Applying for a loan can be confusing. Below are the most frequently asked questions that AMO are asked everyday.
Many home buyers are unfamiliar with the terms and descriptions used in the mortgage and real estate industries. This explanatory guide is provided as part of our customer service at Australian Mortgage Options.
*Please note: Information that is contained on the web site should be used as a guideline only. You should seek advice from professional financial, legal and real estate specialists before purchasing a property and/or applying for a loan.
ABA
Australian Bankers' Association
ABIO
the Australian Banking Industry Ombudsman (ABIO) provides an avenue through which customers can make complaints about their bank and have them dealt with independently.
Acceptance
to agree to the terms of an offer or contract
Accrued Interest
interest you have earned or incurred that is yet to be paid or charged.
Additional Repayment
extra funds paid into the loan over and above the minimum prescribed repayments.
Adjustments
the process of allocating expenses (Council, electricity, phone, water rates) has paid for but not used, and which the buyer has not used but will be billed.
Agent
person or body authorised to act on behalf of a client in the sale, purchase or management of property.
All In One Loan
a loan, generally variable, that allows you to deposit all your income into the loan account and then withdraw money from the loan account for all your day to day purchases and transactions. The longer spare funds stay in the account, the greater the interest savings.
Allotment
a block of land created out of larger area.
Amortisation Period
the period of time one has to repay a loan at the arranged terms.
Application Fees
fees charged to cover or partially cover the lender's internal costs of setting up a loan approval for a home buyer
Appraised Value
estimate of the value of a property being used as security for a loan.
Arrears
an overdue account yet to be paid.
At Call
a bank account from which money can be withdrawn immediately.
Auction
public sale of property with ownership going to the highest bidder, subject to a reserve price being reached.
Bad Debt
a debt with little chance of being recovered and written off as a loss.
Balance Sheet
a statement of assets, liabilities and net equity for an enterprise at a point of time.
Bank Cheque
a cheque that draws money specifically from funds you own held in a bank.
Bankruptcy
when a debtor has his/her estate placed into the hands of a receiver who has the responsibility for its distribution.
Basic Variable
a variable home loan at a reduced rate but generally with fewer features than a standard variable.
Bearer
person presenting a cheque to a bank
Body Corporate
a corporation of the owners of units within a building. They form a self-elected council for the management of the building and common areas.
Break Cost
costs incurred when a loan is paid off before the end of its term. Generally applies to fixed loans.
Bridging Finance
a loan that enables you to cover the purchase of a new property when you are yet to sell your existing property.
Building Regulations
the standards formulated by local councils to control the quality of buildings.
Capital
the current value of your long-term assets - house, property or business
Capital Gain
the monetary gain obtained when you sell an asset for more than you paid for it.
Capital Gains Tax
a Federal tax on the monetary gain made on the sale of an asset bought and sold after September 1985.
Capitalisation
when interest payable is accrued and added to the total debt payable.
Capped Loan
a loan where the interest rate is not allowed to exceed a set level for a period of time but, unlike fixed rate loans, is allowed to drop.
Caveat
the Latin for 'beware'. Usually it is in the form of a contract clauses that stipulates a particular requirement.
Certificate of Title
this document details the land dimensions and ownership details, and whether there are any encumbrances on it.
Chattels
chattels are personal property. There are two types. Real chattels are buildings and fixtures. Personal chattels are clothes and furniture.
Combinations Loans
where various loans come under the same banner to form one loan. May have a portion variable, fixed or even a portion as a line of credit. Also known as split loans.
Common Property
an area used by many, not an individual. Owned by the tenants in common.
Company Title
a property title that applies when owners of units in a block form a company.
Comparison Rate
used to compare the actual rate loan, taking into account nominal interest rate per annum, the compounding frequency and upfront and ongoing fees, as outlined in the Consumer Credit Code.
Compound Interest
interest that is paid on both the accumulated interest as well as on the original principal.
Construction Loans
a loan specifically granted for the purpose of funding the building of a new dwelling. You are generally able to draw down money as required, so you can pay as necessary.
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.
Contract
a legally enforceable agreement between individuals or entities. In real estate, contracts are exchanged when the deposit is paid.
Conveyance
the legal process for the transferal of ownership of real estate.
Covenant
terms and conditions that specify the usage of a block of land or the buildings on it.
Cover Note
a note of temporary property insurance before the implementation of a formal policy.
CRAA
(Credit Reference Association of Australian) the body which holds credit details on all of us!
Credit
borrowed money to be paid back under an arrangement with a lender. Also, a sum of money paid into an account.
Credit Limit
maximum amount the borrower can use at any one time.
Creditor
a party to whom money is owed.
Daily Interest
interest calculated on a daily basis - therefore varies according to daily account balance.
