Mortgage Glossary
Mr Home Loans has provided a Mortgage Glossary, as understanding mortgage terms can often be confusing. This Mortgage Glossary below gives explanations of mortgage terms that you may read when going through the process of obtaining a home loan.
AAPR: Also referred to as a Comparison rate, the Average Annualised Percentage Rate reflects the total cost of your loan by taking into account other costs other than the advertised interest rate. This is then expressed as a total interest rate cost to you over an average loan term.
Acceptance: To agree to the terms and conditions of an offer contract.
Additional Repayment: Additional funds paid off your loan which exceeds the minimum monthly repayments.
Affidavit:
A written statement sworn to before an authorised official.
Agent:
One that acts for or represents another.
Amortisation:
The repayment of a loan in a specified number of equal periodic payments that includes principal and accrued interest.
Application fee: A fee paid by a borrower to cover the costs of establishing a loan.
Appraisal:
An estimate of the market value of a piece of real estate made by a competent professional who knows local real estate prices and markets.
Appreciation:
The increase in value or price of a property over time.
Approval:
An assessment made by a lender of a borrower's ability to pay for a home and a confirmation of the amount the borrower may obtain.
Assignment:
The transfer of a mortgage from one person to another.
Arrears: Overdue payments which are due to be paid.
Assets: Items of value which you own. Eg: Property, Cash, Furniture & Fittings etc.
Balance Sheet: A financial statement confirming assets, liabilities and capital.
Balloon Payment: A final payment finalising a debt in which the amount paid is substantially more than previous instalments.
Borrower: An entity or person/s borrowing money.
Breach of Contract: To break the conditions of a contract which have previously been agreed to.
Break costs: A cost incurred for paying out a loan balance on a fixed term loan before the term has expired.
Bridging Finance: A loan taken where the purchaser wishes to buy a new property before selling their existing property. The lender will take security over both properties until the initial property is sold.
Broker: A person or firm who acts on behalf of another.
Capital: The current value of your assets. Eg: Property, Cash, vehicles etc.
Capital gain: The financial gain received when selling an asset for more than you initially purchased it for.
Capped loan: A loan where the interest rate is set so that it may reduce, but not exceed a certain level over an agreed period of time.
Cash Flow: In relation to company accounts, reported net income plus amounts charged off for depreciation, amortisation and extraordinary charges to reserves.
Certificate of Title: A document which details the ownership of land and the dimensions or other details of a property.
Clear Title: Title not burdened by liens or legal questions.
Closing/Settlement Date: The date the mortgage loan transaction is closed.
Collateral: Any property pledged as security for repayment of a debt.
Commission: An agent's fee for negotiating a real estate or loan transaction, often expressed as a percentage of the selling price.
Commercial Property: Property intended for use or occupancy by retail and wholesale businesses (e.g. stores, office buildings, hotels and service establishments).
Comparison Rate: See, AAPR.
Construction Loan: A short-term interim loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the work progresses.
Consumer Credit Code: The Consumer Credit Code also known as the UCCC is parliamentary legislation which is designed to protect the rights of the consumer by ensuring all lenders adhere to the same rules of lending practice.
Contract: An agreement between two or more parties.
Conveyancing: A legal process to transfer ownership of property from the seller to the buyer.
Contract for Sale: A contract used in the transfer of property, which documents the conditions for the sale of the property.
COSL: The Credit Ombudsman Service Limited.
Credit History: The financial worthiness of a borrower. The history of whether the borrower has met financial obligations on time in the past.
Credit Limit: maximum preset amount a borrower can use on a loan account.
Credit Reference or Credit Report: In order to approve a loan, a lender will require a credit report on the borrower to confirm previous loans applied for or credit difficulties recorded. Credit reports are prepared by authorised credit reporting agencies, such as the Credit Reference Association of Australia. The Lender obtains the borrower's permission in writing to proceed with a credit report.
