Jargon Translator

Asset – an Asset is something owned by you or a company and has significant value. This item or ‘property is then available to use as security against your loan.

APRA – The Australian Prudential Regulation Authority is a body that oversees the following; banks, building societies, credit unions, general insurance, reinsurance companies, life insurance, friendly societies and most members of the superannuation industry in an unbiased way.

Basic variable rate  loans – Often referred to as your ‘black and gold’ label with cheaper rates, this loan comes with less features than other packages and therefore lower and often no ongoing fees. Suitable for First Home buyers who wish to save money

Big4 banks – refers to the four largest banks currently operating in Australia which include: CBA, ANZ, Westpac and NAB. Bendigo Bank is now referred to as the 5th largest.

Borrowing costs – these charges must be factored in when calculating your funds as they are incurred after borrowing the funds from the lender. These can include, but are not limited to; Stamp duties, land tranfer & registration fees, Solicitor/Conveyancer charges, adjustments such as rates/water from previous owner and lender application fees.

Bridging loan – is a short-term loan used until a person or company secures permanent funds from a lender or removes an existing obligation (debt). They are generally a 6 month term (some lenders allow up to 1 year) and can have relatively high interest rates in comparison to other offers. This type of loan is used when buying a new property and selling your current one.

Budget – is a useful too that compares expenses to your savings and demonstrates exactly how much you have spare (to either then save or spend).

Business loan – A business loan is a loan specifically intended for business purposes. As with all loans, it involves the creation of a debt, which will be repaid with added interest. The sum of money is borrowed to start new or improve an existing business.

Capital – is a term for financial assets, such as funds held in deposit accounts (savings) and/or funds obtained from special financing sources such as cash, cash equivalents, and marketable securities as well as manufacturing equipment, production facilities, and storage facilities. It is considered wealth in the form of money or other assets owned by you or your company.

Capital gain – A capital gain or loss is the difference between what you paid for an asset and what you sold it for. Taking into account any costs incurred on the purchase and both the sale. Eg, if you sell an asset for more than you paid for it, that’s a capital gain. And if you sell it for less, that is considered a capital loss. Speak to an accountant for further information relating Capital gains. 

Collateral – The term collateral refers to an asset that a lender accepts as security for a loan. eg a property.

Commercial loan – is an agreed funding arrangement between a business and a financial institution and is generally used to fund large assets and/or cover costs.  

Commercial property – refers to a property that can produce a financial return in the form of rent and is usually occupied by a business.

Constuction lending – money that is borrowed by the lender to fund the build or a structual renovation of a home on your land or property. 

Contract employee – A contract employee does not become a regular addition to the staff and is not normally considered permanent. This person is usually hired for a specific job and at a specific rate of pay. 

Co-operative lender – a financial institution that’ is run by it’s members for lenders and is not privatised or owned by any one body.

Cost benefit analysis – also know as ‘Funds to Complete’ is a breakdown of the total costs for establishing the loan. A cost-benefit analysis (CBA) is the process used to measure the benefits of a decision before taking action. 

Council rates – are a yearly fee that Local Government charge land owners. This is determined by a percentage of the property’s worth to pay for communal roads and areas. The amount varies from state to state.

Credit history – a file that is kept by a credit agency for up to 7 years regarding your repayment history on loans and credit cards. A lender can access your credit history only if permission has been provided by you.

Credit limit – refers to the capped amount your lender has allowed you to spend on a credit card. A spending limitation is based on the information in your initial application.

Credit Score  – also known as a Credit rating is based on the credit history or previous lender liabilities held.  An estimate is generated of one’s ability to fulfil a proposed financial obligation and commitment.

Debt consolidation – Debt consolidation can make it easier to manage your repayments by combining current debt into one lower repayment. It may be more cost effective, but also important to ensure interest rate or fees (or both) are not higher than before.

Debt structure – Borrowing power and financial soundness is determined by a panel of reviewers who take into consideration everything from your personal or business internal financial stability as well as the state of the economy to foresee if you’re able to repay your loan.

Deposit – a sum of money used to secure the purchase of an item or a sum that you put in a bank account.

Depreciation – generally calculated based on either a period of time or the use of your asset or property.

Emergency funds – your financial planners may suggest to set up an emergency fund that contains enough money to cover at least three months of living expenses. But in the end it is your responsibility to do so.

Equity – the monetary value of an investment less the outstanding loan amount.

Extra repayments – when you pay more than the minimum required amount to the lender in order to pay off your loan faster.

Family equity loan – where a family pledge of a (limited) security guarantee in the form of an asset or property helps you purchase a home without them actually giving you any money towards the deposit.
Family pledge loan – similar to family equity loans, a family pledge loan is facilitated by using the equity in your family’s property to provide security for all or some of your loan.

AFCA (Australian Financial Complaints Authority) – is a body that deals with complaints in relation to the financial services and lending industry. It’s primary focus is to provide consumers with an alternative to legal proceedings for resolving finance-related disputes in an unbiased way.

First home buyer – an Australian who does not have a record of owning a dwelling or land, and who therefore purchases property for the first time.

First Home Owners Grant – a government fee discount with different qualifying regulations in each state and territory available to Australians for the purchase of their first home.

Fixed interest rate – a percentage against an amount of money you borrow that you repay as a fee. You pay the same instalments, which not change over the course of an agreed amount of time.

Funds to complete – The total funds required to complete a purchase transaction. Include the property purchase funds, and all fee’s and charges associated with the transaction.

Furnishings – non-fixed decorative or functional items that adorn your living space inside a home or property.

Heritage Society – an association who is in favour of protecting and conserving existing heritage-listed land and dwellings.

Insurance – an amount that’s paid in instalments to protect a loan or asset.

Interest cover ratio – used to determine how a company can pay interest on outstanding debt. The ratio is usually calculated by dividing a company’s (or your) earnings before interest and taxes by your interest expenses for the same period.

Interest only loans – where for a set term, you pay only the interest on the principal balance, with the principal balance unchanged.

Interest rate – a percentage calculated against an amount of money that you borrow, and is paid as a fee for the use of that amount of money over time.

Investment loans – an amount you borrow specifically used for investment property purposes.

Legal fees – a sum charged by a legal representation, usually a conveyancer, who specialises on the legal aspects of buying and selling property.

Lenders Mortgage Insurance – a percentage against the amount you borrow if no or little deposit is paid by you (up to 20% of the property value). This amount is paid by you in order to pay for the lender’s insurance to protect them in case you falter on your repayments.
Limited guarantor loan – when another person or family member puts up a property they own that they have equity in as security, allowing you to borrow up to 100% of the purchase price of a home without needing a deposit. This will also mean that you will avoid paying the LMI.

Line of credit – drawn from the equity in your property or an agreed amount that your lender has approved. This means you can use just a portion of what you borrowed, and so you only pay interest on money actually withdrawn or used.

Loan application – a document that provides a financial lender important information about a potential borrower, which the lender then bases their decision to lend to that party. Each loan application may or may not be chargeable, even if the application is rejected.

Loan approval – when the documents you’ve filled have satisfied a panel of lenders to permit you to borrow an agreed sum of money.

Low deposit loan – when you have up to 20% of the value of a property as an initial down-payment to secure the purchase of that asset. A higher interest rate is usually charged.

Low doc loan – where you do not need any supporting evidence, just a declaration from yourself and your accountant that you can afford to make repayments for the duration of the loan. This type of loan is suitable for those who are self-employed or have an irregular income.

Loan – a sum of money that you borrow from an authorised financial lender, with terms and conditions that is usually paid back with interest.

Loan repayments – a regular scheduled amount that you pay to a lender to reduce the sum that you have borrowed.

Loan settlement – refers to when your debt or loan has been paid in full.

Loan-to-Value Ratio (LVR) – expressed as a percentage, it refers to the amount of the loan against the value of the property purchased.

Loan portability – is a feature that is sometimes offered by your lender that allows you to carry the terms of the loan to a new property if you decide to move house during the life of your loan.

Lump sum repayments – a single, large sum of money paid toward your loan amount on top of your regular instalments.

Mortgage broker – a person or company connected to many lenders in a non-biased way who will evaluate which loan is most appropriate for your individual situation.

Mortgage registration fee – a fee that can vary from state to state, it’s charged by the State Government for the registration of a home loan in order to verify ownership of a property for any government searches and checks needed by any future buyers of that property.

Moving costs – various expenses that are associated with moving house.

NAB – stands for National Australia Bank and is considered to be one Australia’s largest financial institutions and therefore part of the Big4.

