Common terms relating to Savings and Loans mortgages

There are many words that are specific to home buyers, sellers and lenders. This list explains words you will hear or read when looking into home ownership and home loans with Savings and Loans and any other lender.

Agent – An agent is someone who acts on behalf of another person or organisation. A real estate agent acts on behalf of a landlord or owner in the letting or sale of property.

Application fees – Fees charged to cover the lender’s internal costs of setting up a loan.

Appraisal – A considered estimate of the value of the property being used as security for a loan by a qualified valuer.

Arrears - Some times referred to as loan arrears, is the amount you are behind in your loan payments.

Body corporate – The owners of units within a strata titled building who are responsible for the management of the building and common areas.

Breach of contract – Breaking the conditions of a contract.

Bridging Finance – A loan obtained over a short period before longer term finance is obtained. Most home buyers use bridging finance, if they need money to fund the purchase of a new house while they are waiting for their existing house to sell.

Building inspection – A check for structural soundness of a building. It is a good idea to make your property purchase subject to a satisfactory building inspection.

Capital gain – The money you make when you sell an asset, like property, for more than you paid for it, less your expenses.

Capital gains tax – A Government tax on the gain made on the sale of an asset (excluding your own residence) bought and sold after September 1985.

Caveat – A caveat is a legal notice lodged with the land titles office that indicates that another party other than the owner claims some right over or interest in the property.

Certificate of Title – Is a document identifying the historical ownership of land. It shows who owns the land and whether there are any mortgages or other restrictions on it. The certificate of title is usually held by the lender as security for a loan.

Chattels – Chattels are personal property, such as clothing, appliances and furniture. Chattels include movable possessions which may be included in the sale (e.g. furniture).

Clear title – A seller has a clear title when there are no restrictions (such as an outstanding mortgage) preventing the sale, and when the seller’s ownership of the property has been established.

Commission – Is the fee or payment made to real estate agents or Solicitors for their services.

Comparison Rate – A comparison rate is a figure to help consumers identify the true cost of a loan. By legislation it is a rate which includes both the interest rate and fees and charges relating to a loan, reduced to a single percentage figure.

Contract of Sale – A written agreement outlining the terms and conditions for the purchase or sale of property.

Conveyance – The transfer of ownership of property from the seller’s or current owners name to the buyer’s name.

Conveyancing – The legal process for the transfer of ownership of real estate. Usually performed by a solicitor or land broker.

Covenant – Terms and conditions imposed by the local council or body corporate that specify the actual allowable application of use of a block of land or a building.

Credit – The money or other finance to be paid back under an arrangement to a lender.

Credit limit – The maximum amount that may be borrowed under a financial arrangement with a lender.

Creditor – A party or lender to whom money is owed.

Debtor – Someone who owes money to someone else.

Deed – A legal document that states an agreement.

Default – Not following the terms of a mortgage or loan agreement, that may result in a breach of loan conditions and fore closer. A failure to make loan payments (defaulting on the loan) may result in the mortgage holder taking legal action to repossess the mortgaged property (that is, evict the occupants and sell the property).

Deposit – An amount of money normally paid by the buyer at the time of exchanging contracts.

Disbursements – During the conveyancing process,fees and charges may be incurred. These fees are recorded by the solicitor or land broker on your transfer paper work.

Discharge of Mortgage – A process of paying out a loan. For example if you are changing lenders, your old lender will discharge their mortgage, when your new lender pays them.

Disposable income – Your income left over after all known bills (e.g. loan payments, credit card, car costs) have been met .

Draw down – Usually referred to as the amount paid during construction loan as the building reaches different stages of its build. It can also apply to lines of credit where a limit is set and the borrower can draw the funds as required.

Duty (Transfer or Stamp Duty) – A State Government tax on financial transactions. For the purchase of real estate, may be calculated according to the property value.

Easement – A parcel of a property that cannot usually be built on. A right to use a part of land which is owned by another person or organisation (e.g. for access to another property).

Encumbrance - A mortgage or some other outstanding liability on a property. Can also mean building restrictions imposed by a developer.

Equity – A property owner’s financial interest in their property. The difference between the purchase price and cost of improvements and purchase fees and the amount of any mortgage outstanding at anytime.

Establishment fees – Fees payable to a lender, supposedly to cover the costs of setting up a mortgage.

Exit/prepayment fees – Penalties charged by the lender when a loan is paid off before the end of its term. Exit fees generally apply to fixed interest rate loans.

First Home Owners Grant – The First Home Owners Grant is a lump sum payment available from the Australian Government as compensation for the increased cost of housing due to the Goods and Services Tax (GST). There may be additional grants available in each state.

Fittings – Items not intended to be removed from a property on sale (e.g. fixed carpets, lights, curtains, stoves).

Fixtures - Can mean many things, but generally mean things like sheds, fences, pergola’s etc and a house or building.

