Mortgage loan glossary

Buying a home often means that you come across unfamiliar terms. To assist, we have included explanations of some commonly used words.

Agent: A registered person authorised to act for another in the selling, buying, renting or management of a property. Land Agents usually act for the owner.

Auction: A public sale of property where the highest bidder is normally the successful buyer.

Authority to Sell: A legally binding document which is signed by the seller. It details the agreement between the seller and the agent. Many aspects of the authority to sell, such as commission and advertising costs, are negotiable between both parties.

Body Corporate: The collective ownership of the common areas in a block of apartments or multi–dwelling complexes. It is responsible for the administration and upkeep of the areas shared by all the owners (common property).

Breach of Contract: The breaking of one or more of the terms or conditions of a contract.

Bridging Finance: A short-term loan (approximately six to twelve months or less) that is used to fill the time gap between buying another property and either selling the one you own or obtaining a long-term loan. This type of borrowing is usually at a higher interest rate.

Building Consultant: An expert experienced in designing and/or constructing a building. When employing an expert for a pre-purchase report on a property, you should ask whether he or she has indemnity insurance to cover any serious omissions about building defects not covered in the report. A building consultant is not required to be registered.

Buyers Advocate: An agent who acts solely for the buyer by sourcing suitable properties and representing the buyer during the buying process.

Caveat: A note on the title that an interest in the land is claimed by a third party.

Certificate of Title: A document that shows who owns the property, the size of the land and whether there are any limitations on the title such as mortgages, easements or encumbrances.

Chattels: Moveable personal property or furniture.

Commission: Paid by the seller to the land agent, normally when the property is sold. It is usually a percentage of the selling price of the property. The amount of commission is negotiable between the seller and the agent.

Common Property: Areas of property that are used by and belong jointly to all owners of a property. This applies to such property as apartment blocks or multi-dwelling complexes.

Community Title: A community title divides land into lots (of which there must be at least two) and common property.

Comparison Rate: A schedule that allows the true cost of a loan – interest rate, fees and charges – to be compared with other loans using a single figure percentage.

Consumer Credit: Regulates all credit for personal, domestic or household purposes. To ensure fair dealing and to protect the interest of consumers, all lenders must comply with the Consumer Credit Code.

Consumer Price Index (CPI): An index of prices used to measure the change in the cost of Index basic goods and services in comparison with a fixed based period. Also called cost of living index.

Contract or Contract of Sale: A legal document usually prepared on the seller's behalf by an agent, solicitor or conveyancer that outlines the details of the sale of a property. The contract is legally binding when signed by both parties but may be subject to a Cooling-Off Period.

Conveyancer: A person (not a legal practitioner) who prepares conveyancing instruments for fee or reward for the purpose of transferring property from the seller (vendor) to the buyer.

Conveyancing: Transferring ownership of a property from the seller (vendor) to the buyer. It is usually performed by a solicitor or registered conveyancer.

Cooling-Off Period: A period of time in which a buyer can withdraw from the sale of a home (other than when purchased via auction).

Covenant: An agreement that provides an obligation to the titleholder of a property to do or refrain from doing something. For example a restrictive covenant could state that no more than one dwelling may be built on the land or regulate the materials to be used in buildings and improvements on the land.

Credit History: A record of an individual’s current and repaid debts which is usually used by a lender to assess the risk of a potential borrower.

Default: Failure to meet debt repayment by a due date. A failure to make loan repayments may result in the mortgage holder taking legal action to repossess the mortgaged property.

Deposit: A non-refundable percentage of the purchase price paid by the buyer when contracts are signed and exchanged. It is usually ten percent. The deposit must be held in a trust account by the land agent or by the vendor’s solicitor or conveyancer, or held jointly in a trust account by the vendor and buyer.

Deposit Bond: Offered by some lenders as an alternative to a cash deposit. Should be used with caution. It is also known as a deposit guarantee.

Direct Debit: Regular electronic debiting of payments from a customer's nominated bank/building society cheque or savings account.

Disbursements: Charges incurred by solicitors and conveyancers such as postage, phone calls, stamp duty, registration fees and government charges which are not included in their fee.

Discharge Fees: An administration fee to cover the costs incurred in finalising a loan account.

Discharge of Mortgage: A document signed by the lender and given to the borrower when a mortgage loan has been repaid in full

Early Repayment Fee: A fee sometimes charged when paying out a loan early.

Easement: A right held by one person to make use of the land of another. Examples are, drainage and sewerage pipes and rights of way.

Encroachment: The use of, or intrusion onto, another person's property without consent. This usually refers to a structure.

Encumbrance: A third party's right that obstructs the unencumbered use or transfer of a property. Examples are mortgages, caveats or instruments of encumbrance which are used to register Covenants over the property.

Equity: The part of something; asset, house or company which you own. You may have equity in part of the value of your house. (Assets - Liabilities = Equity)

Estimated Selling Price: The price an estate agent estimates a property will attract. It must be recorded on the sales agency agreement as either a single figure or as a range where the difference between the top and bottom figures does not exceed ten percent. For example $400,000-$440,000.

Fixed Interest Rate: An interest rate that remains unchanged for a set period.

Fixtures (or Fittings): Items, which are attached to the property and cannot be removed without causing damage to the property such as bathroom suites, built in robes and kitchen stoves. They are usually included in the sale unless expressly excluded.

Form 1 (Vendor's Statement): Information which the seller must provide to the buyer advising of restrictions such as covenants and easements, outgoings such as rates, and any other notices such as compulsory acquisition.

Gross Income: Total income before tax and mandatory levies are deducted.