Debit
an account entry to charge a withdrawal to a specified account.
Debtor
someone who owes money to someone else.
Deed
a legal document that states an agreement or obligation regarding a property.
Default
failure to meet debt payment on a due date.
Default Rate
the rate a loan rolls/moves to automatically at the end of any fixed period.
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. They are often used as surety when cash isn't readily available at short notice.
Disposable Income
any income left over after all known expenses have been met e.g. mortgage payments, bills.
Draw Down
to access available loan funds, especially referring to lines of credit where the limit is set and you can use the funds as required.
Easement
a right to use a corridor or passage of land which is owned by another.
End Loan
the loan amount you are left with after you have sold your existing home and paid the proceeds towards your bridging loan.
Encumbrance
an outstanding liability or charge on a property.
Endorse
to sign the back of a cheque to confirm or transfer its ownership to someone else.
Equity
the amount of an asset actually owned.
Equity Loan
a loan usually secured by the proportion of the value of your house which you own.
Establishment Fees
lending body fees which may or may not be charged to set up a loan.
Exchange of Contract
the legal point time when the vendor and purchaser swap documentation and start enquiries with a view to settlement.
FID
(Financial Institutions Duty) state duty on the receipts of financial institutions.
Fittings
items that can be from a prompter without causing damage to it.
Fixed Interest
an interest rate set for an agreed term.
Fixtures
items that would cause damage to a property if removed. Their removal must be stipulated in the contract of sale and any damage made good by the seller.
Freehold
the dwelling and the land on which it stands is owned by the owner indefinitely.
Frozen Account
an account in which all transactions have been suspended.
Garnishee
to legally divert a part or whole of someone's money or property to someone else.
Gearing
the ratio of your own money and borrowed funds in an investment.
Giropost
a facility allowing you to conduct banking transaction through the post office.
Guarantee
a promise made as bound by the terms of a contract.
Guarantor
a party who agrees to be responsible for the payment of another party's debts.
Highest Bid
the top price offered by a bidder at auction. If the reserve price is not reached and the property is passed in, the highest bidder is given the first option to negotiate with the vendor.
Holding Deposit
a refundable deposit based on the goodwill of the buyer to go ahead with the purchase.
Inclusions
items included with the property e.g. light fittings, stove, etc.
Income Statement
a statement of income and expenditure for a period, usually a year.
Interest
the lending body's charge for the use of funds or the return on deposited funds.
Interest Adjustment
when additional repayments are made on a fixed loan, an interest adjustment cost is sometimes charged to compensate the lender for loss of interest revenue.
Interest Only Loan
a loan where the principal is paid back at the end of the term and only interest is paid during the term. The loans are usually for a short term of one to five years.
Internet Banking
when banking transactions such as transfers, payments and often home loan applications can be made via the Internet.
Introductory Loan
a lan offered at a reduced rate for an introductory period (usually no longer than 15 months) to new borrowers.
Inventory
a list of items included with the property e.g. furniture, moveable items, etc.
Joint Tenants
equal holding of property between two or more persons. If one party dies, their share passes to the survivor/s.
Land Tax
a State Government tax charged to the owners of any property over a stipulated value, unless it is their principal place of residence.
Land Transfer Registration
a State Government tax assessed on the selling price of the property.
Lease
a document granting a period of tenancy of a property under specific terms and conditions.
Liabilities
someone's debts or obligations.
Lien
the right to hold property as security against a debt or loan.
Line of Credit
a flexible loan arrangement with a specified ceiling to be used at a customer's discretion.
Loan Security Duty
mortgage stamp duty.
Loan to Valuation Ratio
(LVR) the ratio of the amount lent to the valuation of the security (usually the house).
Margin
this is the difference between the lender's interest indicator rate (or other reference rate) and the rate actually charged to borrowers).
Maturity
the date a debt or investment must be paid in full.
Mortgage
a form of security for a loan usually taken over real estate. This lender, the mortgage, has the right to take the real estate if the mortgagor fails to repay the loan.
Mortgagee
the lender of funds.
Mortgagor
the person borrowing the money in the terms of a mortgage.
Mortgage Brokers
a person or organisation marketing numerous loans from a panel of lenders. They offer a service where they will select the best loan or loans for borrowers from this selection.
Mortgage Discharge Fee
an administration fee to cover the costs (e.g. documents) incurred in winding up a loan.
Mortgage Insurance
(lender's) a form of insurance 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 amount. Mortgage insurance premiums are usually payable by the borrower when the amount borrowed is over 80% of the property value and sometimes at lower loan to valuation ratios.
Mortgage Manager
a company responsible for managing every facet of a borrower's loan. Often sources loans from mortgage originators.
Mortgage Originator
retail and more often wholesale lender who sources securities funds in order to package them as loans.
