We’re in business to help our mates which is why we’ve created our Mates Rates Mortgage Brokers Mortgage Lingo page to help you confidently navigate the entire home loan process by explaining home loan terms, mortgage definitions and banking terminology.
Interpretations of some terminology may vary from lender to lender and state to state, so the common home loan terms below should be treated as a guide only.
The formal term for a standard principal and interest home loan.
Also known as approved in principle (AIP), borrowing capacity estimate or pre-approval, this is a letter issued by your lender that indicates what your borrowing capacity might be. It is not the same as a full approval.
Your approval in principle is only valid for 120 days for your new home loan or for 90 days if you are refinancing.
A bridging loan is a short term temporary home loan used as a gap measure to finance the purchase of your new property, before you sell your existing property.
Also known as a commercial loan, a business loan is a loan for business purposes such as car loans, cashflow and invoice financing.
Learn more about Business Loans.
100% off the ongoing lender commissions paid to all mortgage brokers and credited monthly to your home loan.
The more than 19,000 mortgage brokers that are not Mates Rates Mortgage Brokers.
Also known as capital appreciation, capital growth is an increase in the value of your property over time.
Also known as a title deed or a land title, a Certificate of Title is a formal legal document that provides evidence of ownership of real property, including a title reference, name(s) of registered owners and any registered dealings such as mortgage details.
If your property is still subject to a mortgage, the Certificate of Title is usually held by your bank or lender as security for the loan, ensuring you cannot transfer or mortgage without their knowledge.
A comparison rate gives you the true cost of a loan so you can compare the true cost of loans from different lenders. It is calculated using a standard formula that includes the interest rate and any additional fees and charges.
Conditional approval occurs after pre approval and it is issued once your information has been assessed and validated by your bank or other lender and you’ve had a credit check.
It indicates the amount you’ll likely be able to borrow, however you’ll still need a Contract of Sale for your new property before your bank or lender can fully approve your home loan.
A construction loan is a loan issued specifically for building or renovating. This type of loan is based on construction progress and you draw the loan down as lump sums in stages, only paying interest on the money already drawn down.
Learn more about Construction Loans.
The process of transferring a property from one owner to the next. You’ll need a lawyer or licensed conveyancer to do this for you. They’ll make sure all outstanding bills, like water and land rates, are paid up in full by the existing owner before you settle.
Your credit score, also known as your credit rating, is based on your personal and financial information and is used by lenders to decide whether to give you credit or lend you money.
Your credit score will be between 0 and 1,000 – 1,200 (depending on the lender) and in one of these bands: low, fair, good, very good, excellent.
The lower your score, the harder it is to get a home loan or credit as lenders will consider you to be risky. The higher your score the easier it will be to obtain a home loan and get a better deal.
The Debt Servicing Ratio (DSR) is also known as the debt-to-income ratio (DTI) and it is a calculation used by lenders to establish whether you can afford your home loan repayments.
Your Debt Servicing Ratio (DSR) is calculated by comparing the amount of debt you have to your overall income.
The reduction in the value of your property over time due to wear and tear, changes in the property market, natural disasters, or even changes in your neighbourhood.
A mortgage discharge occurs either when you’re refinancing or when you have paid off your home loan in full. This does not happen automatically – a Discharge Authority form is required to be completed and provided to your home loan lender.
The mortgage securing your home loan will be removed from the title of your property and replaced with either your new lender (refinancing) or your name (when home loan is paid off).
Equity is the difference between the current market value of your home and what you owe on your home loan.
Family Equity Loans are also known as Guarantor Loans. They allow a ‘guarantor’ (often a family member) to use the equity in their own property as additional security against your loan if you have a smaller deposit than the expected amount for your home loan.
The FHOG is a national scheme funded by the States and Territories and administered under their own legislation – so eligibility and offers differ from State to State.
This one-off government grant is available to qualifying first home owners who purchase a newly built house, townhouse, apartment, unit or a property that has been substantially renovated by the seller.
The interest rate on a fixed rate home loan does not change during the fixed rate period. This means your minimum payment does not change either, so you can budget and plan with more confidence.
Our recommendation is to always consider paying a rate ‘lock fee’ to ensure if the fixed rate increases between application and settlement of your loan that you get the fixed interest rate you applied for.
Also known as a second mortgage, a home equity loan allows you to borrow money against the equity on your existing home to purchase another property.
Home equity loans tend to have a higher interest rate and bear in mind that your existing home will be used as collateral for the home equity loan. Failure to meet your repayments will hurt your credit score.
With an Interest Only Home Loan your repayment of the loan principal is deferred for an agreed period. During this agreed period you only pay the interest charges, which means a lower minimum payment.
Interest Only loans are often preferred by investors because they enable the borrower to purchase a more expensive property for greater returns (e.g. 10% capital growth on $500,000 is greater than 10% on $400,000). However, using an IO loan is an aggressive strategy whereby investors risk that the property may not increase in value, or may in fact decrease.
The interest rate is low to attract borrowers. Also known as a honeymoon rate, this rate generally lasts for a short term before reverting to a much higher variable rate loan (e.g. standard variable).
An investment loan is designed for borrowers to purchase a property for an investment purpose. It can be used to invest in land, houses, apartments or commercial property.
You can earn income through rent, however the interest rate is usually higher than for an owner-occupied home loan.
Find out more about investment loans.
LMI is insurance that protects the lender against losses it might incur by providing a loan to a borrower. In other words, LMI protects the lender, not you!
