Financial Terms Glossary
Understand the key terms used in home loans and property investment
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Home Loans
- Break Costs
- Fees charged when you pay off a fixed-rate loan before the end of the fixed period.
- Comparison Rate
- A rate that combines the interest rate and most fees to help you compare different loan options more accurately.
- Fixed Rate
- An interest rate that remains constant for a specified period, providing predictable monthly repayments.
- Guarantor
- A person who agrees to repay your loan if you're unable to meet your obligations.
- Honeymoon Rate
- A reduced interest rate offered at the beginning of your loan that reverts to a standard rate after a set period.
- Interest
- The cost charged by lenders for borrowing money, calculated as a percentage of the principal amount.
- Interest Only Repayments
- A repayment structure where you only pay interest for an agreed period, deferring principal repayments.
- Introductory Rate
- A lower interest rate offered at the start of your loan that converts to a standard variable rate after the introductory period.
- Line of Credit
- A transaction account with a credit limit that allows flexible borrowing and repayment without fixed monthly amounts.
- LMI (Lenders Mortgage Insurance)
- Insurance that protects the lender if you default on your loan, typically required when LVR exceeds 80%.
- Loan Agreement
- The legal contract between you and the lender that outlines all terms and conditions of your loan.
- Lump Sum Payment
- An unscheduled extra payment made to your loan in addition to your regular repayments.
- LVR (Loan to Value Ratio)
- The percentage ratio of your loan amount compared to the property's appraised value.
- Monthly Service Fee
- A monthly fee charged by the lender for maintaining your loan account.
- Mortgage
- The legal document that uses your property as security for your home loan.
- Off-the-Plan
- Purchasing a property before construction is complete, based on plans and designs provided by the developer.
- Offset Account
- A transaction account linked to your home loan that reduces the interest you pay by offsetting your loan balance.
- Portability
- The ability to transfer your existing loan from one property to another when you move homes.
- Prepayment
- Any additional payments made to your loan beyond your scheduled repayments.
- Prepayment Fee
- A fee charged when you pay out your loan early or make extra payments during a fixed rate period.
- Principal
- The original loan amount borrowed, excluding interest charges and fees.
- Principal and Interest Repayments
- A repayment structure where you pay both interest and gradually reduce the principal amount.
- Property Value
- The assessed value of your property as determined by the lender or an independent valuer.
- Rate Lock
- A feature that allows you to secure a fixed interest rate for a specified period before loan settlement.
- Redraw Facility
- A feature that allows you to withdraw additional payments you've made on your home loan.
- Refinancing
- The process of replacing your existing home loan with a new one, usually to obtain better terms or rates.
- Repayment Holiday
- A temporary break from making repayments if you're ahead on your loan payments.
- Security
- An asset, typically your property, that is used to guarantee your loan repayment.
- Serviceability
- The lender's assessment of your ability to afford loan repayments based on income, expenses, and existing debts.
- Settlement
- The final step in purchasing a property where ownership is transferred and the loan funds are paid to the seller.
- Split Loans
- Dividing your loan into multiple accounts, such as one fixed rate and one variable rate.
- Term
- The total length of your loan, typically 15, 20, or 30 years.
- Variable Rate
- An interest rate that can fluctuate over time based on market conditions and lender decisions.
General
- APR (Annual Percentage Rate)
- The total cost of credit expressed as a yearly rate, including interest and fees.
- Conveyancing
- The legal process of transferring property ownership from seller to buyer.
- Credit Score
- A number that represents your creditworthiness based on your borrowing and repayment history.
- Deposit
- The initial payment you make when buying a property, usually a percentage of the purchase price.
- Pre-approval
- A conditional approval from a lender indicating how much you can borrow before you find a property.
- Settlement Period
- The time between signing a contract to buy a property and taking ownership (usually 30-90 days).
- Stamp Duty
- A state government tax paid when you buy a property, calculated as a percentage of the purchase price.
- Unconditional Approval
- Final loan approval that doesn't depend on any further conditions being met.
- Valuation
- An assessment of a property's market value, usually required by lenders before approving a loan.
Investment
- Capital Gains
- The profit made when selling an asset for more than you paid for it.
- Investment Property
- A property purchased with the intention of generating rental income or capital gains.
- Negative Gearing
- When the costs of owning an investment property exceed the rental income, creating a tax deduction.
- Positive Gearing
- When rental income from an investment property exceeds the costs of ownership.
- Rental Yield
- The annual rental income as a percentage of the property's value.