Common Terms &
Abbreviations
A1 – Applicant 1 (A2 – Applicant 2)
MA – Male Applicant FA – Female Applicant
ATO – Australian Taxation Office: The Commonwealth Department which deals with income tax, capital gains tax, fringe benefits tax and the collection of study debts.
B1 – Borrower 1 (B2 – Borrower 2)
Comparison Rate: the interest rate figure that represents the total annual cost of the loan, including the annual interest rate, monthly repayments, and most ongoing and upfront fees and charges. Comparison rates for home loans are typically based on a $150,000 loan over 25 years.
COS – Contract of Sale: A written agreement outlining the terms and conditions for the purchase or sale of a property.
FHOG – First Home Owners Grant: see the links below. First Home Owners get some benefits by way of Grants and reductions in stamp duty (these vary State by State). There are links below for all States and also a specific link for Victoria’s State Revenue Office (SRO).
LMI – Lenders Mortgage Insurance: LMI is an insurance that lenders take out in order to be able to lend to borrowers who have a smaller deposit (i.e. generally when the amount you are lending is more than 80% of the value of the property – although there are some important exceptions by job category and sometimes by lender).
LVR – Loan to Value Ratio: The LVR is the amount you are borrowing, represented as a percentage of the value of the property being used as security for the loan. Generally, lenders will obtain an independent valuation of the property which they use as the basis for calculating LVR, rather than the advertised purchase price, which may be different. Lenders place a large emphasis on the LVR when assessing your loan application. The lower the LVR , the lower the risk is to the bank.
NCCP – National Credit Code: Schedule 1 of the National Consumer Credit Protection Act 2009 (Cth)
PAYG – Pay As You Go tax: This is a withholding tax which you are required to pay to the ATO during the year. These payments accumulate towards your expected end of year income tax liability. For employees, the employer deducts amounts based upon their taxable salary or wage.
SE – Self Employed: someone who operates a business in their own name.
SRO – State Revenue Office: The Government Department which deals with Stamp Duty and also First Home Owners Grants
A
Accountant’s Letter
Often used by self-employed borrowers who cannot provide recent financials or income tax returns to substantiate their income.
Amortisation Period
The number of years it will take to fully pay off a home loan.
Application Fees
The fees a lender charges to set up the loan. It’s generally to cover the lender’s internal costs.
Appraised Value
The estimated value of a property being used as security for a loan.
Appreciation
An increase in the value of a property.
Arrears
An outstanding or overdue amount.
Assets
Money, property or goods owned.
Auction
A public sale where a property is sold to the highest bidder.
B
Bank Valuation
A bank’s estimate of a property’s value. This is often more conservative than the actual market value.
Body Corporate
All the unit owners within a strata building. The owners elect a council responsible for the management of the building and it’s common areas.
Breach of Contract
Breaking the conditions of a contract.
Break Costs
Penalty charges for ‘breaking’ or ending a fixed term loan before the agreed date.
Bridging Finance
A short-term loan used to allow a buyer to purchase a new property if the proceeds of a property he or she recently sold have not yet cleared.
Building Inspection
An inspection 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 completion of a satisfactory building inspection.
Building Regulations
Legal or statutory rules set up by a local council to control the manner and quality of buildings in its jurisdiction. The rules are generally designed to ensure public health and safety as well as acceptable standards of construction.
Building Society
A financial institution owned by its customers or “members”. It offers banking and other financial services, especially mortgage lending.
Buyers Advocate
A professional exclusively acting on behalf of a property buyer who assists the buyer during the purchasing process from sourcing the properties that correspond to the clients’ requirements to negotiating the best possible price and terms with the seller and helping the client during the legal process to complete the acquisition.
C
Capital Gains
The profit on the sale of a capital asset, such as a house.
CGT – Capital Gains Tax
A Commonwealth tax on the monetary gain made on the sale of an asset bought after September 1985. The tax does not apply to the gains made on the sale of an owner-occupied residence, so it generally applies only to investment properties. You should always seek the advice of a taxation specialist for expert advice on all tax matters.
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.
Caveat
A notification on the title declaring a party other than the owner may have an interest in the property.
