Glossary

Glossary of Terms

Want to know what certain terms mean? Check the glossary below, and then click on the accordion menu corresponding letter.

(A)
Account Keeping Fees >
Accrued Interest >
Adjustments >
Amortisation period >
Application Fees >
Arrears >
Assets >
Auction >
(B)
Balance Sheet >
Balloon Payment >
Bankruptcy >
Body Corporate >
Bridging Loan >
Building Insurance >
(C)
Capital Gain >
Capital Gains Tax (CGT) >
Caveat>
Certificate of Title >
Commission >
Company Title >
Comparison Rate >
Compound Interest >
Consumer Credit Code >
Contents Insurance >
Contract >
Conveyancer >
Conveyancing >
Credit >
Credit Limit >

(D)
Daily Interest >
Debit >
Debtor >
Deed >
Default >
Deposit>
Deposit Bond>
Disbursments >

(E)
Early Repayment Fee >
Easement>
EFT >
Encumbrance >
Equity >
Equity Loan >
Establishment Fees >
Exchange of Contracts
(F)
Fixed Interest Rate >
Freehold >
(G)
Gearing >
Goods & Services Tax (GST) >
Guarantor>
(H)
Holding Deposit >
Honeymoon Rate >
(I)
Income Statement >
Interest >
Interest Only Loan >
(J)
Joint Tenancy >

(L)
Land Tax >
Lease >
Liability >
Line of Credit (LOC) >
Loan Term >
Loan-to-Value Ratio (LVR) >
Lenders Mortgage Insurance (LMI) >
(M)
Maturity >
Max LVR >
Mortgage >
Mortgage Stamp Duty >
Mortgage Term >
Mortgagee >
Mortgagor >
(N)
Negative Gearing >

(O)
Off-The-Plan Purchase >
Offer To Purchase >
Offset Account >
Option to Buy >
Overdraft >
(P)
Passed In >
Payee >
Portability >
Pre-Approval >
Principal >
Principal & Interest (P&I) Loan
Private Sale >
Private Treaty Sale >

(Q)
Quantity Surveyors Report >
(R)
Redraw >
Refinancing >
Repayment Holiday >
Reserve Price >
(S)
Security >
Semi-Detached >
Settlement Date >
Signatory >
Split Loan >
Stamp Duty >
Strata Title >
Survey >
(T)
Tenants In Common >
Title Search >
Torrens Title >
Townhouse >
Transfer >
Transfer Duty >
(U)
Unencumbered >
(V)
Valuation >
Vendor >
(Z)
Zoning >

(A)

Account Keeping Fees – the on-going bank charges passed onto the borrower to cover or partially cover the lender’s internal costs of administering the loan

Accrued Interest – interest accounted for but not yet due for payment.

Adjustments – the process of allocating expenses (council, water, phone, electricity) on settlement day that the seller has paid for but not used, which the buyer has not used but will be billed for.

Amortisation period – the period of time one has to repay a loan at the arranged terms.

Application Fees – the bank charges passed onto the applicant or borrower to cover or partially cover the lender’s costs of processing a loan approval for a new application.

Arrears – an overdue amount yet to be paid.

Assets – an economic resource. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset. Simply stated, assets represent value of ownership that can be converted into cash including cash itself as well as property, shares, motor vehicles, and home contents.

Auction – a public sale of property with ownership going to the highest bidder, subject to a reserve price being reached.

(B)

Balance Sheet – The balance sheet is the financial statement used to report on the financial position of the business to the owner and other stakeholders such as banks and investors.

The balance sheet is a statement of what a business owns (assets) and owes (liabilities), and the value of the owner’s equity (or net worth of the business) at a specific point in time. The balance sheet is also known as a statement of financial position because it shows a summary of the business’s financial position at a particular point in time.

Balloon Payment – a large loan repayment, typically towards the end of the loan term, to clear a debt.

Bankruptcy – when a debtor has his or her estate placed into the hands of a receiver who has the responsibility for its distribution.

Body Corporate – also known as an Owner’s Corporation, is a representative body for and on behalf of the owners, to administer, control, maintain and manage all areas of the common property for the strata scheme.

Bridging Loan – a short-term loan that covers the time gap between the purchase of a new property and the sale of an old property.

Building Insurance – a type of insurance which covers the cost of rebuilding or repairing a property following structural damage, for example by flood, fire, storm and subsidence.

(C)

Capital Gain – the monetary gain obtained when you sell an asset for more than you paid for it.

Capital Gains Tax (CGT) – a Federal tax on the monetary gain made on the sale of an asset bought and sold after September 1985.

Caveat – a warning. An entry made in a land registry or court to prevent a certain step being taken (eg. the transfer of land) without notice to the person who lodged the caveat.

