Glossary

AAPR: The AAPR (Annualised Average Percentage Rate) was introduced in 2003 to help consumers compare the cost of different loans. The AAPR evaluates the interest, payments and fees of different products, indicating the total annual cost of a loan. All lenders are legally required to disclose this benchmark rate when advertising home and personal loans. In Australia, the AAPR is officially called the Comparison Rate. Home loan Comparison Rates are based on a loan amount of $150,000 and a term of 25 years.
Annual fee: This is an ongoing fee charged each year on the administration of home loans and reverse mortgages. Administrative fees on home and personal loans can be charged monthly, quarterly or half yearly.
Assets: Assets include money, property or goods owned.
Break Costs: Refer to the penalty fees charged when a borrower terminates a fixed rate loan contract before the expiry of the fixed rate period.
Capped Loan: A loan where the interest rate will not exceed a set level for a period of time but can drop with market fluctuations.
Chattels: These include personal property. There are two types: real chattels are buildings and fixtures; personal chattels are clothes and furniture.
Default: Failure to meet a debt payment on a due date. May refer to loan repayments or other bills.
Discharge fee: A one-off payment charged on the final payout of your loan.
Early termination payment: The cost of winding up a loan early.
Equity: The value of an asset actually owned, as opposed to the amount of the loan on the asset.
Equity loan: A loan secured by the proportion of the value of the property you own.
Establishment fees: Lending body fees which may (or may not) be charged to set up the loan.
Exit Fee: The fee imposed by some lenders if the borrower refinances with another lender within a specified period of the start of the loan.
Fee: The term "fee" covers all basic costs in setting up the loan, from application fees to loan drawdown.
Fixed interest: An fixed or static interest rate set for an agreed term.
Guarantor: A person who agrees to be responsible for the payment of a borrower's debts, should the borrower be unable to make repayments.
Honeymoon rates: "Honeymoon" or introductory rates are a low rate of interest for the first 6 to 12 months of the loan. The loan then reverts to the standard variable rate offered by the lender. Use the AAPR to better understand the costs associated with such loans.
Income statement: A statement of income and expenditure for a period, usually a year.
Interest: The lending body's charge for the use of borrowed funds, or the return on funds deposited in an account.
Interest only loan: Usually a short-term arrangement whereby payments are made on the interest only, not the principal amount of a loan. The principal is paid back at the end of the term. The loans are usually for a short term of one to five years.
Liabilities: A person's debts or obligations.
Line of credit: A loan arrangement with a specified amount of funds to be used at a customer's discretion, based on the equity and deposits into the loan account.
Loan pre-approval: The loan amount is approved before the borrower makes an offer on the property.
Low doc loans: Low doc (low documentation) loans have been designed for those who may not have the documentation required to obtain home loans through a conventional application procedure.
LVR: LVR stands for 'Loan to Value Ratio.' LVR refers to the maximum amount you can borrow against the value of the property used as security for your home loan. For example, a lender may approve a loan for 85% of the property value, and the borrower will be expected to provide the remaining 15%, plus fees and insurance.
Mortgage: Technically, this is 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 mortgagor fails to repay the loan.
Mortgage insurance: Mortgage insurance protects the lender in the event of payment default when the borrower's debt is taken over by the insurer.
Mortgage offset account: Offset accounts can help reduce your tax by offsetting taxable income from deposit accounts against interest paid in after tax dollars on mortgage repayments.
Non-conforming loan: This loan caters for people who do not meet the standard criteria mainstream lenders use for ordinary borrowing. Examples include the self-employed, those with a poor credit record, or who have recently arrived in Australia . These are also called 'sub-prime lending.'
Portability: A portable loan is that where loan approval can be transferred from one property to another, saving on government loan security duty.
Principal: The principal is the capital sum borrowed, on which interest is paid.
Principal and interest loan: A loan in which both the principal and the interest are paid during the term of the loan (compare the Interest only loan).
Redraw facility: A redraw facility allows you to make additional repayments on your mortgage, and then draw on the funds you have deposited. This facility can include a minimum amount and a transaction fee.
Refinancing: To replace or extend an existing loan with funds from the same institution or another.
Reverse mortgage: These loans are for those who find themselves (later inlife) owning their own home, but requiring more cash for living costs, travel, etc. A reverse mortgage allows such people to borrow against the value of their home and access the equity without having to sell the property. No repayments are required during the life of the loan, with the total interest, fees and charges being recuperated from the value of the estate at the borrower's death.
Signatory: A person authorised to use an account.
Split fixed/variable: A split account is one in which different amounts of interest are paid on different portions of the account.
Stamp duty on transfer: A State Government tax assessed on the selling price of the property.
Term: The length of a home loan or a specific portion within that loan.
Uniform Consumer Credit Code (UCCC): Uniform Consumer Credit Code legislation regulates credit provided to customers and strata corporations, and provides uniform standards for all forms of customer lending in all states and territories of Australia . The UCCC consists of a set of rules which regulate the conduct of the lender, right from loan advertising and throughout the duration of the loan. It enforces the "truth in lending" principle, so that borrowers are provided with clear and factual information to assist them in choosing a home loan product.
Valuation: A report required by the lender, detailing a professional opinion of a property's value.
Variable interest rate: A rate that varies in accordance with the rates in the marketplace (based on that set by the Reserve Bank of Australia).