Have you ever tried to pronounce xylophone backwards?
(A couple of us did try one day, but we got into an argument about whether the x was silent. Anyway, that’s not the point …) Chances are it’s easier than trying to pronounce or understand than half the words that lenders throw at you. To help you get your head around the terms, here’s some pointers – or sretniop (which kind of sounds to us like a curry involving small spiny fish).
Accrued Interest
Interest that’s been calculated but has not yet been added to your loan.
Amortisation
Repaying a loan regularly over a period of time (e.g. Weekly, Monthly or Fortnightly). Each payment includes the interest and part of the principal.
Application Fees
A fee that lenders charge to consider your loan application.
Arrears
The amount that a loan is overdue.
Assets
Stuff you own - money, property or goods
Bridging Finance
A short term loan, usually with higher interest, that covers the financial gap between the property you’ve bought and the one you’re looking to sell. To get this, typically you’ll need to have a firm contract for the sale of the current property in place
Capped Loan
A loan where the interest rate is guaranteed not to go above a stated rate for a fixed period of time. The interest rate can fall.
Certificate of Compliance
A certificate issued by Council confirming that all the buildings on a piece of land comply with building regulations.
Commitment Ratio
See Income/Outgoing Ratio.
Community Title
A property title where several homes are erected on a site and the owners have access to a community club house, swimming pool, barbecue area, tennis court etc. These are becoming popular. Owners have to pay levies for upkeep on the community facilities. Quarterly levies usually apply.
Company Title
A property title where owners of units form a company. It’s difficult to raise finance against this type of title because a new owner has to be approved by all the existing owners. These types of titles usually sell at a discount.
Covenant
Special terms that apply to certain properties e.g. home must be made of brick (not fibro).
Disbursements
These are costs that you pay to bodies other than the lenders or their solicitors
Equity
The amount of your asset that you really own. e.g. on a home worth $230,000 with a loan of $100,000, the equity is $130,000.
Equity Mortgage
This is a loan that’s secured against the equity in a home, and can be structured as either a term loan or an overdraft or revolving credit facility
Establishment Fee
Fee charged to establish a loan
Fixed Interest
An interest rate set for a fixed term. Penalties usually apply if the loan is paid out before the term expires.
Garnishee
To legally divert all or part of your money to another person.
Gearing
The ratio of your own money against borrowed funds that you use to buy a home or make an investment.
Guarantee
A form of security for a loan where someone else promises/guarantees to repay the loan if the lender doesn’t
Interest Only Loan
A loan where the principal is repaid at the end of the loan term and interest only is repaid during the term of the loan. These loans are usually short term, say 1 to 5 years, although it can be for up to 10
Income/Outgoing Ratio
Ratio of income to loan repayments. Most lenders have their own particular way of calculating the income/outgoing ratio. At Roost™, because we use numerous lenders, we apply the following method: All fixed monthly commitments X 1200 divided by gross annual income. Income/Outgoing ratios determine your capacity to repay.
Joint Tenants
Where more than one person is the owner of the property. If one person dies, then the title goes to the survivor(s) irrespective of the deceased's will.
Liabilities
A person's debts. There are also "Contingent Liabilities", which are liabilities that depend on something happening, e.g. where a guarantee is acted upon through a loan default. In these situations, the liability may or may not come into effect.
Loan to Valuation Ratio
The ratio of the amount lent to the valuation of the security. Commonly called LVR.
Mortgagee
The company that lends the funds.
Mortgagor
The owner of the property is used as security for a loan, not necessarily the borrower.
Negative Gearing
Where an investment is geared to produce a book loss. This loss can be deducted from other taxable income.
Overdraft
A prearranged limit to which a person can overdraw their cheque account.
Principal
The capital sum you’ve borrowed.
Principal and Interest
A loan where both the principal and interest are repaid together on a regular basis, mostly by monthly instalments (P & I).
Security
An asset that guarantees the lender their loan until it is fully repaid. Usually property such as real estate is offered as security.
Settlement Date
Date on which the new owner finalises payment and assumes possession. Sometimes called the "Drawdown" date, as this is the date the loan is usually fully drawn.
Strata Title
Similar to Freehold title but usually over units. With a freehold title the land is owned along with everything on it. With a Strata Title, only a particular unit is owned.
Survey
A plan that shows the boundaries and the building position on a block of land.
Search
A request to the Lands Dept to ascertain who owns a specified property, and what is loaded on the title.
Table loan
A table loan is repaid with regular repayments of the same amount (split between principal and interest in varying amounts) over the term of the loan.
Tenants in Common
Where more than one person is the owner of the property. If one person dies, then part of the title passes through the estate of the deceased. Also each owner can have a nominated share of ownership such as 5% or two thirds, etc.
Valuation
A report giving a professional opinion of the value of the property. A valuation obtained for one lender is NOT suitable for another lender, as each valuation has an indemnity clause which protects the specific lender. So if you are given a valuation by the applicant, it usually is not acceptable to the lender. However, the valuer may be willing to provide a covering letter to the lender allowing them to rely on the valuation.
Veda Advantage (formerly known as Baycorp)
These guys hold credit information on all of us. You can get a listing from them detailing your credit history for a small fee
Variable Interest Rate (a.k.a floating rate)
An interest rate that goes up and down during the term of the loan, depending on what’s happening in the marketplace.
Zoning
A Certificate that confirms local authority guidelines about what you can do on a piece of land.