Certificate of Title – a document that details the title or ownership details of a property, and whether there are any encumbrances on the title. Not all States and Territories have Certificates of title.

Commission – a fee payable to a real estate agent, by the vendor, for the sale of property, or by a lender or client to a finance broker for arranging a loan

Company Title – a form of right of occupancy that applies when owners of units in a block form a company and each holds units that entitle them to occupy a defined area of land.

Comparison Rate – a nominal interest rate incorporating certain fees and charges to help consumers identify and compare the true cost of a home loan. When shopping for a home loan, people often focus on the advertised interest rate. While this is a useful guide to what you’ll pay, it’s doesn’t reflect the true cost of the loan because it excludes associated fees and charges, which can vary widely between lenders. A comparison rate is a tool that helps consumers identify the true cost of a loan because it includes both the interest rate and fees and charges relating to a loan, reduced to a single percentage figure. It excludes government fees and charges that are standard across all loans.

Compound Interest – interest that is paid on both the accumulated interest as well as on the original principal.

Consumer Credit Code – an act of Parliament governing the relationship between borrowers and lenders.

Contents Insurance – a type of insurance policy insuring household contents against theft and damage.

Contract – a legally enforceable agreement between individuals or entities. In real estate, contracts are exchanged when the deposit is paid.

Conveyancer – a person qualified and licensed to handle all documentation for the sale and or purchase of a property.

Conveyancing – the legal process for the transferal of ownership of real estate.

Credit – borrowed money to be paid back under an arrangement with a lender. Also, a sum of money paid into an account.

Credit Limit – the maximum amount a borrower can use at any one time.

(D)

Daily Interest – interest calculated on a daily basis – therefore varies according to the daily account balance.

Debit – an account entry to charge a withdrawal to a specified account.

Debtor – someone who owes money to someone else.

Deed – a legal documents that states an agreement or obligation regarding a property.

Default – the failure to meet a debt payment on a due date.

Deposit – The money you pay on exchange of contracts as part of your initial contribution to the purchase of your property. This could be between 5 and 10% of the purchase price. You could also pay your deposit by way of Deposit Bond.

Deposit Bond – a deposit bond acts as a substitute for the cash deposit in between signing a contract and settlement and can be issued for all or part of the deposit amount required, up to 10% of the purchase price. At settlement, the purchaser is required to pay the full purchase price including the deposit. A deposit bond is a simple, cost-effective way to cover the deposit on a property purchase when you don’t have immediate access to cash but do have the finance approved.

Disbursements – the various costs your solicitor or conveyancer has to pay to other organisations and bodies on your behalf, for example, search fees and stamp duty/ land tax. Your solicitor or conveyancer will itemise the disbursements on the invoice they send you.

(E)

Early Repayment Fee – a cost charged by the lender to the borrower for winding up a loan early (generally within a couple of years of the loan settlement). Also known as an early termination payment.

Easement – a right to use a corridor or passage of land which is owned by another.

EFT – Electronic Funds Transfer. The electronic transfer of funds from one account to another.

Encumbrance – an outstanding liability or charge on a property.

Equity – the difference between the amount you owe on your home loan and the current value of your property.

Equity Loan – also known as a Line of Credit is a type of loan product given to borrowers who are looking to purchase an additional property, invest in share market, renovate their home, or any other worthwhile purpose.

Establishment Fees – the lender’s fees which may or may not be charged to set up a loan.

Exchange of Contracts – The legal point of time when the vendor and purchaser swap documentation and start enquiries with a view to settlement. Exchanging contracts is the legal component of buying a property. While in process can vary slightly from state to state, in NSW two identical copies of the contract of sale (one for the purchaser and one for the seller) are prepared once all inspections are completed and the finance is approved in writing. Each party signs their own copy of the contract of sale then they are swapped or ‘exchanged’. The contract then becomes binding on both parties and generally would not be altered. However, in the event of an unforeseen change of circumstances affecting either party between the exchange of contract and settlement, changes to contract terms can be made providing all parties agree. On exchange of contracts a 10% deposit is usually required.

(F)

Fixed Interest Rate – where the interest rate for a home loan is set for an agreed term Fixed interest rate loans offer more certainty than variable interest rate loans because the interest rate does not change for a specified period of time (usually between 1-5 years but even up to 10 years or more). At the expiry of the fixed rate period the interest rate generally reverts to a variable interest rate unless a further fixed rate period is selected.

Freehold – gives the purchaser complete and indefinite ownership of a property and the land on which it stands.

(G)

Gearing – the ratio of your own money and borrowed funds in an investment.

Goods & Services Tax (GST) – a Federal tax levied as a percentage added to the price charged on specified goods and services.