Freehold - Ownership of a dwelling and the land it stands on.

Guarantee – A contract to pay a third parties debt should they default.

Guarantor – The mug who agrees to be responsible for the payment of another party’s debts should that party default.

Inclusions – Contractural term regarding items included with the sale of property (e.g. light fittings, stove).

Installment – The regular payment that a borrower agrees to make to the lender.

Interest – The fee charged for borrowing money, calculated over a year. Interest is usually paid to the lender in installments along with repayment of the principal loan amount.

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.

Introductory loan rate – The interest rate on a loan that is discounted from the standard rate to attract new borrowers. Also called a discounted or honeymoon rate.

Investment property – A property purchased for the purpose of earning a return on the investment, either in the form of rent or capital gain.

Joint tenants – Equal holding of a property between two or more persons. If one party dies, their share passes to the survivor/s.

Lease – A document granting a period of tenancy of a property under specific terms and conditions.

Line of credit – A flexible loan arrangement with a specified limit to be used at a customer’s discretion. (Similar to a credit card limit but at a better rate.)

Loan-to-value ratio (LVR) – The ratio of the loan to the value of a property, usually expressed as a percentage. For example, the loan-to-value ratio of a loan for $90,000 on a home which is valued at $100,000 is 90%.

Maturity – The date in the future at which a mortgage must be paid out. (Usually 25 or 30 years)

Maximum loan amount – A bit like a limit. The maximum amount that can be borrowed based on an applicants’ disposable income, deposit, and the purchase price of a property.

Mortgage – A legal document in which a borrower gives a lender security over a property and enforcement rights against the property to recover a loan.

Mortgage broker – A person or organisation offering to organise or broker loans from a group of lenders.

Mortgage comparison rate – Also known as the true rate or Average Annual Percentage Rate. Used to compare the actual interest rate of a loan taking into account all fees and charges.

Mortgage discharge fee – An administration fee to cover the costs incurred in finalise a mortgage.

Mortgage insurance (LMI) – This insurance is taken out by the lender to cover themselves in the event that a borrower defaults on a loan and the sale of the property is unable to cover the outstanding debt. Mortgage insurance premiums are usually paid by the borrower when the amount borrowed is over 80% of the property value. This contains no protection for the borrower.

Mortgage offset account – An account run in conjunction with a home loan. The balance of the account reduces the interest paid on the loan. A 100% 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 – A person who organises a loan from another source (e.g. a mortgage trust fund).

Mortgage payment – A regularly scheduled payment that usually includes both principal and interest.

Mortgage protection insurance – Insurance taken out by a borrower to cover loan repayments in the event that the borrower is not able to meet them through specific events such as serious illness or redundancy. It can also be called income protection insurance. This insurance is not the same as (lender’s) mortgage insurance.

Mortgage registration fee – A State Government charge for the registration of a loan.

Mortgagee – The lender institution or person(s) who lends money to buy property (e.g. banks, credit unions).

Mortgagor – The person(s) who borrows money to buy property.

National Consumer Credit Code – national legislation covering the licensing and activities of mortgage lenders.

Prepayment/exit fees – Penalties charged by the lender when a loan is paid off before the end of its term. Exit fees generally apply to fixed interest rate loans.

Prepayment – Any amount paid to reduce the principal balance of the loan before the due date or any amount in addition to the minimum repayment.

Prepayment penalty – A fee that may be charged to a borrower who pays off or reduces the amount of a loan before its due date.

Principal – The original loan, or that part of it still owing to a lender.

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

Redraw facility – A loan facility whereby you can make extra repayments on your loan and later get back these extra amounts when necessary. There will often be limitations as to how much can be withdrawn and for what purpose.

Refinance – To arrange for a new mortgage, sometimes with a different lender.

Savings and Loans – A great place to get a home loan.

Searches – Examinations or research tasks usually carried out by solicitors on the purchaser’s and lender’s behalf to confirm information about the property or the purchaser, prior to settlement.

Security - An asset that guarantees the lender the value of the loan until the loan is repaid in full. Usually the property is offered to secure the loan by way of a mortgage.

Settlement date – Date on which the property officially changes hands.

Strata title – This title gives you ownership of a unit of a larger building as opposed to a separate house. It also entitles you to membership of the body corporate.

Tenants in common – The equal or unequal holding of property by two or more persons. If one party dies, their share passes according to their will or the law (not necessarily to the property’s other share owner).

Title – See Certificate of Title.

Title fees – Payable to the Titles Office for title search, transfer of property ownership, registration of a new mortgage and discharge of an old mortgage.

Title search – Process to ensure that the seller has the right to sell and transfer ownership.

Transfer – A document registered with the Titles Office that confirms the change of ownership as noted on the Certificate of Title.

Unencumbered – A property free of liabilities, encumbrances or restrictions.

Valuation - A report detailing a professional opinion of the property’s value. Usually required by the lender.