Caveat Emptor
Latin for “buyer beware”. In a property transaction, the purchaser carries the risk. In other words, do your homework.
Certificate of Title
A record of all current information relevant to a particular property or piece of land, including:
- Current ownership details.
- Any registered encumbrances or caveats.
- Lot or plan details.
A lender usually holds this document as security. Once the loan is fully repaid, the Certificate of Title is returned to the borrower (often the homeowner).
Chattels
Chattels are items of personal property, such as clothing, appliances and furniture. In real estate terms chattels are usually movable items which may be included in the sale, such as furniture.
Commission
The fee or payment made to a real estate agent for services.
Conveyance
The transfer of property ownership and changing the title of a property from the seller’s name to the buyer’s name.
Conveyancing
The legal process for the transfer of ownership of real estate. Most often this is done by a Conveyancer but it can also be done by a property lawyer. Property lawyers can also give advice on a variety of legal matters whereas a conveyancer is not licenced to give advice other than within the scope of conveyancing. Property sales involving more complex contracts of sale are normally handled by a property lawyer.
Cover Note
A guarantee of temporary property insurance before the implementation of a formal policy.
Credit
Borrowed money or other finance to be paid back under an arrangement with a lender.
Credit Union
A cooperative which operates similarly to a bank, but is owned and controlled by people who use its services.
Creditor
A person or organisation who is owed money.
Counter Offer
A new offer, made after a previous offer has been rejected by the owner.
D
Debtor
Someone who owes money to someone else.
Deed
Another word for title. It’s a legal document that states all information regarding the ownership of a property or piece of land.
Default
Failure to abide by the terms of a mortgage or loan agreement – such as not making loan minimum required repayments. Defaulting on a loan may result in financial penalties and, in extreme cases, the mortgage holder taking legal action to repossess the mortgaged property.
Deposit
An amount paid by the buyer at the time of exchanging the contract for sale. It acts as a commitment to buy. Normally a minimum of between 5% and 20% of the total purchase price is required.
Deposit Bond
A guarantee from a financial institution that a deposit will be paid to a seller. It’s useful for buyers with savings in a term deposit because it can be offered at the time of exchange – instead of a cash deposit. This means the buyer doesn’t have to break the term deposit and lose any interest accrued. The buyer must pay the full purchase price of the property, including the amount of the deposit, at settlement. In the event that buyer does not settle on the property the seller will be paid the deposit amount by the financial institution.
Depreciation
A reduction in the value of an asset over time.
Direct Debit
Regular electronic debiting of funds from a nominated cheque or savings account.
Disbursements
Costs incurred by a real estate agent, which can be passed on to the client, for example photography and advertising costs.
Discharge Fees
An administration fee to cover the costs incurred in terminating 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
A person’s remaining income after all known expenses, such as loan payments and bills, have been met.
Drawdown
To access available loan funds. Draw down usually refers to a construction loan, or a line of credit. That is a loan where the limit is set, but the amount is not accessed all at once. The borrower draws down or uses the funds as required, up to the set limit.
E
Easement
A right to use a part of land owned by another person or organisation, for example to access another property.
Encumbrance
An outstanding liability or charge on a property.
Equity
The value an owner of a property has in the asset above the debt owed.
Establishment Fees
Fees charged by a lender to cover the cost of setting up a loan.
Exchange of Contracts
The legal process that creates a binding agreement for the sale of a property. A deposit is usually paid at this time, and may be forfeited if either party backs out of the agreement.
Exclusive Listing
When a vendor has signed an agreement to make an agent solely responsible for the sale of a property during a specified period. If another agent sells the property during that time, the original agent is entitled to any commission.
Exit or Early Repayment Fees
Penalties charged by some lenders when a loan is paid off before the end of its term.
Extra Repayments
These are regular additional repayments on a home loan account, above the minimum required repayment, which can reduce the term of the loan and the interest payable.
F
Fittings
Items in a home that can be taken out without damaging the items or the space in which they were located. Includes washing machines, refrigerators and other items not usually included in a property sale.
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 agreed term is often between 1 and 7 years.
