reduce the interest paid on the loan. A 100% offset is where the interest rates earned and paid are the same. A partial offset account is where the interest earned on the offset account is only a portion of the rate paid on the home loan.

Mortgage originator: A person or organisation who organises a loan from another source (eg. a mortgage trust fund).

Mortgage payment: A regularly scheduled payment that usually includes both principal and interest.

Mortgage protection insurance: This type of insurance is taken out by a borrower to cover the borrower's loan repayments in the event that they are not able to meet them through specific events such as serious illness or redundancy. It is also sometimes called income protection insurance.

Mortgage registration fee: State Government charge for the registration of a loan.

P.

Passed in: A property is "passed in" at auction if the highest bid fails to meet the reserve price set by the vendor (seller).

Portability: Where a new property may be substituted as security for an existing loan.

Principle: The capital sum borrowed, upon which interest is payable.

Principle & Interest loan: A loan in which both the principle and interest are repaid, during the agreed term of the loan.


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R.

Re-amortise: To recalculate the minimum repayment required to repay the outstanding balance of your loan over the remaining period (particularly where the loan balance has substantially increased or decreased from the original amount).

Redraw facility: The component of your variable rate loan into which you can make extra repayments when you can afford to, and later draw on these funds if you need to.

Refinance: To pay off a mortgage and arrange for a new mortgage, sometimes with a different lender.


S.

Security: Documentation held by the lender (or mortgagee) regarding property supporting the loan.

Settlement: The date on which loans funds are advanced to you or your legal representative.

Solicitors mortgages: Mortgages offered through solicitors firms.

Split loan: A combination of loan types forming one loan, such as a partial fixed/variable interest rate loan.

Stamp Duty: This is a State Government tax assessed on the selling price of the property. Each state has different rules and calculations.

Survey: A plan that shows the boundaries of a block of land and the positioning of any building/s on that land.

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T.

Tenants in common: The equal or unequal holding of property by two or more persons. If one party dies, their share passes according to their Will or the law (not necessarily to the owner of the other share).

Term: The duration of a loan, or a specific period within that loan. This is usually written in months, eg 360, which is 30 years.

Title deed: Document disclosing the legal description and ownership of a property.

Title fees: Payable to the State’s Titles Office for title search, transfer or property ownership, registration of the new mortgage and discharge of the old one.

Transfer: A document registered with the Titles Office that confirms the change of ownership as noted on the Title.


U.

Unencumbered: A property free of liabilities, encumbrances or restrictions.


V.

Valuation: A report detailing a professional opinion of a property’s value.

Variable rate: A rate that goes up or down depending on money market interest rates.

Variation: A change to any part of a loan contract.


Z.

Zoning: Statutory descriptions of the allowable uses of land as set out by local councils or planning authorities.

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