A line of credit is like a personal overdraft or very large credit card. LOC’s provide borrowers access to a predetermined amount of credit whenever they need it.
Loan portability means that if you choose to move from your current home, you can choose to take your home loan along with you. The lender simply substitutes the security property on the mortgage.
LVR is used by lenders to determine how much they will lend against a property for a particular loan product. For example, your house is worth $500,000 and the loan product you want, allows a maximum LVR of 80%. In this case, the maximum amount you can borrow is $400,000 (i.e. $400,000 loan as a percentage of a $500,000 value = 80% LVR).
A mortgage is a lien on property for the performance of an obligation (i.e. paying a loan). Your mortgage is not the same as your home loan, instead it is the collateral held by the lender.
The word mortgage is derived from a French law term used in Britain in the Middle Ages, meaning “death pledge” and refers to the pledge ending (dying) when either the obligation is fulfilled or the property is taken through foreclosure, a process whereby the lender forces the sale of the property used as the collateral for the loan.
When you do not make the required monthly repayments on your home loan you are in mortgage arrears – if it is more than 90 days since you made a payment you go into mortgage default.
The two types of mortgage arrears are late payments and mortgage arrears. With late payments you miss a loan repayment but make it up prior to the next one being due. If you miss more than one repayment you go into genuine mortgage arrears.
Also known as a break fee, a break cost or is charged if you pay out all or part of your fixed rate home loan, change the interest rate, payment or loan type BEFORE the end of your fixed rate period.
Mortgage default occurs when you’re 90 days late on your home loan repayments, whereas mortgage arrears refers to a loan being behind in payments at any point.
Once you are in arrears, your lender will send a ‘notice of default’, giving you 30 days to catch up with the repayments schedule.
This is a type of insurance also known as Income Protection insurance, you take out to cover your home loan repayments in the event of unemployment, injury, illness or death.
Also known as a car loan, a motor finance loan is secured by a motor vehicle and may be for business or personal purposes. Learn more at our Car & Personal Loans page.
Also known as offset facility or an offset loan, an offset account is a transaction account linked to your home loan. You can deposit your salary and savings into the account and the balance is then offset against the amount owing on your home loan.
For example, if you have a home loan of $350,000 and $20,000 in your offset account, you’ll only be charged interest on a loan balance of $330,000. Your $20,000 is therefore saving interest at the home loan rate, as opposed to earning taxable interest at a generally much, much lower rate.
A personal loan is for personal purposes such as debt consolidation, school fees or taking a holiday. Learn more at our Car & Personal Loans page.
Also known as an approved in principle letter, a pre-approval letter gives you an indication of your borrowing limits before you go house-hunting.
Your pre-approval limit will be based on the information you’ve given your lender and is issued after they perform a credit check.
Principal is the actual lump sum of money you have borrowed, while interest is the fee banks and other lenders charge you whilst you owe this money.
With a P&I loan, interest is generally calculated daily on the loan balance and charged monthly in arrears; so loan repayments contain a repayment of both the principal and an interest element of your home loan.
The amount going toward the principal in each payment varies throughout the term of the home loan. In the early years the repayments are mostly interest, however as you gradually pay down the home loan, payments at the end of the home loan are mostly for principal.
With a P&I loan the payment amount determined at the outset is calculated to ensure the loan is repaid at a specified date in the future (e.g. in 30 years).
In a construction loan your progress payments are the loan funds you draw down in a set schedule of payments as building work progresses.
Interest is only charged on the funds you have already drawn down.
Rate lock is an option you can choose when applying for a fixed rate home loan. It allows the borrower to lock in the interest rate for a specified time period at the prevailing market interest rate.
The benefit of rate lock is to maintain the rate offered by the lender during the application process through to settlement. To obtain the benefit, the lender generally charges a fee.
A redraw facility allows you to make extra repayments to your home loan and take them back out if you need. Not all home loans offer a redraw facility.
Refinancing occurs when you take out a new home loan with a different lender to replace your current loan, helping to improve your financial position with lower interest rates and fees, easier repayment terms and better loan features.
Learn about refinancing loans.
A way for older homeowners to access the wealth that’s tied up in their home, reverse mortgages allow you to borrow money using the equity in your home as security. The loan may be taken as a lump sum, an income stream, a line of credit or a combination of these options.
Interest on a reverse mortgage is charged like any other loan, but you usually don’t need to make repayments while you live in your home. The loan must be repaid in full if you sell your home or die or, in most cases, if you move into aged care. Typically, you are charged a higher interest rate on a reverse mortgage than for a standard home loan.
Settlement is the process for transferring property from buyer to seller. It involves various legal, financial and administrative tasks. In a nutshell, settlement occurs when you take legal and physical ownership of a property.
These loans allow your total borrowings to be split into different loan types. The most common is part fixed, part variable which is a good way to maintain flexibility and safety at the same time.
Stamp duty is a tax levied by all Australian States and Territories for certain documents and transactions. You’re required to pay stamp duty for transfers on real estate, also known as transfer duty; and the amount of stamp duty you’ll have to pay depends upon the type and value of your transaction.
The standard variable rate (SVR) is the standard home loan rate charged by the bank or other lender, used as a benchmark rate from which other variable products are priced.
The lender has the right to change the interest rate on a variable rate home loan. As an example, this may occur if the Reserve Bank of Australia increases its interest rate and the lender chooses to pass this increase on to its borrowers. The main types of variable rate home loans are:
