Glossary

A

ABIO-Australian Banking Industry Ombudsman provides an avenue through which customers can make complaints        about their bank and have them dealt with independently.

Acceptance - To agree to the terms of an offer or contract.

Accrued interest - Interest calculated and due (on a loan) but not yet added to the loan.

Additional repayment - Extra funds paid into loan over and above the minimum prescribed payments.

Amortisation - Systematic repayment of a loan through regular installments over a period of time.(eg. Weekly, Monthly or Fortnightly) Borrower pays the interest and part of the principle in each repayment.

All-in-one loan - A variable loan that is also a fully transactional account. Access to funds is via ATM.

Application fees - Fees that Lenders charge to consider the loan application. These are paid up front and are usually not refundable unless the loan is declined.

Annual Percentage Rate (APR) - The advertised rate of interest per annum.

Arrears - Amount that the loan is overdue.

Assets - Money, Property or Goods owned by the applicant(s). ’Real’ assets refer to real estate assets only

Auction - Public sale of property with ownership going to the highest bidder, subject to a reserve price being reached and deposit money being paid on the day.

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.

B

Balance Sheet - A statement of assets, liabilities and equity for a business at a stated date.

Basic variable - A variable rate home loan at a reduced rate to a standard variable, but generally with fewer features.

Bid - Making an offer to purchase at the current announced price at an auction.

Break Costs - Costs incurred when a loan is paid off before the end of it’s term. Generally only applied to fixed rate loans.

Bridging finance - A loan used to assist with purchasing a new property before you have sold the current property.

C

Capital - The current value of your long term assets (ie: house, property or business).

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 for more than you paid for it.

Capitalisation - When interest payable is accrued and added to the total debt payable.

Capped loan - A loan where the interest rate is guaranteed not to exceed a stated rate for a fixed period of time. The interest rate can fall.

Caveat - A registered interest in property. Protects the caveator from not being repaid when the property is sold, second in line to a registered mortgage.

Certificate of compliance - A certificate issued by Council confirming that all buildings on the land comply with councils building regulations.

Certificate of title - A document that details the land dimensions and the ownership of the property. It also details any ’encumbrances’ such as Mortgages.

Combination loan - Where there is a mixture of differant loans such as a variable portion with a fixed portion or a line of credit. Also known as a split loans.

Company title - A property title where owners of individual units form a company. When the property is sold the new owners buy the shares in the company.

Comparison rate - Takes into account the actual interest rate, combined with any upfront and ongoing fees, plus exit fees.

Compound interest - Interest that is paid on both the accumulated interest as well as the original principle.

Community title - A property title where several homes are erected on an estate and the owners share access to a community club house, swimming pool, barbecue area, tennis court etc. The owners have to pay levies for upkeep on the community facilities. Usually quarterly levies apply.

Construction loan - A loan that has periodic draw downs of funds as specified building criteria are reached, such as the slap being poured.

Consumer Credit Code - An act of Parliament governing the relationship between borrowers and lenders.

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.

Covenant - Special terms that apply to certain properties. e.g. home must be made of brick (not fibro).

Credit Rating Agency of Australia (CRAA) - The agency that gathers and maintains credit related information on companies and individuals. Lenders will always order a report before approving funds.

D

Daily Interest - Interest calculated on a daily basis using the daily loan account balance.

Default - Failure to meet loan payment on the due date.

Deposit bond - Used as an alternative to a cash deposit.

Debt Service Ratio (DSR) - Ratio of income to loan repayments. (income/loan payments)

Disbursements - These are costs, due to third parties such as governement registration fees and searches. They are paid by the purchaser/borrower.

Disposable income - Any income left over after all known expenses have been met.

E

Effective interest rates - The annual rate of interest applied to the loan balance. Does not take into accont any fees or charges.

EFTPOS - (Electronic Funds Transfer Point of Sale) This facility allows you to use your ATM card to make a purchase and withdraw cash.

Encumberance - An outstanding liability or charge over a property.

Equity - The amount of an asset really owned. The difference between the property value and the balance of the loan associated with the property.

Equity loan - A loan that has a set limit and where interest charges capatalise up to the limit. The loan is a fully transactional account with access to funds via an ATM.

Establishment fee - Fee charged to establish a loan.

Exchange of contracts - The point in time when the vendor and purchaser swap signed contracts and create a legally binding relationship.

F

Features - Any attributes associated with the loan e.g. redraw facility, combination loan facility, portability.

Fixed interest - An interest rate set for a fixed term and rate. During the term the rate will not change up or down.

Fixtures - Items that are included as part of the sale of the property such as stove, blinds, curtains, and hot water systems.

Freehold - The complete ownership of land and all dwellings erected apon such land.

G

Garnishee - To legally divert whole or part of someone’s money to another person.

Gearing - The ratio of your own funds and borrowed funds used to purchase a property or other investments such as shares.

