Know what the loan
language really means.

Amortisation

The gradual reduction of a loan through scheduled repayments. Each principal-and-interest repayment is divided between interest and principal.

Equity

The difference between a property's current value and the debt secured against it.

Interest

The price charged by a lender for the use of borrowed money, usually expressed as a percentage per year.

Loan balance

Also called: Outstanding balance

The amount still owing under the loan at a point in time, excluding or including particular accrued amounts according to the lender's statement.

Loan term

The agreed period over which the loan is scheduled to be repaid, commonly up to 30 years for a home loan.

Mortgage

A legal security interest registered over property to support repayment of a loan.

Principal

The amount borrowed, or the portion of the original amount that remains unpaid.

Principal and interest

Also called: P&I

A repayment type where scheduled payments cover interest and progressively reduce the principal over the agreed term.

Security

Also called: Collateral

Property or another eligible asset over which a lender takes rights to support repayment of a debt.

Break cost

Also called: Early repayment adjustment

A cost that may apply when a fixed-rate loan is repaid, refinanced or changed before the fixed period ends.

Comparison rate

A standardised percentage that combines the interest rate with certain fees and charges for a prescribed loan amount and term.

Extra repayment

An amount paid above the required scheduled repayment.

Fixed interest rate

Also called: Fixed rate

An interest rate set for an agreed period rather than moving with ordinary lender rate changes during that period.

Fixed-rate expiry

Also called: Revert rate

The point when a fixed period ends and the loan moves to the rate or product specified by the lender unless another arrangement is made.

Interest-only repayment

Also called: IO

A repayment that covers interest for an agreed period without scheduled reduction of principal.

Rate lock

An arrangement that may secure a particular fixed rate for a limited period before settlement, usually subject to lender conditions and sometimes a fee.

Repayment frequency

How often scheduled repayments are made, such as weekly, fortnightly or monthly.

Split loan

Also called: Partially fixed loan

One home-loan balance divided into separate portions, commonly one fixed and one variable.

Variable interest rate

Also called: Variable rate

An interest rate that can rise or fall during the loan term under the lender's contract and pricing decisions.

Line of credit

A revolving credit facility with an approved limit that can be drawn, repaid and potentially drawn again under its conditions.

Loan package

Also called: Professional package

A bundle that may combine a home loan, transaction or offset accounts and other banking products for an annual or periodic fee.

Offset account

Also called: 100% offset

A transaction account linked to an eligible home loan. Its balance reduces the loan amount used to calculate interest according to the product terms.

Loan portability

A feature that may allow the security property to be changed without fully replacing the existing loan, subject to lender approval and conditions.

Redraw facility

A feature that may let a borrower access eligible extra repayments previously made directly into the loan.

Borrowing power

Also called: Borrowing capacity

An indicative amount a lender may be prepared to lend after assessing income, expenses, liabilities, dependants, rates and policy.

Cash out

Also called: Equity release

Additional borrowing secured against existing property for an acceptable, documented purpose.

Debt-to-income ratio

Also called: DTI

A ratio comparing total debt with gross annual income, calculated under the lender's method.

Deposit

Funds contributed by the buyer toward the purchase price and related costs rather than borrowed under the new home loan.

Genuine savings

Funds accumulated or held in a manner that satisfies a lender's evidence and history requirements.

Guarantor

Also called: Family guarantee

A person who gives a legal promise—and sometimes property security—to support another borrower's obligations.

Lenders mortgage insurance

Also called: LMI

Insurance that protects the lender, not the borrower, if a covered loss remains after enforcement and sale of the security.

Loan-to-value ratio

Also called: LVR

The loan amount divided by the lender-accepted property value, expressed as a percentage.

Serviceability

A lender's assessment of whether repayments can be met after applying its rules for income, expenses, debts and an interest-rate buffer.

Arrears

Repayments or other amounts that have not been paid by the contractual due date.

Conditional approval

Also called: Pre-approval

An initial lending indication subject to stated conditions, verification, an acceptable property and unchanged circumstances.

Credit report

Also called: Credit file, Credit score

A record of credit accounts, applications and repayment information maintained by a credit reporting body; a score is a summary generated from available data.

Default

A failure to meet a contractual obligation. A payment default may be recorded on a credit report when legal requirements are met.

Discharge

The process of repaying or releasing an existing loan and removing the lender's registered mortgage, often during a sale or refinance.

Establishment, ongoing and discharge fees

Also called: Loan fees

Charges that may apply when setting up, maintaining, changing or closing a loan.

Finance clause

A contract condition that may allow a purchaser to end the contract if specified finance requirements are not met within the agreed terms.

Financial hardship

Also called: Hardship assistance

Support or a changed arrangement that a lender may consider when a borrower cannot meet repayments because of changed circumstances.

Formal approval

Also called: Unconditional approval

A lender decision made after its required assessment and conditions have been satisfied, subject to the precise terms of the approval and documents.

Property valuation

The lender's accepted assessment of the security property's value, completed under its chosen method.

Refinancing

Replacing or restructuring an existing loan, often through a new lender or a materially different product.

Settlement

The legal and financial completion of the property transaction or refinance, when funds and documents are exchanged and ownership or security changes take effect.

Bridging finance

Short-term finance intended to bridge a timing gap, commonly between buying a new property and selling an existing one.

Construction loan

A loan generally drawn in stages as construction milestones are completed rather than advanced entirely at the start.

Investment loan

Finance for property intended to produce rent or another investment return rather than serve as the borrower's home.

Owner-occupier loan

A loan for a property the borrower intends to occupy as their home, subject to lender definitions and evidence.

Progress payment

Also called: Progress draw

A staged payment made during construction after a defined milestone and the lender's required checks.