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GLOSSARY:
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.
Lease:
A document granting tenancy of a property for a specified period.
Liabilities:
Loans, debts, or obligations.
Line of Credit Loan:
This is a flexible loan that allows you to have funds transferred to
your cheque account when required. It is similar to an overdraft but
is available at a much lower interest rate at Wizard.
Loan Agreement:
The contract between the lender and the borrower, which sets out the
conditions that apply to your loan. It is important that you read
the agreement carefully, and wise to get legal and financial advice,
before you enter into the loan.
Loan Security Duty:
Government stamp duty charged to register your mortgage.
Loan to Value Ratio
(LVR):
This is the measure of the amount of the loan compared to the value
of the property. For example, if you have borrowed $160,000 and your
property is valued at $200,000, the LVR would be 80%.
Lenders Mortgage
Insurance:
Lenders Mortgage Insurance is insurance taken out against the
borrower to protect the lender against default.
It is important to understand that lenders
mortgage insurance does not provide you, the borrower, any form of
protection. If the loan is in default, you may still be required to
meet any shortfall between the amount owed to the lender and the
amount received from the sale of your property.
In most cases, the borrower pays the insurance premium.
Lump Sum Payment:
An additional payment made by the borrower to reduce the loan
amount. These payments are in addition to regular instalments.
Mortgage:
Security over property given to the lender for the repayment of the
loan.
Mortgagee:
The lender of money, and the party who has the benefit of the
mortgage over your property.
Mortgagor:
The borrower.
Mortgage Duty:
A government tax which is payable by the borrower on the borrower’s
mortgage. The amount of the duty varies from state to state and in
some states, mortgage duty may not be payable when the loan is
refinanced.
Old System Title:
(common law title) consists of a ‘chain’ listing all owners of a
property since origin.
Power of attorney:
A formal appointment where a person appoints another (called the
attorney) to act as their legal representative.
Principal:
The amount outstanding on your loan. You pay the lender the interest
on the principal.
Principal & Interest
Loan:
This is the most popular type of loan where you repay a portion of
the principal and the accrued interest over the term of the loan by
regular instalments.
Private Sale:
Sale of a property without the involvement of an estate agent.
Private Treaty Sale:
A property sale where the buyer negotiates on a price set by the
seller, rather than through the auction process.
Redraw Facility:
If you have made any Lump Sum Repayments to your loan account, you
can access those extra repayments whilst on a variable rate.
Refinancing:
This means that you switch your loan from one lender to another.
Reserve Price:
Preset minimum acceptable price of seller at auction.
Search:
An enquiry to confirm that a property vendor is in a position to
sell a property, also detailing any encumbrances listed against the
property.
Security:
An asset used to guarantee a loan.
Settlement:
Is the completion of the sale or purchase of a property. When the
final payments are made at settlement, the lender will receive the
signed transfer and the mortgage. The lender will hold the title
deeds and the mortgage until the loan is repaid. The keys to the
property are either handed over at settlement, or picked up from the
estate agent immediately following settlement.
Settlement Date:
Specific date at which buyer is to take possession of property upon
finalising payment.
Signatory:
Person authorised to access an account.
Stamp Duty:
Stamp duty is a state government tax which is payable when a
property is sold. Stamp duty is calculated on the purchase price of
the property and is paid by the buyer. Each state and territory has
a different rate of duty.
Strata Title:
Title that grants ownership of a section or a ‘unit’ of a larger
building. This ‘unit’ can be sold or transferred by the owner.
Survey:
Plan that details a block of land noting the position of any
buildings.
Term:
The length of a loan or a defined period within that loan.
Torrens Title:
Title that grants ownership of a piece of property. Also known as
Certificate of Title.
Transfer:
A document registered with the Land Titles Office noting the change
of ownership.
Valuation:
A professional opinion of the value of a property.
Variable Interest
Rate
This is a fluctuating rate of interest charged by lenders. Variable
interest rates change as official market interest rates rise and
fall.
Vendor:
The seller of a property.
Zoning:
Local authority guidelines as to the permitted uses of land and
buildings.
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