Don’t understand some mortgage terminology?
We have compiled a list of commonly used home loan terms to help you get up to speed.
Application Fee: The fee charged by a lender to cover or partially cover the cost of setting up or establishing the loan.
Assets: Money, property or goods that are owned.
Capital Gain: The financial gain you receive when you sell something for more than you paid for it. You may then be subject to capital gains tax, which is paid on the gained amount.
Contract of Sale: A written agreement outlining the terms and conditions for the purchase or sale of property.
Conveyancing: The legal process for the transfer of ownership of real estate.
Disbursements: A solicitor’s incidental costs involved when dealing with a client on behalf of a lender (e.g. searches, certificates, pest reports etc.)
Draw Down: The act of transferring money from the lending institution to the borrower after the loan has settled.
Debt Service Ratio: The ratio used by some lenders when assessing the borrowers serviceability of a loan.
Equity: The financial interest a person has in a property or business enterprise e.g. equity in your home is represented by the difference between its market value and the amount still owed to the lender.
Exchange: Is the point in time when the vendor and the buyer exchange the signed contracts to carry out settlement on the sale of property.
Guarantor: A person or people who agree to be responsible for the payment of the purchaser’s debts should that purchaser fail to repay them.
Loan to Value Ratio (LVR): The ratio of the amount lent to the valuation of the property expressed as a percentage e.g. if the property costs $100,000 and the loan being sought is $80,000 the LVR is 80%.
Maturity: The date by which a debt or investment must be paid in full.
Mortgage: A form of security for a loan, usually taken over real estate. The lender has the right to take the real estate if the borrower fails to repay the loan.
Mortgagee: The lender of funds.Mortgagor: The person borrowing money in terms of the mortgage.
Negative Gearing: Structuring your investments so the cost to maintain them (loan repayments, council rates, etc) outweigh the income produced by the investment, leading to a reduction in taxable income.
Portability: When a new property can be used as security for an existing loan (i.e. when a new loan is transferred to a new property without needing to repay the loan, reapply or restructure).
Principal: The capital sum borrowed on which interest is paid during the term of the loan.
Redraw: The borrower is able to draw on pre-paid funds from the loan account.
Refinancing: To replace or extend an existing loan with funds from the same or another lender.
Search: An examination to confirm the vendor has the right to sell the property and there are no encumbrances on the property.
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.
Settlement: The finalisation of payment by the buyer to complete the sale and then take possession of the property.
Valuation: A report detailing a professional opinion on the property’s market value.
Variation: Changing any part of the original loan contract.