Home loan glossary.
Confused by some of the financial speak about mortgages and government terminology around home buying? You’re not alone. That’s why we’ve put together a list of the more common terms you’ll come across – and what they really mean.
Guide to mortgage and home buying terms.
Approval in principle.
An approved in principle (or pre-approval) letter indicates the amount we might be able to lend you. This can give you a good idea of what your borrowing power might be before you go house-hunting.
It’s based on the information you’ve given us (without validation or assessment) and is issued after we perform a credit check.
This is different from a conditional approval letter, where your information is validated and assessed before it’s issued.
Bridging finance.
A bridging loan is a short term home loan to finance the purchase of your new property, before you sell your existing property.
Building insurance.
This is a type of home insurance for those who own a home or investment property. While the cover can differ depending on the insurer and policy, it’s generally designed to cover the property itself and its permanent fixtures for events like fire, flood, storms and theft. It may also include additional benefits and, in many instances, can be combined with contents insurance.
Capital growth (also known as capital appreciation).
An increase in the value of your property over time.
Cash rate.
The cash rate in Australia is set by the Reserve Bank of Australia (RBA). It is one of the components which determines how much interest a bank is charged when they borrow money from another bank. When the cash rate fluctuates, so can the interest rates for borrowers. Find out more about the RBA’s funding mechanism.
Comparison rate.
It’s a tool that can help you identify the truer cost of a loan. It’s calculated using a standard formula that includes the interest rate, as well as certain fees and charges relating to a loan (not all fees and charges are included).
Conditional approval.
This letter indicates the amount you’ll likely be able to borrow following our validation and assessment of the information you’ve given us, plus a credit check. We’ll list the things we still need from you (like a Contract of Sale for your new property) before we can fully approve your loan.
A conditional approval letter is what you’d take with you to an auction.
It’s different to an approved in principle letter (also known as pre-approval), where your information hasn’t been assessed or validated by us.
Construction loan.
A loan specifically for building or renovating. These loans are based on construction progress and draw down in stages. Instead of receiving the loan in a lump sum, like you would for a home loan, the loan funds are released as the building or renovation progresses.
Contents insurance.
This is a type of home insurance for belongings or items you own in your home, investment property or the property you rent. It’s designed to cover these belongings for events like fire, flood, storms or theft. While the cover can differ depending on the insurer and policy, it generally applies to items like furniture and appliances.
Contents insurance is usually different to portable contents insurance, which is cover for items you generally take or wear outside of the home – but often you can combine these covers. Contents insurance won’t cover you for the building itself, but you can usually combine it with building insurance.
Conveyancing.
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.
Cross-collateralisation.
When multiple properties secure one or more home loans. If you buy a second property, you might want to access any existing equity or reduce your Loan to Value Ratio (LVR), and this is where cross-collateralising can help.
If you change a loan or property (like refinancing or selling), it may affect anything that’s cross-collateralised.
Depreciation.
A reduction in the value of your property over time due to wear and tear.
Discharge.
A discharge is where a bank removes it’s mortgage off your property title. If you’re refinancing from one bank to another, the first bank will have to discharge it’s mortgage so the second bank can place a mortgage on your title.
Equity.
The difference between your property’s market value and what you owe on your home loan. Learn about home equity loans.
Family Guarantee.
A helping hand from an immediate relative who agrees to be your home loan guarantor. This means they agree to provide their property as additional security for your home loan, allowing you to buy your new home sooner. Find out more about our Family Guarantee option.
First Home Owner Grant (FHOG).
A one-off government grant to help pay for the costs of buying your first home. You may be eligible for it if the property you’re buying is a new build or brand new house never lived in. Your Home Lending Specialist can give you the latest information about the FHOG as well as first home buyer loan options.
Fixed interest rate.
An interest rate that stays the same for a set period. If you have a home loan with a fixed interest rate, your repayments won’t change during that set period. Find out more about fixed rate home loans.
Funds to Complete (FTC).
This is the total funds needed to cover the property purchase, including all associated costs. This includes the property purchase price, plus any other fees and charges (like stamp duty or LMI). The FTC is different to the loan deposit, but the deposit can contribute towards this amount.
Genuine savings.
Funds you’ve saved yourself gradually over a minimum of three months. These funds can contribute towards your home loan deposit. You can still use other savings or funds you’ve been gifted towards your deposit, but they won’t be classed as ‘genuine savings’.
Gifted funds.
Money which is given to you to help with buying a property.
Guarantor.
An individual who promises to pay a borrower’s debt if they default (fall behind on) their home loan repayments. The guarantor’s own property is pledged as security against the home loan. Most lenders prefer the guarantor to be a close relative (like a parent, grandparent or sibling). If this is the case, then the guarantee is called a Family Guarantee.
Home Buyers Assistance Account (HBAA, previously known as the REBA grant).
If you’re buying your first home in WA and it meets the HBBA grant criteria – and you’re buying from a licensed real estate agent – you could be eligible to receive a grant to go towards the costs of buying your home.
Home equity loans.
A home equity loan allows you to borrow money against the equity on your existing home to put towards a deposit to buy a new home or an investment property.
