Your Guide to Financial Terms.

AAPR also known as the mortgage comparison rate or true rate. Used to compare the actual rate of a loan, taking into account the nominal interest rate per annum, the compounding frequency and upfront and ongoing fees, as outlined in the Consumer Credit Code.
acceptance to agree to the terms of an offer or contract.
access the ways in which you are able to get to your funds e.g. ATM, EFTPOS
accrued interest interest you have earned or incurred that is yet to be paid or charged.
additional repayments extra funds paid into the loan over and above the minimum prescribed repayments.
adjustments the process of allocating expenses (Council, electricity, phone, water rates) on settlement day that the seller has paid for but not used, and which the buyer has not used but will be billed for.
affordability housing affordability is measured by an index known as the Housing Affordability Index which is the ratio of average household disposable income to the income required to meet payments of a typical dwelling. The higher the number, the more affordable property is.
agent person or body authorised to act on behalf of a client in the sale, purchase or management of property.
allotment a block of land created out of a 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.
annual percentage rate (APR) the advertised rate of interest per annum.
arrears an overdue account yet to be paid.
assets money, property or goods owned.
at call an account from which money can be withdrawn immediately.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 (Bank Account Debits tax) State or Territory government tax (except ACT) on withdrawals from accounts on which a cheque may be drawn.
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.
balloon payment a large loan repayment to clear a debt.
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.
Base rate interest rate on which derived interest rates for variable rate overdrafts and term loans are set.
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.
bill of sale a written agreement whereby ownership is transferred but the original owner is allowed to retain possession.
body corporate a corporation of the owners of units within a strata building. They form a self-elected council for the management of the building and common areas.
break costs penalties charged when a loan is paid off before the end of its term. Generally applies to fixed loans.
bridging finance a short-term loan that covers a financial gap between the purchase of a new property and the sale of an old property.
building inspections an inspection generally carried out prior to the purchase of a property to ensure the building is structurally sound.
building regulations the standards formulated by local councils to control the quality of buildings.
building society institutions operating in a similar fashion to banks – ie they take deposits and provide loans. Customers are ‘members’.
calculated the frequency at which interest is determined. It is usually calculated on a daily, weekly or monthly basis.
Capital the current value of your long-term assets e.g. house, property, business.
capitalising interest when interest payable is accrued and added to the total debt payable rather than being paid as it is charged.
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.
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 clause that stipulates a particular requirement.
Caveat emptor Latin for ‘let the buyer beware’, or in English ‘you pay your money and you takes your chances’….
Certificate of Title this document details the land dimensions and ownership details, and whether there are any encumbrances on it.
charged the frequency at which interest is added to the loan balance. This can differ from the frequency at which it is calculated. On many loans, interest is calculated daily but charged monthly.
chattels chattels are personal property. There are two types: Real chattels are buildings and fixtures. Personal chattels are clothes and furniture.
collared rate a variable rate loan with a set upper and lower limit beyond which the interest rate cannot move past.
combination 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.
commission a fee payable to the real estate agent, by the vendor, for the sale of property.
common property an area used by many, not an individual. Owned by the tenants in common. Apartments are not individually owned. Owners instead have a stake in the company as a whole.
company title a property title that applies when owners of units in a block form a company.
comparison rate also known as ‘true 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, 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 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 property.  The legal process for the transferral of ownership of real estate.
Countersigned additional signature or signatures to guarantee the validity of a document.
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 Australia) 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 the maximum overdraft a borrower may have on an account e.g. a credit card account.
credit union a co-operative which is owned and controlled by the people who use its services, which are similar to that of a bank
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.
deferred establishment fee charged when you pay out your loan within a short period of taking it out, such as three years.
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.
discharge fee see mortgage discharge fee
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.
early termination charges any fees and charges you may incur by paying out a loan early.
easement a right to use a corridor or passage of land which is owned by another.
EFTPOS (Electronic Funds Transfer Point of Sale) This facility allows you to use your ATM card to make purchases and often withdraw cash.
Encumbrance an outstanding liability or charge on a property.
end loan pertains to bridging finance – it is the loan amount you are left with after you have sold your existing home and paid the proceeds towards your bridging loan
equity the percentage or amount of an asset actually owned.
equity loan a loan secured by the part of the value of an asset (usually house) which you own.
equity mortgage a loan secured by the part of the value of an asset (usually house) which you own.
ERIC Effective Rate of Interest plus Costs
establishment fees lending body fees which may or may not be charged to set up a loan.
ETIA Early Termination Interest Adjustments
exchange of contract the legal point of time when the vendor and purchaser swap documentation and start enquiries with a view to settlement.
exit fees see ‘break costs’.
Family guarantee guarantee made by a spouse or parent                        
(loan) features any attributes of the loan e.g. redraw facility, combination loan facility, portability.
Fittings items that can be removed from a property without causing damage to it.
fixed interest an interest rate set for an agreed term.
fixtures these are 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 until they choose to sell it.
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.
gazumping when your offer on a home has been accepted (but not yet paid) and another party comes in at a higher price and secures the sale.
Gearing the ratio of your own money and borrowed funds in an investment. If a property is ‘highly geared’ then it has a high ration of borrowed funds compared to ownership.
GST Goods and Services Tax
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.
Housing Affordability Index the ratio of average household disposable income to the income required to meet payments on a typical dwelling. The higher the number, the more affordable property is.
inclusions items included with the property e.g. light fittings, fridge, 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. See daily interest and monthly interest.
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 usually a short-term arrangement whereby payments are made on the interest only, not the principal.
