Explanation of Terms

The mortgage and finance industry is full of jargon and unusual terminology. Some of it dates back to our inherited Old English legal system and some of it is invented by banks and economists to 'sound' intelligent.

Please use the search button (below right) to look up the meaning of any terminology. If you are still unsure please call us and ask your question or email us here. It is important to us that you are fully informed.

Additional Repayments or Extra Repayments


Extra funds paid into the loan over and above the minimum repayment. Additional repayments will reduce the principal of the loan. Most loans will allow you to redraw these extra repayments. Always check to see if there are fees or minimum or maximum limits on Extra Repayments. Try our Debt Reduction Calculator to see the value or Extra Repayments. Pro Tip: If you have any funds available in other accounts it is always a clever option to use these funds as extra repayments. Interest on your mortgage is calculated every day. Reducing the balance whenever possible is a great way to save thousands and pay off your loan faster. See also Offset Account.




Application Fees


Fees that lenders charge to cover costs in considering a loan application. Paid up front and usually not refundable unless the loan is declined.Blue Zinc will do its best to get these fees waived.




Average Annual Percentage Rate (AAPR)


This calculates the true rate taking into account the application fee, monthly fees and charges over the life of the loan. Blue Zinc usses the AAPR rate in our Mortgage Comparisons. It allows us to compare apples with apples.




Basic Variable


A variable rate home loan at a lower rate than a standard variable, but generally with fewer features. This is a 'no-frills' home loan, but perfect for investment properties or when you just want a simple cheap variable mortgage.




Break Costs


Costs incurred when a loan is paid off before the end of its term. Generally only applied to fixed rate loans. The Federal Government has limited when and how much these fees can be charged. Only an admin fee or a few hundred dollars can be charged for variable rate loans. Lenders are allowed to charge 'economic costs' for breaking a fixed rate loan. Economic costs can be several thousand dollars depending on the loan size, how long left to run and the diferrence in current rates. Please talk to us if you are concerned your lender may charge these fees or you wish to challenge the calculation.




Certificate of Title


A document that details the land dimensions and the owner(s) of the property. It also details any ‘encumbrances’ such as mortgages.




Combination loan


Where various loans come under the same banner to form one loan. May have a portion variable, fixed or even as a line of credit. Also known as a split loan.




Comparison Rate


Used to compare the actual rate of a loan, taking into account nominal interest rate per annum, the compounding frequency and upfront and ongoing fees.




Construction Loan


A loan 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.




Contract of Sale


A written agreement outlining the terms and conditions for the purchase or sale of a property.




Conveyancing


The legal process for the transfer of ownership of real estate.




Disbursements


These are costs incurred by the purchaser / borrower and due to bodies other than the lenders or solicitors.




Equity Loan/Line of Credit


A loan usually secured by the proportion of the home in which the borrower has equity. Usually operates like an overdraft where the borrower can only draw to a set limit.




Establishment Fee


Fee charged to establish a loan (viz. application fee).




Exchange of Contracts


The legal point of time when the vendor and purchaser swap documentation and start enquiries with a view to settlement.




Fixed interest/Fixed Rate


An interest rate set for a fixed term. Penalties usually apply if the loan is paid out before the term expires. (Also referred to as an interest-only loan).




Guarantee


A form of security where someone promises to repay the loan if the borrower defaults.




Guarantor


A party who agrees to be responsible for the payment of another party's debts. Mostly Guarantors have been replaced by Family Pledge or similar (see Family Pledge)




Family Pledge


This mortgage option allows family, usually parents, to guarantee just the deposit amount to get the new loan under 80%. This way the parents (or other family member) guarantee is limited to just the deposit and not the entire debt. Speak to us about setting up this loan to repay the Family Pledge first.




Holding Deposit


A refundable deposit based on the goodwill and intention of the buyer to go ahead with the purchase.