Holding Deposit: An amount paid to the vendor's agent, solicitor or conveyancer when making an offer on a property. This is not compulsory and is refundable if the offer is rejected.

Home and Contents Insurance: An insurance policy that combines protection against damage to a dwelling and its contents with protection against claims of negligence, i.e. inappropriate action that results in someone's injury or property damage.

Index: Measurement used by lenders to determine changes to the interest rate charged on a variable-rate mortgage.

Indexation: Quarterly increases in borrower's instalments, linked to the Consumer Price Index (CPI). Indexation rate is calculated as the average of the two previous quarter's CPI movements.

Inflation: A sustained increase in the general level of prices so that a given amount of money buys less and less. The number of dollars in circulation exceeds the amount of goods and services available for purchase, resulting in a decrease in the dollar's value.

Instalment: The regular periodic payment that a borrower agrees to make to the lender.

Interest: The lending body's charge for the use of funds or the return on deposited funds.

Joint Tenants: The form of ownership where two or more people purchase a property in equal shares. If one dies, his or her share of the property passes to the surviving owner/s. (see also Tenants in Common)

Land Agent (Agent): A registered person who is authorised to act for another in the selling, buying, renting or management of a property. Land agents usually act for the owner.

Lease Agreement: An agreement or contract for rental of a property between the landlord and tenant.

Lender's Mortgage Insurance:
Insurance written by an independent mortgage insurance company protecting the mortgage lender against loss incurred by a mortgage default. Usually required for loans with an LVR of 80.01% or higher.

Loan: Money borrowed that is usually repaid with interest.

Loan Provision Charge: A graded fee charged to all types of loans as a provision against any losses that may be incurred.

Loan to Value Ratio (LVR): This ratio measures the amount of the loan, compared to the value of the security property. For example, if the property is valued at $250,000 and you borrow $200,000, the LVR would be 80% (200000 / 250000 x 100 = 80)

Maximum Loan Amount: Amount you can borrow expressed as a percentage of the valuation Amount of the security (usually the property you are buying).

Median: The median is the 'midpoint' when a set of values are arranged in ascending order eg. if the numbers were 1,1,3,4,5,6,7,7,7,7,8 the median would be 6, whereas the average is 5.09.

Memorandum of Transfer: A document that affects the change of ownership of a property from the vendor to the buyer on the Certificate of Title maintained by the Lands Titles Office.

Mortgage: A written contract giving the financier security over property. For example, the house being bought by the borrower will be security for the loan and the mortgage will give the Mortgagee power of sale in the event of default.

Mortgagee: Organization that lends money to a borrower by a mortgage agreement.

Net Income: Your income after tax and mandatory levies have been deducted.

‘Off the plan’: Purchasing ‘off the plan’ involves buying a property before it has been built. Such purchases are usually based on the architect’s plans and models.

‘On the market’: The point at an auction where the price is reached at or above which the seller is prepared to sell. Also see Reserve Price.

Outgoings: Any costs incurred by the seller on top of the agent’s commission. For example, advertising costs. All outgoings are negotiable.

‘Passed in’: Where a property for auction is not sold, usually because it has not reached the seller's reserve price.

Portability Loan: A portable loan allows you to sell your house and move to a new one without having to refinance. This saves application and legal fees. Most lenders insist that the loan amount is the same or less. It is important to know the terms of your loan.

Principal: The amount of the loan itself without interest or other charges associated with the loan.

Private Sale: Where the vendor does not engage an agent but acts on his own behalf, dealing directly with the buyer.

Rebates: Discounts received, usually for bulk purchases such as advertising. Any rebates received by an agent must be passed on to the seller.

Refinancing: To replace or extend an existing loan with funds from the same institution or another lender.

Reserve Price: A seller's minimum sale price for the property. It may be recorded on the authority to sell.

Sale by Private Treaty: Sale of property via an agent through private negotiation and contract.

Sales Representative: A person employed by a registered land agent to sell real estate.

Security: An asset that guarantees the lender their loan until the loan is repaid in full. Usually the property is offered to secure the loan.

Settlement: The occasion when ownership of a property passes from the vendor to the buyer and the balance of the sale price is paid to the vendor.

Solicitor: A legally qualified and licensed person who undertakes legal work and provides legal advice for a fee. A solicitor may specialise in conveyancing and property law.

Split Loan: A combination of loan types forming one loan, such as a partial fixed and variable interest rate loan. Typically, different types of interest are paid on different portions of the account, e.g. fixed rate and variable rate.

Stamp Duty: A state government tax, based on the sale price of a property, paid by the buyer when property ownership is transferred or on the amount of a loan.

Strata Title: Individual ownership of an apartment or unit within a block or multi-unit complex. This is separate from and additional to the joint ownership of common areas shared by all the property owners in the building or complex.

Tenants in Common: A form of joint ownership in a property in which each person owns a share of property, equally or unequally. On the death of one owner, the deceased’s share passes to his or her heir/s, who assume/s the role of tenant in common with the other existing owner/s.

Title Search: A check of public records to ensure that the vendor has the right to sell and transfer ownership.

Valuation: An estimate of the value of a property by a registered valuer, usually for a fee. Only a qualified valuer can undertake valuations. A land agent can only perform an appraisal.

Variable Interest Rate: A rate that varies in accordance with the money market rates.

Vendor: The person selling the property.

Vendor's Statement: Information which the seller must provide to the buyer advising of restrictions such as covenants and easements, outgoings such as rates, and any other notices such as compulsory acquisition.

Zoning: The permissible uses of an area of land stipulated by the council.

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