Finance glossary

Finance glossary

6 May, 2020

Many financial, home loan and banking terms can be complicated and ambiguous. We breakdown all the definitions you need to know in our glossary, from A to Z.


A

Accrued interest

The amount of interest that has already occured but not due for payment yet.

Annual Percentage Rate (APR)

This is the total charge for the loan including all fees and interest. It’s expressed as a percentage so you can compare across the market for better APR.

Appraisal Fee

A fee charged for a professional’s opinion on the worth of a certain property.

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 overdue amount that has not yet been paid.

Asset

Any resource owned by an individual, such as money, property or goods. The asset must be expected to produce profits for the individual who owns it.


B

Balloon Loan

A home loan with regular payments that do not cover the entire amount by end of term, so a larger amount is due towards the end.

Balloon Payment

A large loan repayment towards end of term to clear debt.

Bankruptcy

When a debtor is unable to pay their existing debts. Usually any assets will be used to pay the debts off or have financial affairs managed by a trustee. Bankruptcy has a negative impact on credit rating and can affect credit in the future.

Body Corporate

Corporation controlled by all unit owners within a strata building. The owners themselves elect a council who oversees management of the building.

Break Costs

Charges for ending a fixed term loan before the agreed date.

Bridging Finance

A short term loan that can be used between buying a new property before selling an existing property.

Building Regulations

Regulations put in place by local councils to control the quality of buildings.

finance glossary

C

Capital Gain

Money gained when you sell an asset for more than what you paid for it.

Caveat Emptor

Latin for ‘let the buyer beware’.

Certificate of Title

A record that details title and ownership details of a property, including any registered encumbrances and lot or plan details.

Chattels

Any item of property, other than land. Chattels are usually items of personal property (clothing, appliances, etc)

Comparison Rate

A rate which can be used to compare one loan with another. Includes the interest rate, payments and most ongoing and upfront fees in one interest rate number.

Conditional Approval

A document from a lender stating how much they’re likely to let the borrower borrow based on a review of financial situation, objectives and terms and conditions.

Contract Of Sale

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

Conveyancing

The process of transferring property ownership and changing the title from the seller’s name to the buyer’s name. Licensed conveyancers will have to be sought to do this – they make sure all outstanding bills and issues are sorted before settling.

Cooling Off Period

The period of time from a contract being signed to when the buyer/organisation can decide not to continue with the contract. This can vary between 24 hours to 14 days (or none at all if the contract states no cooling off.)

Credit

Money borrowed to be paid back under an arrangement with a lender.

Credit Report

A report that shows the credit history of the potential buyer. Lenders access this information to help them decide whether or not to lend money. Every application for finance is recorded on file, showing the lender company, the type of finance, the amount and date.


D

Your guide to the First Home Owner Grant NSW

What is the First Home Owner Grant NSW? Read eChoice’s in-depth guide to learn what the scheme covers, check if you’re eligible, how to apply and more.

Default

When a consumer fails to meet a debt payment on a loan by the due date.

Deposit

Amount paid by the buyer at the time of contact exchange, as a commitment to purchase. Usually between 5-20% of the total purchase price.

Depreciation

A decrease in the value of a property, usually due to wear and tear.

Direct Debit

An automatic funds transfer from one account to another, which can be set up to make home loan repayments.

Disbursements

Any costs a conveyancer has to pay when acting for a client. For example, search fees, certificates, land tax, etc. This will be collated and reflected in the final invoice.


E

Encumbrance

Any outstanding fees or charges on a property.

Equity

The difference between the current value of the property and the amount owed on the home loan.

Establishment Fees

Fees charged by the lender to cover the cost of setting up the loan.

Extra Repayments

Regular additional payments made on a home loan that can reduce the term of the loan and interest payable.


F

First Home Owner Grant (FHOG)

A one-off government payment to help subsidise some costs of buying a first home. Eligibility depends on a number of factors and the grant is only for buyers that have not previously bought property in Australia.

Fittings

Items that are not intended to be removed from a property when sold. For example, carpets, lights, stoves etc.

Fixed Interest Rate

Allows a borrower to lock in an set interest rate for a particular amount of time, regardless of any interest rate variations in the market. At the end of the fixed rate period, the loan will revert back to variable interest unless modified beforehand with the lender.

Fixtures

Items that cause damage to a property if removed. If a seller wants to remove fixtures, it must be stated in the contract and damage made good by the seller.


