Glossary A-K

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AAA Rating: There are a number of agencies that provide opinions and ratings about the security of companies, shares and bonds. ‘AAA’ rating is given to the most secure investments.
Amortisation: To pay off principal and interest under a loan over a period of time, usually by instalments.
Application fee: A fee paid by a borrower to cover the costs of processing a loan and mortgage.


BAD: (Bank Account Debit Tax) State or Territory government tax (except ACT) on withdrawals from bank accounts with a cheque facility.
Bank Bill Swap Reference Rate: A market rate of interest that is widely used to price commercial borrowings. The Bank Bill Swap Reference Rate can be found in national newspapers.
Basis Point: A term used to measure the rate of interest. For example, ten basis points equal 0.10%.


Certificate of Title: A document that details the ownership and land dimensions of a property and lists any encumbrances on it.
Consumer Credit Code: The Consumer Credit Code is a law that protects individuals (and strata corporations — but not other companies) who are borrowing money predominantly for personal, domestic, or household purposes. The Consumer Credit Code applies to such loans regardless of the size of the loan and gives borrowers certain rights and requires lenders to give borrowers certain information about their loan.
Conveyancing: The process of legally transferring property ownership from the seller’s name to the buyer’s name.
Contract: An agreement between two or more people that is enforceable by law. Contracts may be written, oral, or implied by a person’s behaviour.
Contract for Sale: A contract used in the transfer of property, which sets out the conditions relating to the purchase/sale.
Credit Limit: The maximum preset amount a borrower can use on a loan account.
Credit Reference or Credit Report: Before approving a loan, most lenders will require a credit report on the borrower. Credit reports are prepared by authorised credit reporting agencies, such as the Credit Reference Association of Australia. The report sets out the credit history of the borrower. The Lender must get the borrower’s permission in writing before obtaining a credit report.


Daily Interest: Interest calculated on a daily basis.
Debt Service Ratio: This is a measure of the borrower’s capacity to repay the loan. Lenders calculate the Debt Service Ratio by taking into account a borrower’s expenses as a proportion of their income.
Default: Failure to make a loan repayment by a specified date.


Early Repayment Penalty: If a loan is repaid before the end of its term, lenders may charge an early repayment fee.
Exchange of contracts: An exchange of contracts commits the buyer to buy the property and the seller to sell the property. In some states, the law allows a cooling off period after the exchange of contracts, during which time either party can pull out. Borrowers should ask their solicitor or conveyancer whether the cooling-off period applies in their state.
Equity: The amount of an asset that is owned.


Facility: This is another term used to describe your loan account.
FID: (Financial Institutions Duty) State duty on payments made to financial institutions.
Fixed Interest Rate: You can choose to "lock in" your interest rate for a specific period, for example, for 2, 3, or 5 years. Lenders may charge a fee if you "break" this period, so it is important to ask the lender if any fees apply.


Gearing: The ratio of your own loan amount to the value of your security.
Guarantee: A promise to meet the obligations of a third party if that third party defaults. Lenders in some circumstances may require a guarantee.
Guarantor: This is the person giving the guarantee. Most lenders will require the guarantor to get legal and financial advice before giving the guarantee.
Government or statutory charges: All home loans and purchase of residential property will attract certain government charges. For example, stamp duty, mortgage duty, taxes on deposits from bank account (called financial institutions duty) and taxes on withdrawals (called bank account debit tax). These charges vary from state to state, and are determined by the relevant state government, not the lender.


Honeymoon Rate: Some lenders offer a "discount" or introductory rate for a short period of time, say a year, to entice you to take out a loan with them. At the end of the "honeymoon" period, the interest rate normally reverts to the lender’s variable rate.


Interest-Only Loan: Under an interest-only loan, usually the borrower makes no principal repayments. The repayments are for the amount of interest, which has accrued on the loan, which is paid monthly in arrears.


Joint and several liability: When two or more people take out a loan, most lenders require all the borrowers to be responsible for the loan if there is a default. This means that if one borrower defaults, the other borrowers are responsible for that person’s share of the loan. Another example, is where a wife and husband take out a loan jointly and then separate or divorce during the term of the loan — both remain responsible for paying off the loan, unless they have notified the lender and the lender has agreed in writing to change their loan agreement and mortgage.
Laurie O'Brien
Managing Director / Finance Broker
Ph: 0419 231 975
Marie O'Brien
Accredited Mortgage Consultant
Ph: 0418 493 288