NCCP – The National Consumer Credit Protection Act, suggests that all lenders and mortgage brokers are required to hold a credit license or be registered as an authorised credit representative. This legislation is designed to protect consumers and ensure ethical and professional standards in the finance industry, through the National Credit Code (NCC).

Negative gearing – a tax advantage calculated as a return from an investment property after maintenance and mortgage interest costs.

Net income – refers to your available income from salary or property? after deducting depreciation, interest, taxes and other expenses.

Non-bank lenders – are lenders who do not hold an Australian banking licence and who do not represent a mutual bank, building society or a credit union. A non-bank lender usually sources their own wholesale funding and then lends out their funds making a margin on the difference.

Offset account – a savings account that is linked to a home loan. It reduces your interest payable because the interest is only charged on the net balance of your savings account.

Panel of lenders – referring to usually more than one person who represents the financial institution you are applying for a loan from who will assess your application in a group effort.

Parental guarantee- refers to when your parents or other family members help you secure a loan in your name by offering you to use the equity in their home for some or all of your loan.

Personal loan – smaller amount of money borrowed compared to a home loan. Used to purchase items like, holidays, cars and medical procedures.

Pest and building inspections – a recommended pre-purchase property inspection report, usually paid by you, which identifies structural and pest infestation on the property.

Pre-approval – a pending loan whereby the loan documents have passed and a loan is available when the borrower is ready to use it or purchase an asset.

Principle – refers to the actual sum that you have borrowed or otherwise, the body of the loan. In contrast, the additional part you need to pay when you borrow money is the interest, which acts as a fee that is calculated as a percentage, usually against the original sum of the loan until the end of the term.

Principal and Interest – a loan where both principal and interest are paid together for an agreed amount of time, sometimes for the life of the loan.

Property transfer stamp duty – a taxation charged by the State Government when you purchase a property.

Property portfolio – is a collection of property investments owned by an individual, a group or a company.

Redraw facility – where you can access additional payments you’ve made previously on a loan.

Regional bank – usually operates in a limited area or part of the country rather than nationally.

Refinancing – when you acquire a new loan to take over an older one for the same asset.

Renovation loans – a sum of money borrowed as a short term loan to pay for maintenance or structural changes to your property.

Rental yield – a measure of the percentage of income return you earn from your property.

Removalists – companies who specialise in helping people move from one home to another.

Reserve Bank of Australia (RBA) – its duty is to contribute to the financial stability in Australia, and is influenced by things like employment and overall Australian welfare. The RBA create the daily cash rate which will affect the direction of the interest you pay on your property.

Residential property – a dwelling that is either occupied by tenants or inhabited by a person, group of people or family who may own the property and is generally used for non-business purposes.

Reverse mortgage – when retirees unlock the equity in their home and borrow against the value of their home and repay the loan when they sell their property. (is there a set timeframe?)

Self managed superannuation fund loan – a self managed super fund (SMSF) loan is a home loan for those who wish to invest their superannuation in property.

Settlement date – the agreed date which the seller must deliver the property that was sold, and the buyer must pay the final amount that is owed.

Smaller banks – considered as safe financial institutions as they’re held to the exact same regulatory standards as the Big4 banks. Many are owned by the larger banks and are used to serve niche parts of the market.

Split loans – allows you to borrow part of your mortgage on a fixed interest rate and the remainder on a variable interest rate – all under the one loan product.

Stamp duty – a State Government tax based calculated by a percentage against the monetary value of the property you purchase.

Standard variable rate loans (SVR) – usually with a variety of features, including making extra repayments and redraw advance repayments, this type of loan is suitable for both investment and personal purposes.

Strata fees – when collective owners of a building pay a fee, usually quarterly, into an account that pays for the overall maintenance and other expenses related to the building.

Superannuation – a compulsory, regular payment made into a fund by an employee towards your future pension.

Sweat Equity – an interest in a property earned by a tenant in return for labour towards upkeep or restoration.

Vacant land loan – a sum of money that you borrow to pay for a block of land that you intend on building on in the near or distant future.

Valuation – an estimation of the worth of a property, carried out by a professional (certified?) property valuer.

Variable interest rate – a percentage charged against the sum of money borrowed as a fee paid at regular instalments, that may increase or decrease according to the cash rate.

Westpac – stands for Western-Pacific, is considered to be one of Australia’s largest operating banks and is part of the Big4.