Guarantor – a person or company that endorses an agreement to guarantee that promises made by the first party (the borrower) to the second party (lender) will be fulfilled, and assumes liability if the borrower fails to fulfil them (defaults). In case of a default, the guarantor must compensate the lender, and usually acquires an immediate right of action against the borrower for payments made under the guarantee.

(H)

Holding Deposit – a refundable deposit demonstrating the goodwill of the buyer to proceed with the purchase.

Honeymoon Rate – also known as an introductory rate, are home loan products that offer a low interest rate for an introductory period, usually the first 1-3 years. Once the honeymoon or introductory period ends, the interest rate usually reverts to a higher rate.

(I)

Income Statement – a statement of income and expenditure for a period, usually a year.

Interest – the lender’s charge for the use of funds, or the return on deposited funds

Interest Only Loan – a loan where the borrower elects to make monthly repayments of interest and no principal reductions. The interest only period is limited to between 5 to 10 years depending on the product option selected by the customer. At the end of the interest only period repayments will change to principal and interest for the remainder of the loan term.

(J)

Joint Tenancy – the equal holding of property between two or more persons. If one party dies, their share passes to the survivor(s). Property held under joint tenancy cannot be bequeathed under a will.

(K)
(L)

Land Tax – a State Government tax charged to the owners of any property based on a stipulated value of the land, other than a principal place of residence. Land Tax is not applicable in the Northern Territory.

Lease – an agreement between two parties under which one is granted the right to use the property of another for a specified period under specific terms and conditions.

Liability – An obligation that legally binds an individual or company to settle a debt. When one is liable for a debt, they are responsible for paying the debt or settling a wrongful act they may have committed. In the case of a company, a liability is recorded on the balance sheet and can include accounts payable, taxes, wages, accrued expenses, and deferred revenues. Current liabilities are debts payable within one year, while long-term liabilities are debts payable over a longer period.

Line of Credit – a flexible loan arrangement with a specified ceiling (the credit limit) to be used at a customer’s discretion.

Loan Term – period over which a loan agreement is in force, and before or at the end of which the loan should either be repaid or renegotiated for another term.

Loan-to-Value Ratio (LVR) – a measure of how much a bank lends compared to the value of the property being used for collateral. Expressed as a percentage, the loan amount is divided by the property value and is a quick and easy way for the bank to assess risk. The higher the LVR the riskier for the bank as it indicates the amount of financial resources of the borrower.

Lenders Mortgage Insurance (LMI) – a premium payable by the borrower that protects the bank against the potential loss they may incur if the borrower is unable to repay your home loan. Generally speaking, LMI is required when an LVR exceeds 80%, or 60% if borrowing via a Low Doc lending policy. When required, a mortgage insurer is involved in the loan approval process and the application is then subject to the insurer’s credit policy as well as the lender’s, and therefore needs to be of higher quality to be approved.

(M)

Maturity – the date a debt or investment must be paid in full.

Max LVR – the maximum loan to valuation ratio. This means the amount you can borrow expressed as a percentage of the valuation of the security (usually the property you are buying). Different property types in different location will have a varying max LVR.

Mortgage – a form of security for a loan usually taken over real estate. The lender, the mortgagee, has the right to take the real estate if the borrower, the mortgagor, defaults on the loan repayments. A mortgage over land is registered or noted on the Certificate of Title to that land.

Mortgage Stamp Duty – State government tax calculated on the borrower’s loan amount.

Mortgage Term – the length of time over which you agree to pay back your mortgage, usually up to a maximum of 30 years.

Mortgagee – the lender of funds.

Mortgagor – the person borrowing money under the terms of a mortgage.

(N)

Negative Gearing – where the income from an investment property is insufficient to meet the related expenses and interest costs of the loan used to fund the investment property. The term ‘gearing’ refers to borrowing money for investment purposes, using existing assets as security for the loan. Gearing can be positive, neutral or negative, and it’s this last one that is most common when it comes to property investment.

(O)

Off-The-Plan Purchase – when you buy a property from the plans only and not the finished building. The purchaser will not be able to inspect the property or see the standard of finishes, the practical layout, the size and dimensions or the outlook. However the purchaser may be able to view a display unit and sample finishes.

Offer To Purchase – usually a written contract setting out the terms under which the buyer agrees to buy. If accepted by the seller, it forms a legally binding contract subject to the terms and conditions stated in the document.

Offset Account – a non-interest earning account where the balance is offset against the home loan to reduce the total interest payable.

Option to buy – a legally binding document which gives a person, for a fee, the right to buy something, usually within a specific time frame at a specific price and subject to specific conditions.

Overdraft – an arrangement on a cheque or savings account under which a bank extends credit up to a maximum amount (the overdraft limit) and against which the customer can make withdrawals. Interest is charged on the fluctuating daily balance.

(P)

Passed In – a property is ‘passed in’ at auction if the highest bid fails to meet the reserve price set by the vendor.