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.
internal rate of return a measure of the return on an investment (or loan) which takes into account the time value of money by showing the rate of interest at which the present value of future cash flows is equal to the cost of the investment or loan.
internet banking when banking transactions such as transfers, payments and often home loan applications can be made via the Internet.
introductory loan a loan is offered at a reduced rate for an introductory period (usually no longer than 12 months) to new borrowers.
inventory a list of items included with the property e.g. furniture, movable items, etc.
investment loan a loan used for the purchase of an investment property.
investment property a property purchased for the sole purpose of earning a return on the investment, either in the form of rent or capital gain.
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 investment property over a stipulated value, and to the owners of any-occupier properties valued above a higher threshold.
land transfer fee a State Government tax assessed on the selling price of a property, generally around $60.
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.
LMI Refer Mortgage Insurance
Loan Comparison System a computer program designed to compare the true cost of different loans.
loan maintenance fee a loan management fee charged over the life of the loan. Often referred to as an ongoing fee.
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.
maximum loan amount the maximum loan value which can be borrowed.
minimum loan amount the minimum loan value which can be borrowed.
mortgage a form of security for a loan usually taken over real estate. The lender, the mortgagee, 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 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 comparison rate also known as the true rate. Used to compare the actual rate of a loan, taking into account the nominal interest rate per annum, the compounding frequency and upfront and ongoing fees, as outlined in the Consumer Credit Code.
mortgage discharge fee an administration fee to cover the costs (e.g. documents) incurred in winding up a loan.
(lenders’) mortgage insurance 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 percent of the property value and sometimes at lower loan to valuation ratios.
mortgage intermediaries institutions such as mortgage managers who are responsible for marketing and selling loans provided by mortgage originators.
mortgage manager a company responsible for managing every facet of a borrower’s loan. Often sources loans from mortgage originators.
mortgage offset account a savings account run in conjunction with a home loan. The interest ‘earned’ on the account is applied to the interest paid on the loan to reduce the interest payable on your mortgage. A 100 percent offset is where the interest rates earned and paid are the same. A partial offset account is where the interest rate earned on the offset account is only a portion of the rate paid on the home loan.
mortgage originator retail and more often wholesale lender who sources securitised 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 charge for the registration of a loan, usually around $100.
mortgage stamp duty a State Government tax assessed on the dollar value of a mortgage.
mutual societies institutions operating in a similar fashion to banks – ie they take deposits and provide loans. Customers are ‘members’ and have ownership in the institution – building societies come under this banner.
National Consumer Credit Protection Act NCCCP Replaces the previous state based consumer credit codes, governing the relationship between borrowers and lenders
negative gearing where the return on an investment is insufficient to meet the interest costs of the loan used to fund the investment.
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 run in conjunction with a home loan. The interest ‘earned’ on the account is applied to the interest paid on the loan to reduce the interest payable on your mortgage. A 100 percent offset is where the interest rates earned and paid are the same. A partial offset account is where the interest rate earned on the offset account is only a portion of the rate paid on the home loan.
Old System Title (common law title) consists of a ‘chain’ of the title documents stretching back to the original owner.
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 life of a loan.
online application (form) the ability to apply for a loan via an application form on a lender’s website.
option to buy a legally binding document which gives a person, for a fee, the right to buy something usually within a specific time frame at a specific price.
overdraft a pre-arranged limit to which a person can exceed an account balance.
(loan) package collection of products and benefits offered with a particular loan such as lower interest rates and reduced fees.  Second definition – packet of loan documents for client execution including loan contract
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.
phone banking when banking transactions such as transfers, payments and deposits can be made over the phone, often by an automated phone system.
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 repaid during the term of the loan.
private banking personalised financial and banking services offered exclusively to high net worth clients.
private treaty sale a property sale where the buyer negotiates on a price set by the seller.
rebate a refund, ‘cash back’ or monetary incentive eg the first home-buyers rebate or tax rebate.
redraw facility a loan facility whereby you can make additional repayments on your loan and then access these extra 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.
relocation loan refer Bridging Finance
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.
repayment maximum/minimum the max/min percentage of income which a lender will allow to be committed to the repayment of a loan.
requisitions on title a process by which the buyer requests additional information about the title of the property from the seller.
reserve price specified minimum price acceptable to a seller at auction.
residential investment loan a loan granted to purchase a property intended for investment purposes (for example, to be rented out) as opposed to owner-occupied purposes.
right of way can be either somebody’s right to cross other property or a general pathway across your land.
rise and fall clause a building contract clause that allows the final pricing to move up or down according to the fluctuations 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.
securitisation the process of taking a pool of diverse assets such as different home loans and converting them into a tradeable security such a 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.
split loan see combination loan
stamp duty on loan a State Government tax assessed on the amount of a mortgage.
stamp duty on property purchase a State Government tax assessed on the selling price of the 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.
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.
susceptibility report shows likelihood of future pest infestations.
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 fees payable to the states’ Land Title Office for the title search, transfer of property ownership, registration of the new mortgage and discharge of the old one.
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.
town house usually a two storey dwelling registered under a strata title.
transaction fees charges for any transactions conducted i.e. withdrawals, transfers, deposits.
transfer a document registered with the Land Titles Office that confirms the change of ownership as noted on the Certificate of Title.
true rate also known as the mortgage comparison rate. Used to compare the actual rate of a loan, taking into account the nominal interest rate per annum, the compounding frequency and upfront and ongoing fees
unencumbered a property free of liabilities, encumbrances 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.
vendor party who offers a property for sale.
Vendor statement a statement by the seller to the buyer detailing material particulars regarding the property in question.
villa a style of housing, often an attached dwelling.
zoning local authority guidelines as to the permitted uses of land.