Home loan increase.
This is when you increase the limit on your existing home loan. Find out more about increasing your home loan.
Interest only repayments.
Your mortgage repayments are limited to just the interest for an agreed period of time. Find out more about interest only repayments.
Interest rate.
This is the amount that a lender charges you for taking out a loan, typically expressed as an annual percentage of the loan balance.
Investor loan.
Investor loans include (but are not limited to) loans where the predominant part is used to invest in construction or property. For example, an investment home loan is a type of investor loan designed for borrowers to purchase a property for an investment purpose.
Lenders Mortgage Insurance (LMI).
LMI is insurance to protect your lender if you have trouble with your mortgage repayments in the future. You can pay LMI as an additional upfront cost when you buy a home or, depending on how much LMI you have to pay, it may be added to your home loan amount. You can usually avoid LMI if you save a deposit of at least 20% of your property’s value.
Liabilities.
These are debts that you’re repaying. This includes things like home loans, the maximum limit on a credit card, personal loan or overdraft, and any student loans.
Loan deposit.
A home loan deposit is your initial contribution towards the price of the property you’re buying.
Loan limit.
The limit is the total amount you’ve borrowed, and it will reduce over the remaining contract period. If you make extra repayments, it will be reflected on your balance. You’ll see the limit and balance on your home loan statement.
Loan to value ratio (LVR).
The total percentage of your property value that you’ve borrowed. For example, if your property is worth $400,000 and you’ve borrowed $320,000, your LVR is 80%.
Usually, different interest rates apply depending on your LVR, and banks often cap the LVR you’re allowed to have.
If you’re borrowing over 80% of your home’s value, banks may require you to take out Lenders Mortgage Insurance (LMI). This insurance protects the bank in case you can’t meet your mortgage repayments and the property has to be sold. You can either pay a one-off premium or have the fee added to your loan amount.
Mortgage.
A mortgage is a legal agreement between you and your lender. This agreement sets out that you’ll be lent money at an interest rate in exchange for the lender having an interest (also known as a mortgage) over your property – this mortgage can be removed once the debt is fully repaid.
It can contain other conditions which mean the lender can take steps to sell the property if you can’t repay the home loan.
Offset facility.
A feature of an offset account that helps you save on home loan interest. Here’s how. The balance in your offset account is ‘offset’ against the amount you owe on your linked home loan. The interest you pay on your linked home loan is calculated on this reduced amount.
100% offset means the balance of your linked home loan on which interest is calculated is reduced by the full amount (100%) of money you have in your offset account. You can offset up to the full amount of your home loan.
40% offset means the balance of your linked home loan on which interest is calculated is reduced by 40% of the money you have in your offset account. You can offset up to 40% of your home loan amount.
Portable contents insurance.
This is a type of home insurance for items you might wear or take away from home, and it’s designed to protect them in the event of accidental loss or damage. It can differ depending on the insurer and policy. You may be able to combine this cover with other types of home insurance, such as contents insurance and building insurance.
Pre-approval.
An approved in principle (or pre-approval) letter indicates the amount we might be able to lend you. This can give you a good idea of what your borrowing power might be before you go house-hunting.
It’s based on the information you’ve given us (without validation or assessment) and is issued after we perform a credit check.
This is different from a conditional approval letter, where your information is validated and assessed before it’s issued.
Principal and interest repayments.
Your repayments are both the loan amount (the principal) and the interest on that loan. Find out more.
Progress payment.
Payments made from your construction loan to your builder when you’re building or renovating. The loan funds draw down in stages as the building work progresses.
Refinancing.
Switching to a new home loan that better suits your needs. Learn about refinancing your home loan.
Redraw facility.
A home loan feature that lets you make extra mortgage repayments and take them back out if you need. See more about how redraw works.
Rentvesting.
A popular term used to describe buying an investment property while living in a rental property. Find out more about what to consider when rentvesting.
Repayment holiday.
Taking a break from making your scheduled mortgage repayments if your loan is in surplus. Find out more about taking a repayment holiday.
Security.
Another property which either you or your guarantor(s) own that guarantees the home loan. Steps can be taken by the lender to sell the security if you can’t repay the home loan.
Settlement.
The legal process of transferring ownership of a property from seller to buyer.
Split loan.
In most cases, this is where one home loan portion is on a fixed rate and the other is variable rate. Find out more about types of home loans.
Stamp duty.
A tax levied by state and territory governments when a property is sold, and likely your biggest upfront cost when you buy a property (aside from your deposit). See our guide to upfront home buying costs.
Standard variable rate.
The standard variable rate (or SVR, as it’s more commonly known) is the standard home loan rate charged by the lender. It’s normally used as a benchmark rate from which other variable products are priced.
Surplus.
The money that’s built up from making extra mortgage repayments.
Unconditional approval.
This is confirmation that your lender has approved your full home loan application and will lend you the money.
Valuation.
This is a detailed property inspection used to determine how much your property is worth. This valuation helps to set the Loan to Value Ratio (LVR).
Variable interest rate.
An interest rate that can go up and down over time. If you have a home loan with a variable interest rate, your repayments can change. Find out more about variable rate home loans.