G

Guarantor

An immediate relative who agrees to provide property (as an asset) for additional security on a home loan. If the borrower fails to fulfill their defaults, the guarantor must compensate the lender.


H

Holding Deposit

A refundable deposit to secure the purchase of an item.

Honeymoon Rate

A reduced rate set by the lender during the first year of a loan


I

Inclusions

Items included with a property (lights, stoves, etc), which is specified in the contract

Interest In Advance

When interest payments are charged at the beginning, rather than at the end.

Interest Only Loan

A loan where only the interest is paid, so none of the principal will be paid off. Interest only repayments are for a set term, usually one to five years. The principal is then repaid by the conversion of repayments to principal and interest.


J

Joint Tenants

The equal holding of property between two or more persons. If one party dies, their shares are passed to the survivor(s).

finance glossary

L

Land Tax

A State Government tax charged to owners of a property based on a stipulated value of the land.

Lenders Mortgage Insurance (LMI)

LMI is insurance to protect (only) the lender if the borrower has any trouble with mortgage repayments in the future. It is usually required for riskier loans, when the amount needed to be borrowed is over 80% of the property value.

Loan To Valuation Ratio (LVR)

The percentage of the property value that is borrowed. For example, a property worth $500,000 with $300,000 borrowed has an LVR of 60%

Lump Sum Repayments

Additional payments made over the minimum loan repayment required by the lender.


M

Minimum/Maximum Loan Amount

The minimum/maximum amount that can be borrowed, based on disposable income, deposit and the purchase price of the property.

Mortgage Offset Account

A savings account linked to a home loan, which can be used to reduce the interest due on the home loan. A mortgage offset account can be done partially or completely.


O

Offer To Purchase

A written contract setting out the terms in which the buyer agrees to buy. If accepted and signed by the seller, it forms a legally binding contract.


P

Personal Loan

A loan taken for personal reasons, such as a wedding or a holiday. Personal loans can be secured or unsecured.

Pre-approval

A pre-approval confirms how much the borrower can borrow from the lender. It is conditional upon the property and the lender confirming income and other information provided in the application. A conditional approval is the highest level of pre-approval.

Principal & Interest Loan

A loan in which both the principal and interest are repaid during the term of the loan.


R

Redraw

Allows the borrower to access overpaid funds in the home loan for any purpose at any time, if the money is needed. Usually this is only allowed if the borrower is far enough ahead on loan payments. This is not available on every loan.

Refinancing

Moving from one lender to another.

Repayment Holiday

If the borrower has extra funds and is ahead on their payments, there can be a period of no payments for a while.

Reserve Price

The minimum price acceptable to the seller of a property during an auction. The seller will commit if the reserve is reached.


S

Security

An asset whose ownership is given to by the borrower to the lender until the loan is repaid in full. Usually it’s the property that is used to secure the loan.

Settlement

The settlement of a property is when the balance of the purchase price is paid to the seller. The seller then becomes the legal owner of the property. This is also usually when the settlement of a loan occurs – when the lender transfers borrowed funds to the seller.

Stamp Duty

A state government tax paid based on the value/purchase price of the property. Want to know more? Check out eChoice’s Stamp Duty Calculator.

Strata Title

A title which acts as evidence of a unit’s ownership. Owners that have a strata title certificate are absolute owners with an undivided share of the common property. It also entitles the owner to be a member of the body corporate.


T

Tenants In Common

Joint ownership of a property which may be in equal or unequal shares. Unlike joint tenancy, the shares do not automatically pass to the other owners in event of death, but rather through their Will.

Title Deed

Document disclosing the legal description and ownership of a property.

Transfer

A document with the Land Titles Office that confirms a change of ownership. The change of ownership is noted on the Certificate of Title.


U

Unconditional Approval

Confirmation from the lender that the full home loan application has been approved.

Unsecured Loan

A loan where the borrower does not pledge an asset as fallback for their debt. There is higher risk to the lender, therefore the interest is higher.


V

Valuation

A professional opinion of a property’s true value, done by a third party. This is required by the lender to determine if the property is true to the selling price.

Variable interest rate

An interest rate that goes up and down according to money market interest rates.

Vendor

A party who offers the property for sale

On the lookout for a new home loan? Contact eChoice. With access to 100s of home loan products from over 25-different lenders, our brokers have plenty of options for you to choose from.

Compare your interest rate today.

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