Fixtures
Items fixed to a property in a way that would damage the item or the structure of the property if they were to be removed, such as built-in shelving or carpets. Usually included in the sale of a property.
Freehold
Complete ownership of a property and the land that it’s built on.
G
Gazumping
When a seller accepts an offer from a buyer but then proceeds to formalise the sale of the property to another buyer with more favourable terms.
Guarantor
Someone who agrees to fulfil a contract if the main party to the loan defaults.
H
Home Equity
The amount of a property actually “owned” by the owner. It’s the current value of a property less the amount still owed on its mortgage. Equity usually increases as the principal of the mortgage is paid off and when property market values increase.
Home Loan
The funds borrowed to purchase a property. The property acts as security for repayment of the loan. The lender holds the title or deed to the property. It’s also known as a mortgage.
Honeymoon Rate
The interest rate charged, generally as an introduction rate for the first 6 to 12 months which is at a reduction to the contracted interest rate for that loan product. The honeymoon rate reverts to the contracted rate at the end of the honeymoon period.
I
Instalment
The regular payment that a borrower agrees to make to a lender.
Interest
The amount paid by a borrower to a lender in addition to the main amount borrowed (the “principal”). The interest rate can be fixed, variable or a combination of the two (“split loan”).
Interest Rate
The percentage of the loan amount, usually expressed as the rate per annum (per year) used to calculate the interest to be paid for a loan.
Interest-only Loan
When only the interest is repaid during the term of a loan, often limited to a 1 to 5 year range. The principal is repaid after the loan term expires. Often, the balance owing is converted to repayments of principal and interest.
Introductory Loan
A loan offered to new borrowers at a reduced rate for an introductory period – usually 6 to 12 months. It’s also called a discounted or honeymoon rate.
Investment Property
A property purchased for the sole purpose of earning a return, either in the form of rent or capital gain. The owner does not live in the property.
J
Joint Tenants
Equal holding of a property between two or more people. If one party dies, their share passes to the survivor or survivors.
L
Lease
An agreement between a property owner and a tenant. It allows the tenant to occupy and use a property for a set period in exchange for a set rent.
Letter of Employment
Sometimes a lender needs more than your payslips, particularly if your start date or payslips indicate a commencement date of employment after the commencement of the relevant financial year.
LOC - 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 the minimum loan repayment required.
M
Maturity
The date when a debt must be paid in full.
Maximum Loan Amount
The maximum amount that can be borrowed. Lenders will nominate this amount in their offer to the borrower and it is based upon the borrower’s disposable income, deposit, and the purchase price of the property.
Minimum Loan Amount
The minimum amount that can be borrowed.
Minimum Repayment Required
The amount a borrower is contractually obliged to pay each month, in order to repay a loan within an agreed term.
Mortgage
The funds borrowed to purchase a property. The property acts as security for repayment of the loan. The lender holds the title or deed to the property. It’s also known as a home loan.
Mortgage Broker
A person or organisation offering to organise or sell loans on behalf of a group of lenders.
Mortgage Offset Account
A savings account linked to a home loan. The interest earned by the money in the savings account offsets – or reduces – the interest due on the home 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 Protection Insurance
An insurance policy which covers a borrower’s mortgage repayments in the event of illness or injury.
Mortgage Registration Fee
A State Government charge for the registration of a loan. Because the property acts as security for a home loan, the government requires a home loan to be registered so that all claims on a property can be checked by any future buyers of that property.
Mortgagee
The lender of loan funds.
Mortgagor
The owner or owners of the property offered as security for a loan.
N
Negative Gearing
When the earnings from an investment property are – in the short-term, at least – less than the costs associated with the investment. Based upon current Commonwealth tax laws, the shortfall can be used to reduce tax liability in Australia, for now.
O
Offset Account
In a mortgage offset account or home loan offset account, the credit in the account is offset daily against the home loan balance, reducing the interest charged accordingly. Also, see Mortgage Offset Account.
P
Passed In
A property is ‘passed in’ at auction if the highest bid fails to meet the reserve price set by the seller.
Portabilitiy
Allows a different property to be substituted as security for an existing loan. This can be useful if you are buying a new home but don’t want to set up a new mortgage.
