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Glossary

AAPR

The average annual percentage rate (AAPR) is officially called the “Comparison Rate”.  This combines interest payments with all other fees and charges associated with a loan, reflecting the total annual cost to a borrower of a particular loan.  This allows customers to compare the cost of loans more accurately.  All lenders must disclose this benchmark rate.

Amortisation Period

This is the term of the loan, ie. the period of time it takes to pay the loan back in full.

Annual Fee

Administration fee charged each year on many home loans as well as business and personal loans and credit cards.

Application Fee

A fee lenders charge to cover their costs in processing loan applications.  Some lenders do not charge application fees, but they may possibly charge higher interest rates.  There are sometimes other fees involved when applying for home loans, eg. Legal, valuation, settlement and disbursement costs.Break Costs

These are penalty fees charged when a fixed-rate loan contract is terminated by the borrower before the expiry of the fixed-rate period.

Building Inspection

This is the official inspection of your property to ensure it is structurally sound.  You may request that a contract to purchase a property is subject to a building inspection.

Capital Gain

The profit made from the sale of property or investments.  Most capital gains are taxed, but capital gains on the sale of a home remain exempt from capital gains tax.

Certification of Title

A registered document detailing ownership, dimensions and location of a property.

Commission

Money payable to brokers and real estate agents for their services.  Definitive Finance consultants are paid a standard flat fee by the lender upon loan settlement.

Comparison Rate

Please see AAPR.

Comparison Rate Schedule

A publication provided by lenders that states the interest rate and respective comparison rate for all of their products.

Conveyancing

The legal process transferring home ownership from the seller to the buyer.

Credit History

The history of your borrowing and repayment record.  This is used by lenders to assess your suitability as a borrower.

Credit Limit

The maximum amount of credit that you have access to.

Creditor

A party to whom money is owed.

Debt Service Ratio

The proportion of your income related to your possible loan repayments.  This is used by lenders to assess your ability to repay a loan.

Deposit

This is the amount of money previously saved that you will initially contribute to the purchase of your home.  The amount of deposit required for a loan approval varies between lenders.

Deposit Bonds

These are used when you don’t have immediate access to your loan money to put forward a down payment on the property you intend to purchase.

Discharge Fees

A fee charged by lenders when finalising a loan account.

Down Payment

This is the deposit needed to secure the initial purchase of your home.  Paid to the seller, it demonstrates your seriousness to purchase the home and is approximately 10% of the purchase price.

Equity

The value of the portion of your home that you actually own and have paid off your loan for.

Establishment Fees

This fee is charged by some lenders to cover the administration costs involved in setting up your loan.

Exit Fee

This is a penalty fee charged by lenders if you terminate or refinance your loan within a certain period.

First Home Owners Grant

The First Home Owners Grant (FHOG) is a one-off payment of $7,000.  It was introduced by the Federal Government in 2000 to help people with the cost of buying their first home.  It is not means tested but there are a number of criteria that must be fulfilled in order to be eligible.

Fixed Rate Loan

A Fixed Rate Home Loan allows you to “fix” the rate of interest you pay on your home loan for a set period of time (usually 1 – 15 years).  Your loan repayments are secured for that duration of time, and you are not vulnerable to interest rate fluctuations.

Foreclosure

The repossession and sale of your home by the lender if you default on the repayments of your mortgage.

Gross Income

Your total income before tax and other deductions.

Guarantor

A person or party that agrees to be liable for your debts should you default on repayments.

Interest

The charge you pay to borrow and use someone else’s money.  It’s expressed as a percentage of the amount you borrow.

Investment Property

A property purchased for the purpose of earning a return on that investment through rent and/or capital gains.

Legal Fees

These are charges by the lender for the services of a solicitor to prepare the legal loan documentation.

Lenders Mortgage Insurance (LMI)

Lenders Mortgage Insurance is paid by you to the lender when there is usually less than 20% deposit.  It is a one-off premium paid at the time of loan settlement.  It is designed to protect the lender for any shortfall in income in the eventuality of foreclosure.

Liabilities

Your debts or other financial obligations.

Loan to Value Ratio (LVR)

The amount of your mortgage as a proportion against the value of your property, expressed as a percentage.

Maturity Date

The date by which your mortgage must be paid in full.

Maximum Term

The maximum amount of time you have in which to pay your loan in full.  Generally 25 to 30 years.

Mortgage

A legal document detailing the terms and conditions applicable to the lending of money secured by real estate.

Mortgagee

The person or party borrowing the money.

Mortgage Protection Insurance

An insurance policy offering protection in case you fall ill or are made redundant and cannot make your loan repayments.

Offset Accounts

Offset accounts are transaction accounts that instead of earning interest on your deposited funds, reduce the amount of interest charges against your home loan.  This accelerates the repayment of your mortgage.  This is very tax effective as you are not paying tax on your savings.

Pre-approval

Where a lender commits to offering you finance, under certain terms and conditions, prior to you finding a property to buy.

Principal

The actual amount you borrow from a lender on which interest is paid.

Redraw Facility

A redraw facility allows you to make additional repayments on your loan and then have access to that extra money if you need it at a later date.

Service Fee

A monthly fee levied to cover the lender’s costs of administering and maintaining your loan account.

Serviceability

The borrowers ability to make loan repayments as they fall due.

Settlement Date

The date that the buyer and seller finalise full payment for the property and transfer title of the property.

Stamp Duty

State and Territory Government charges on financial contracts and transactions.  It is usually a percentage of the purchase price.

Switch

A loan feature that enables you to change between different products with the one lender.

Term

The length of time taken to pay a home loan in full.

Title Deed

A legal document confirming ownership of a property.

Transfer

A legal document which verifies the change of ownership of a property.

Uniform Consumer Credit Code (UCCC)

The Uniform Consumer Credit Code is government legislation requiring financial institutions to deal with their customers in a proper and uniform manner.

Valuation

This is an estimation of your property’s market value.  Also known as an appraisal, they are prepared by registered Valuers.  When requested by a lender, they are based on a quick sale as would be the case in foreclosure.  Subsequently this appraisal is usually lower than a real estate agents valuation.

Valuation Fee

A fee normally passed onto you for the lender to have a property valued which is being taken as security for a loan.