Mortgage Protection Insurance
not to be confused with mortgage insurance, this covers borrowers' loan repayments in the event that they are not able to meet them through illness or redundancy, for example.
Mortgage Registration Fee
a State government fee for the registration of a mortgage, usually around $80.
Negative Gearing
where the return on an investment is insufficient to meet the costs of the investment, leading to a reduction in assessable income for taxation purposes.
Off the Plan
the purchase of a property, often an apartment, before it has been completed i.e. after only having seen the plans, not the finished product.
Offer to Purchase
a legal agreement that details a specific price for the purchase of a specific property.
Offset Account
a savings account linked to your mortgage in such a way that the interest earned on your savings is applied to reduce the interest on your mortgage.
Ombudsman
the Australian Banking Industry Ombudsman (ABIO) provides an avenue through which customers can make complaints about their bank and have them dealt with independently.
Ongoing Fee
any loan maintenance fee charged regularly over the loan term.
Option to Buy
a legally binding document which gives a person, for a fee, the right to buy something usually within a specific price.
Overdraft
a pre-arranged limit to which a person can exceed an account balance.
Passed In
a property is 'passed in' at auction if the highest bid fails to meet the reserve price set by the vendor.
Payee
the person or entity to which a cheque is payable.
Plan
detailed illustration of a house that shows the internal layout and dimensions and the position of the house on the land.
Portability
where a new property may be substituted as security for an existing loan.
Principal
the capital sum borrowed on which interest is paid.
Principal and Interest Loan
a loan in which both the principal and the interest are paid during the term of the loan.
Private Sale
the sale of a a property without an estate agent.
Private Treaty Sale
a property sale where the buyer negotiates on a price set by the seller, as opposed to an auction sale.
Redraw Facility
a loan facility whereby you can make additional repayments on your loan and then access these extras funds when necessary. They will often have limitations such as a minimum redraw amount and a fee for each withdrawal.
Refinancing
to replace or extend an existing loan with funds from the same institution or another.
Rental Guarantee
a promise by the developer guaranteeing a certain level of return on an investment property. Usually stated as a percentage of the purchase price, it generally relates to investment properties purchased off the plan.
Reserve Price
a minimum price acceptable to a seller at auction.
Residential Investment Loan
a loan granted to purchase a property intended for investment purpose (for example, to be rented out) as opposed to owner-occupied purposes.
Rise and Fall Clause
a building contract clause that allows the final pricing to move up or down according to the functions of material prices or wages.
Search
an examination to confirm that a vendor is in a position to sell a property and that there are no encumbrances on it.
Securities
the process of taking a pool of diverse assets such as different home loans and converting them into a tradable security such as bond which investors can then purchase and trade.
Security
an asset that guarantees the lender their borrowings until the loan is repaid in full. Usually the property is offered to secure the loan.
Semi-Detached
two houses that share a common wall or walls.
Settlement Date
date on which the new owner finalises payment and assumes possession.
Signatory
a person authorised to utilise an account.
Stamp Duty
on loan amount a State government tax on mortgage amount.
Stamp Duty on Property Purchase
a State government tax on the purchase price of a property.
Standard Variable
a variable home loan, usually with comprehensive features (as opposed to a basic variable). This is often the variable rate fixed rates roll to at the end of their fixed term.
Stepped
a stepped account is one in which different amounts of interest are paid on different amounts of interest are paid on different portions of the account. e.g. two percent on the first $1,000 and three percent on the second $1,000.
Strata Title
this title gives you ownership of a 'unit' of a larger building which you may sell, lease or transfer at your discretion. Also entitles you to membership of the body corporate.
Stratum Title
a title that records your ownership of a 'unit' of a larger property. Unlike a strata title, the owner becomes a shareholder in the company that manages the common area, not just a member.
Survey
a plan that shows the boundaries of, and the building position within, a block of land.
Tenants in Common
the equal or unequal holding of property by two or more persons. If one party dies, the property is divided according to law.
Term
the length of a home loan or a specific portion within that loan.
Term Deposit
often called a fixed interest account. A type of savings account where the size of the deposit, the interest rate and the length of time the money is deposited for are all fixed.
Title Search
process to ensure that the vendor has the right to sell and transfer ownership.
Torrens Title
records your ownership of a piece of property. You are lawfully entitled to lease, sell or dispose of the property as you desire. Also known as Certificate of Title.
Transfer
a document registered with the Land Titles Office that confirms the change of ownership as noted on the Certificate of Title.
Unencumbered
a property free of liabilities or restrictions.
Valuation
a report as required by the lender, detailing a professional opinion of the property's value.
Variable Interest Rate
a rate that varies in accordance with the rates in the marketplace.
Zoning
local authority guidelines as to the marketplace.