Giropost - A facility allowing you to conduct banking through the post office.

Guarantee - Where someone else promises/guarantees to repay the loan if the borrower defaults.

Guarantor - A party who agrees to be responsible for the payment of a third party’s debts.

H

Holding Deposit - A refundable deposit from the buyer as a sign of good faith that they will proceed to a formal agreement to purchase the property.

I

Income statement - A statement of money earn’t over a period of time.

Interest - The cost associated with the use of borrowed funds.

Interest Only Loan - A loan where the principal is not repaid for a set period of time ranging between 1 and 10 years.

Internet Banking - When banking transactions such as transfers, payments are made via the Internet.

Introductory Loan - A loan where there is a discounted interest rate for a short period of time, typically 12 months before reverting to a higher interest rate.

J

Joint tenants - Where more than one person is the owner of the property. The ownership is split evenly.

L

Land Tax - A state Government tax charged to the owner of any property over a stipulated value, unless it is their principle place of residence.

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

Liabilities - A person’s debts.

Lien - The right to hold property of another as security for the performance of an obligation or to repay a debt.

Line of Credit - A flexible loan with a set limit allowing the balance to float up and down within the limit.   Access to the funds is via ATM, cheque book or internet.

Loan to Valuation (LVR) - The ratio of the amount borrowed compared to the value of the property. (loan amountproperty value)

M

Margin - This is the difference between the lender’s cost of funds and the rate actually charged to borrowers.

Mortgage - The lenders interest in the property owned by the borrower of the funds.

Mortgagor - The person borrowing the money.

Mortgagee - The lender of the money.

Mortgage discharge fee - An administration fee to cover the costs incurred when a loan is paid out in full and the title deeds are requested.

Mortgage Insurance - An insurance policy covering the lender in the event that the borrower defaults on their loan and the sale of the property is unable to cover the outstanding balance of the loan. The premium is paid by the borrower in most curcumstances.

Mortgage Protection Insurance - An insurance policy that will cover the borrowers mortgage payments for a set period of time according to the conditions of the policy.

N

Negative gearing - Where an investment costs more to own than the money generated by the investment. (eg loan payments > rent received)

O

Off the plan - The purchase of a property before it has been physically built or only partially completed.

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 your mortgage in such a way that the balance of the offset account is deducted from your loan balance. Interest is then applied to the adjusted balance.

Old system title - Also known as "Common Law Title" the system of recognising ownership of property prior to the "Torrens Title System" being introduced.

Ombudsman - The Australian Banking Industry Ombudsman (ABIO) provides and independant avenue through which customers can make complaints about their bank.

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

Overdraft - A prearranged limit to which a person can exceed the account balance. Typically associated with cheque accounts.

P

Passed in - A property is ’passed in’ at auction if the highest bid fails to meet the reserve price set by the vendor.

Portability - Where a new property may be substituted as a security for an existing loan.

Principal - The capital sum borrowed

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

Private Sale - The sale of a property without the use of an estate agent.

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

R

Redraw Facility - A loan facility whereby you can make additional payments on your loan and then access these extra funds when necessary.

Refinance - To replace an existing loan with funds from another lender.

Rental guarantee - A promise by the developer guaranteeing a certain level of rental return on an investment property.

Reserve price - The minimum a seller will accept for a property being sold via the auction process.

S

Searchs - Research undertaken by the conveyancer or solicitor regarding aspects of the property being purchased or sold.

Securitisation - The process of taking a pool of diverse assets such as different home loans and converting them into a tradable security such a bond which investors can then purchase and trade.

Security - An asset such as property offered to the lender by the borrower as part of the loan process. The lender is then said to have an interest in the property.

Semi-detached - Two houses that share a common wall or walls.

Settlement date - Date on which the new owner completes payment and assumes possession.

Stamp duty - State government tax assessed on the sale price of the property. Payable each time ownership of the property changes.

Standard variable - A variable rate home loan usually with comprehensive features. Typically used as the base from where discounts are to be applied.

Strata Title - Normally involves units or townhouses. The land is divided into unit entitlements and common areas.

Survey - A plan that shows the boundaries and the building position on a block of land.

T

Tenants in common - Owners of property can have different percentages of ownership and there can be more than two owners.

Term - The length of a home loan or a specific portion within that loan.

Title search - Process to ensure the ownership of property including lenders that may have an interest as well as any caveats over the property.

Torrens title - The system of registering owners on a central registrar held at the Land Titles Office. when properties are sold the new owners registers their interest.

Transaction fee - Charged for any transactions conducted i.e. withdraws, transfers, deposits.

V

Valuation - An independent report written on behalf of the lending institutions to provide an idea of the value of the property being used for security.

Variable interest rate - An interest rate that changes during the term of the loan in accordance with the market conditions.

Vendor - Party who offers a property for sale.

Z

Zoning - Local authority guidelines as to the permitted uses of land.