Payee – the person or entity to which a cheque is payable

Portability – a feature that enables a home loan to be transferred from one property to another, without the need to pay out your home loan and take out a new home loan. Portability is designed to minimise the mortgage-related costs involved in selling an existing home and buying a new home.

Pre-Approval – a home loan pre-approval confirms how much you can borrow from your lender. It is conditional upon the property you wish to purchase being acceptable security, and your lender confirming your income and other information provided in your application. It’s recommended that a pre-approval is obtained before the borrower bids on or offers for the property.

Principal – the capital sum borrowed on which interest is paid.

Principal & Interest (P&I) Loan – a loan in which both the principal and the interest are repaid over the term of the loan.

Private Sale – the sale of a property without enlisting the services of a real estate agent.

Private Treaty Sale – a private treaty sale is where a house is offered for sale at a negotiated price. The normal practice is for the vendor to set a price, and the buyer negotiates with the seller until a mutually agreeable price is reached. Unlike an auction, the potential buyers do not know what others may be offering for the property.

(Q)

Quantity Surveyors Report – also known as a Depreciation Schedule, is a document that tells your accountant how much depreciation to claim on your property. Depreciation is wear and tear on the income producing asset which you can also claim against your taxable income.

There are two types of depreciation allowances and both are covered in the QS Report. Depreciation on Plant and Equipment, and depreciation on Building Allowance. Plant and Equipment refers to items within the building like ovens, dishwashers, carpet and blinds etc. Building Allowance refers to construction costs of the building itself, such as concrete and brickwork.

(R)

Redraw – a redraw facility allows you to make additional repayments into your loan account and then access these extra funds when necessary. It has two key advantages: it encourages borrowers to make extra repayments, thereby saving on interest costs; and it provides flexible access to funds when they are most needed. A redraw facility is available on most variable rate loans but is not available on fixed rate loans.

Refinancing – to replace or extend an existing loan with funds from either the same or another lender.

Repayment Holiday – a repayment holiday is when you’ve built up enough buffer with your funds (available redraw) from making extra repayments on your home loan. This buffer allows you to stop or reduce the amount of loan repayments as available redraw covers your scheduled home loan payments. You should contact your lender to check that your available redraw will cover the payment you wish to miss or reduce.

Reserve Price – the specified minimum price acceptable to a seller at auction and which commits the seller to sell the property if the reserve is reached. If bidding falls short of the reserve price it is usual for the seller to negotiate with the highest bidder to arrive at a mutually agreeable price.

(S)

Security – a right of a lender against the real property or other assets of a borrower to guarantee or secure the repayment of a loan.

Semi-Detached – also called a Duplex. This is a type of construction where two buildings are attached together by a common wall or walls.

Settlement Date – the date on which documentation for the transfer of ownership of property from the seller to the buyer takes place upon finalisation of the purchase price. It is also usually the date on which the buyer assumes possession.

Signatory – a person authorised to access an account or who has authority to sign and be bound by documents.

Split Loan – the loan is split into two (or more) accounts. Customers sometimes use this option to take part of their loan at a fixed interest rate and part of their loan at a variable interest rate giving them rate certainty on the fixed rate portion and flexibility on the variable rate portion

Stamp Duty – see Transfer Duty.

Strata Title – a form of title to a unit or lot on a plan of subdivision associated with townhouses, units and blocks of flats and based on the horizontal and vertical subdivision of air space. Owners have a certificate of title, are absolute owners of a freehold flat and have an undivided share of the common property.

Survey – a plan that shows the boundaries, and the position, of any buildings within a block of land and confirmation whether the building complies with Local Government legislation.

(T)

Tenants In Common – joint ownership of property which may be in equal or unequal shares. Each joint owner may dispose of their share in the property independently and unlike Joint Tenancy, the shares do not automatically pass to the other owners in the event of death but form part of that person’s estate.

Title Search – an examination of records or documents at a Land Titles Office or Government Department to confirm ownership of property, registered easements and other encumbrances or current or future proposals in respect of the land.

Torrens Title – the name given to the system of registration of ownership and dealing with property. Under this system, title to a property is established by a statutory title issued by the Registrar General. It is the most common form of residential property ownership. You are lawfully entitled to lease, sell or dispose of the property as you desire.

Townhouse – a type of dwelling which shares at least one common wall with neighbouring dwellings. Usually a two storey dwelling registered under a strata title.

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

Transfer Duty – also called stamp duty. A State Government tax based on the value or purchase price of the property.

(U)

Unencumbered – a property free of mortgages, encumbrances, covenants or restrictions.

(V)

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

Vendor – a party who offers a property for sale.

(W)
(X)
(Y)
(Z)

Zoning – local government authority guidelines regarding the permitted uses of land and buildings on that land.