Credit Reporting Agency: An organisation that prepares reports that are used by lenders to determine a potential borrower's credit history. The agency obtains data for these reports from a credit repository as well as from other sources.
Creditor: A party who is owed money.
CRS: The Comparison Rate schedule which must be made available by each lender to confirm the annual percentage rate and its corresponding Comparisons Rate for loan products offered.
Daily Interest: Interest calculated on a daily basis.
Debt Service Ratio: Lenders calculate the Debt Service Ratio by taking into account a borrower's expenses as a proportion of their income.
Debtor: A party who owes money to another.
Deed: The legal document conveying title to a property.
Default: Failure to make payments on a debt/liability in accordance with the payment schedule required by the lender, and/or failure to meet other terms and conditions of the loan.
Deferred Establishment fee: A penalty which may be charged when a loan is repaid by the borrower in full.
Deferred Interest: Accrued but unpaid interest, occurring with Adjustable Rate Mortgage loans when a payment remittance does not cover the full amount of interest due for a given period.
Depreciation: The decline in value of an asset over time.
Direct Debit: A deduction of funds from a customer’s bank, credit union or building society account.
Disbursements: Fees and charges which are usually imposed by the solicitor when establishing a loan.
Discharge Fee: A fee imposed by the lender to process the discharge of a loan when it is paid out.
Down Payment: The portion of the purchase price a buyer pays, in cash, at the time the loan funds.
Draw down: A draw down is the transfer of money from the lender to a borrower after the loan has settled.
Early Repayment Penalty: If a loan is repaid before the end of its term, lenders may charge an early repayment penalty.
Easement: A right of way giving persons other than the owner access to or over a property.
Equity: The value of a property minus outstanding mortgage debt and other liens. Equity is the portion of your property that you have already paid for plus the appreciation, less the decline if any, in the value of the property since you acquired it.
Estimated Market Value: The dollar amount you believe your present home would be worth if you decided to sell it today.
Facility: A term used to describe a loan account.
First Home Owners Grant: An incentive from the Federal Government currently giving $7000.00 ($12000.00 in Victoria) to first home buyers as a one off payment.
Fixed Rate: An interest rate set for an agreed term. Eg: For 2, 3, or 5 years.
Full-time Salary: Regular income earned by being a permanent, full time employee of a company, generally working at least 35 hours every week.
Gift From a Family Member: A gift of cash, to a mortgage applicant from a relative by blood or marriage, which the applicant is not required to repay. In some instances it is necessary to provide a written statement to that repayment is not required.
Gross Income: Normal annual income including overtime that is regular or guaranteed. The income may be from more than one source. Salary is generally the principal source, but other income may qualify if it is significant and stable.
Guarantor: A person giving a guarantee who agrees to pay another person/s debt if they default on their loan payments.
Government Fees: All home loans and purchase of residential property will attract certain government charges at the time of settlement. For example, stamp duty and mortgage duty.
Honeymoon Rate: Some lenders offer a 'discount' or introductory rate for a short period of time. At the end of the 'honeymoon' period, the interest rate will usually revert to the lender's standard variable rate.
Interest: A lenders charge for the use of funds or the return on deposited funds.
Interest-Only Loan: Under an interest-only loan, usually the borrower makes no principal repayments. The repayments are for the amount of interest only, which has accrued on the loan. These loans are usually for a short period of around 1 to 5 years.
Interest Rate: The rate at which interest is applied.
Investment Property: Property the applicant does not intend to occupy, whether or not the property produces income.
Joint Venture: An association between two or more parties to own/or develop real estate or any other business. It may take a variety of legal forms, including partnership, tenancy in common or a company. It is formed for a specific purpose and duration.
Lender: The bank, mortgage company, or mortgage broker offering the loan.
Liabilities: A debt which one is liable for. Eg. Mortgages, personal loans, credit cards etc.
Line of Credit Loan: This is a flexible loan that allows you to have funds transferred to your cheque account when required.