Interest-Only Loan


A loan where the principal is repaid at the end of the loan term and interest-only is repaid during the term of the loan. These loans are usually short-term, say 1 to 5 years.




Introductory Loan


A loan offered at a reduced rate for an introductory period (usually no 1 to 2 years). The loan then reverts back to the standard variable.

Warning: these loans are often more expensive after the innitial introductory period.




Lenders Mortgage Insurance (LMI)


A form of insurance taken out by the lenders to cover themselves in the event that the borrower defaults on a 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 percent of the property value and sometimes at a lower loan to valuation ratio.




Line of Credit


A flexible loan agreement with a specified ceiling, to be used at a customer’s discretion.




Weighted Average Rate





P&I Repayments





Loan to Valuation Ratio (LVR)


The ratio of the amount lent to the valuation of the security. Commonly called LVR. An example would be a loan of $120,000 on a home valued at $130,000. The Loan to Valuation Ratio is $120,000 multiplied by 100 and divided by $130,000. The answer here is 92.31%




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 a mortgage in such a way that the interest earned on savings is applied to reduce the interest on the mortgage.




Ongoing Fee


Any loan maintenance fee charged regularly over the life of the loan.




Principal


The capital sum borrowed.




Principal & Interest


A loan where the principal and interest are repaid together on a regular basis, mostly by monthly instalments (P&I).




Private Sale


The sale of a property without an estate agent.




Private Treaty Sale


A property sale where the buyer negotiates on a price set by the seller.




Redraw Facility


A loan facility whereby additional payments can be made on a loan, and the extra funds can be accessed when necessary. This will often have limitations such as a minimum redraw amount and a fee for each withdrawal.




Refinance


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.




Settlement Date


Date on which the new owner finalises payment and assumes possession.




Security


An asset that guarantees the lender the loan until it is fully repaid. Usually property such as real estate is offered as security.




Stamp Duty on Transfer


State Government tax assessed on the sale price of the property. For a first home buyer in NSW this cost may be deferred, subject to certain criteria. Loans Security Duty may also NOT be payable, subject to certain criteria.




Standard Variable


A variable home loan, usually with comprehensive features (as opposed to basic variable). This is often the variable rate that fixed rates roll to at the end of their fixed term.




Strata Title


Similar to Torrens Title, but usually over units. With Torrens Title the land is owned, plus everything thereon. With Strata Title only a particular unit is owned.




Tenants In Common


Where more than one person is the owner of the property. If one person dies, then part of the title passes through the estate of the deceased. Also, each owner can have a nominated share of ownership such as 5% or two-thirds, etc.




Valuation


A report giving a professional opinion of the value of the property. The valuation is never more than the purchase price. Valuations can take several days. Some lenders may not require formal valuations, subject to certain conditions.




Vendor


Party who offers a property for sale.




Zoning


Local authority guidelines as to the permitted uses of land.




Loan Amount





Extra Repayments or Additional Repayments


Extra funds paid into the loan over and above the minimum repayment. Additional repayments will reduce the principal of the loan. Most loans will allow you to redraw these extra repayments. Always check to see if there are fees or minimum or maximum limits on Extra Repayments. Try our Debt Reduction Calculator to see the value or Extra Repayments. Pro Tip: If you have any funds available in other accounts it is always a clever option to use these funds as extra repayments. Interest on your mortgage is calculated every day. Reducing the balance whenever possible is a great way to save thousands and pay off your loan faster. See also Offset Account.




Joint Tenants


In estate law, joint tenancy is a special form of ownership by two or more persons of the same property. The individuals, who are called joint tenants, share equal ownership of the property and have the equal, undivided right to keep or dispose of the property. Joint tenancy creates a Right of Survivorship. This is the normal ownership structure for husbands and wives.




Genuine Savings


Money that you have saved gradually over time, usually for a minimum of three months. Lenders usually require you to save at least 5% of the value of the property that is being purchased.





 

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