Principal
The amount owing on a loan, on which interest must be paid.
P&I – Principal & Interest Loan
A loan in which both the principal and interest are repaid, during the agreed term of the loan.
R
Real Estate Agent
A professional engaged by the seller of a property to sell, rent or manage a property. An Agent acts on behalf of the seller, not the buyer.
Re-amortise
To recalculate the minimum repayment required to repay the outstanding balance of a loan over the remaining period. This generally happens when:
- The loan term is extended; or
- The loan amount has significantly increased or decreased compared to the original loan amount.
Redraw Facility
A component of a variable rate loan which enables a borrower to make extra repayments on the loan but later redraw this money if needed. It works similarly to a Line of Credit.
Refinance
To switch mortgage providers and arrange a new loan for the same property.
Reserve Price
The lowest price a vendor has agreed to accept.
Reverse Mortgage
A type of mortgage, usually used by older homeowners, where repayments don’t need to be made until after the property is sold, or the last homeowner dies.
S
Searches
Research carried out, prior to the settlement of the property, to confirm information about the property. Searches are usually arranged by a solicitor or conveyancer.
Security
An asset that a borrower gives a lender the rights to – so the lender can be confident of getting the money back, one way or another if the debt is not re-payed as per the loan agreement.
Settlement
There are generally two types of settlement that happen with most property purchases:
- Settlement of the property is when the balance of the purchase price is paid to the seller. The buyer receives the keys and becomes the legal owner of the property.
- Settlement of a loan coincides with settlement of the property. It’s when the lender transfers the borrowed funds to the seller or the seller’s mortgage holder.
Settlement Date
The date on which a property sale is finalised. The purchaser pays the vendor and gains possession of the home at this time.
Settlement Statement
This is sometimes known as the Closing Statement. It is a document that outlines what the buyer has to pay to the vendor on settlement day. It includes all payments and receipts that are related to the settlement. This may include stamp duty, the First Home Owner Grant and the Statement of Adjustments. It also includes the total purchase price less any deposit paid. The Settlement Statement is usually put together by your conveyancer or property lawyer when they are getting ready to settle the property purchase. Settlement Statements are usually incorporated into the Statement of Adjustments (see entry).
Split Loan
Generally a loan that is part variable and part fixed, but it can also be a loan with multiple variable parts. Borrowers wanting to use equity in a property to invest in the share market may make “multiple variable splits” to better track the return on their investment.
Stamp Duty
Tax levied on a contract, calculated as a percentage of the contract value. Varies between states and territories. There are exemptions for some First Home Buyers.
Statement of Adjustments
This often includes the Settlement Statement because the income and expenses related to the property also need to be settled between the parties. These expenses may include things like municipal rates, land tax and other periodic expenses related to the property. The income may include things like rent if the property has tenants.
Strata Title
The most common title associated with townhouses and home units. It acts as evidence of a unit’s ownership. In a strata plan, individuals each own a small portion of a strata building such as a unit – which is identified as ‘lot’ on the title. All owners in a strata plan share common property such as external walls, windows, roof, driveways, foyers, fences, lawns and gardens.
T
Tenants in Common
A form of agreement often used when friends or family purchase a property together. It details the equal or unequal holding of property by two or more people. If one person dies, their share passes according to their Will or the law, rather than 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 for example, 360 months equals 30 years.
Title
The type of property ownership, for example Torrens title, strata title or company title.
Title Deed
Document disclosing the legal description and ownership of a property.
Title Fees
Charged by a state or territory’s Titles Office for title searches, property ownership transfers, the registration of new mortgages and the discharge of old ones.
Transfer
A document registered with the Titles Office that confirms the change of ownership or a property.
Trust Account
A bank account managed by a real estate where funds (such as deposits and rental income) are held on behalf of someone else.
V
Valuation
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.
Y
Yield
The annual rental income of an investment property, expressed as a proportion of the property’s value.
Z
Zoning
An urban planning tool used by local governments to determine how land is to be used. Examples include low-density residential, high-density residential, mixed-use and metropolitan centre.