Loan: An advance of funds from a lender to a borrower on the agreement that the borrower pays interest on the loan plus pays back the initial amount of the loan at or over an agreed time.
Loan Agreement: The contract between the lender and the borrower which sets out the conditions that applies to the loan.
Loan Origination Fee: A one-time fee that covers a portion of the lender's administrative costs in processing a loan.
Loan Processing: The steps taken by an institution lender from the time a request for a loan application is received to the time the loan is approved or denied, including taking the application, credit investigation, evaluation of the loan and other steps.
Loan Servicing: Supervising a loan after it has been made. This could involve collecting payments, keeping accounting records, computing interest and principal, etc.
Loan Term: The period granted for loan repayment.
Loan Terms: Essential conditions of a loan which specify the principal amount, interest rate, maturity, method of repayment, etc.
Loan to Value Ratio (LVR): This is the measure of the amount of the loan compared to the value of the property.
Lump Sum Payment: An additional payment made by the borrower to reduce the loan amount. These payments are in addition to regular instalments.
Maturity: The date a debt or investment must be repaid.
Mortgage: A form of security for a loan over property given to the lender for the repayment of the loan.
Mortgage Insurance: An Insurance protecting the lender against loss in the event that the borrower defaults on the repayments or other covenants of the mortgage. The borrower will remain liable for their default.
Mortgage Manager: A company responsible for the day-to-day management of loan.
Mortgagee: The lender of the funds.
Mortgagor: The person borrowing money in the terms of the mortgage.
Net Income: The income received by an individual after tax has been taken out.
Net Profit: The profits remaining in a business after all expenses have been taken out, but before tax.
Owner Occupied: Property that is lived in by its owners.
PAYE: Abbreviation for Pay-As-You-Earn, a taxation procedure for wage and salary earners under which income tax is deducted in instalments from periodic pay.
Pre-Approval: A process that mortgage lenders use to determine how much money they would lend you based on a thorough review of your financial situation. Lenders issue a pre-approval letter which strengthens your position when bidding on a home, as it shows sellers that you will be able to raise funds needed to purchase.
Principal: The remaining amount or balance of the mortgage loan.
Principal & Interest Loan: A loan where you repay a portion of the principal and the interest over the term of the loan by regular instalments.
Purchase Price: The total sale price of the home.
Qualifying Rate: The rate used to underwrite a loan. This rate may or may not be equal to the initial or note rate.
Redraw Facility: If you have made any lump sum and additional principal repayments to your loan account, you can access those extra repayments whilst on a variable rate.
Refinancing: This means that you switch your current loan from one lender to another.
Regulated Loans: Loans which are considered for personal use and is governed by regulations of the Consumer Credit Code.
Secured: To take guarantee over property for purposes of protecting a loan.
Security: An asset used to guarantee a loan.
Serviceability: Ability of borrower to make and meet repayments on a loan based on the borrowers expenses and income(s).
Settlement: Is the completion of the sale or purchase of a property. When the final payments are made at settlement, the lender will receive the signed transfer and the mortgage. The lender will hold the title deeds and the mortgage until the loan is repaid.
Settlement Date: A specific date at which buyer is to take possession of property upon finalising payment.
Signatory: A person authorised to access an account.
Stamp Duty: Stamp duty is a state government tax which is payable when a property is sold. Stamp duty is calculated on the purchase price of the property and is paid by the buyer. Each state and territory has a different rate of duty.
Standard Variable Rate: An interest rate, which is applied to a loan. These may have features such as redraw facility, construction, split loans options and mortgage offset.
Term: The length of a loan or a defined period within that loan.
Transfer: A document registered with the Land Titles Office noting the change of ownership.
Unsecured Personal Loan: A loan that is not backed by collateral.
Valuation: The estimation of a property through a professional appraisal.
Variable Interest Rate: This is a fluctuating rate of interest charged by lenders. Variable interest rates change as official market interest rates rise and fall.
Vendor: The seller of a property.
TOP OF PAGE
BACK
|
