The “Average Annual Percentage Rate” revealing
the true cost of lending by incorporating the actual
interest rate together with upfront application fees,
ongoing charges and loan exit costs.
ABA The Australian Banker’s Association
ABIO The ‘Australian Banking Industry Ombudsman”
provides an avenue, through which customers can
make a complaint against their bank and have the
issue dealt with independently. The customer would
generally take their complaint to their bank first and if
unresolved then to the ABIO.
Acceptance To agree to the terms of an offer or contract.
Accrued Interest Interest that has been either earned or incurred
which is yet to be paid or charged.
Acknowledgement Form A document often used when a broker is charging a
fee for their services.
Additional Repayment Extra funds paid into the loan over and above the
prescribed minimum repayment.
Adjustments The process of allocating expenses (council,
electricity, water rates, etc) on settlement day that
the vendor has paid for but not used, and which the
buyer has not used but will be billed for.
Agent’s Commission The fee, which is usually a percentage of the sale
price (e.g. 5% on the first $18,000 and 2.5% on the
remaining price) which is payable by the vendor to
the real estate agent selling the property.
Aggregator An organisation whose members lodge loan
applications under its name and agreement to a
lender. Many credit providers will not allow
individuals direct accreditation.
All In One Loan A loan, generally at variable interest rates, which
allows a customer to deposit all of their income
directly into their loan account and then withdraw
money from the loan account for all day to day
purchases and transactions.
Amortization The progressive reduction of the outstanding amount
of a loan by regular repayments that include a
principal and interest component.
Applicant The person(s) applying for finance.
Application Fees The fees charged to cover or partially cover the
lender’s internal costs of setting up a loan approval.
(The fee will often cover the cost of one residential
Appraised Value Estimate of the value of a property being used as
security for a loan.
Arrears An overdue account.
Asset Everything that a person or a company owns or has
a right to. Assets include items such as real estate,
motor vehicles, personal property and shares etc.
“Net Assets” are assets in excess of liabilities.
“Liquid Assets” are assets either in the form of cash
or those readily convertible into cash.
At Call Account A bank, building society or credit union account from
which money can be withdrawn immediately.
ATM An “Automatic Teller Machine”. These machines will
normally allow withdrawals to a set limit per
transaction (e.g. $500 or $1000) subject to the
individual provider’s guidelines.
Auction A public sale by a licensed auctioneer in which
property is sold to the highest bidder providing that
bid is at or above the reserve price set by the
BAD “Bank Account Debits” tax.
Balance Sheet A statement which lists the assets and liabilities of
the individual or concern and sets out the equity of
the proprietor(s) in the enterprise. The balance sheet
could be likened to a photograph or a snap-shot in
time, as it reflects the financial position of the
concern at a given particular moment. This is the
basic accounting equation. (i.e. Assets – Liabilities =
Balloon Payment A large loan repayment generally used to clear a
Bank Bill Rate The rate that banks pay to borrow money over a set
term – hence the 30 or 90 day bank bill rate. Rates
fluctuate on economic influences through the money
Base Rate The rate, which is often advertised, based on the
bank bill rate or cost of funds to the lender. A margin
(profit) is generally added to the base rate and is
then offered to the market.
Basic Variable A variable home loan at a reduced rate with
generally fewer features than a standard variable
Bankrupt A person who is unable to repay their debts. Through
court proceedings, they are generally relieved from
the payment of debts after they surrender all assets
other than life necessities to a court appointed
Body Corporate An incorporation of a strata title (e.g. unit complex),
where representatives of the owners often take the
responsibility for management and upkeep of
common property. They will normally administer a
“Sinking Fund” together with general annual fees
from the owners.
Break Costs The costs incurred when a loan is paid out before the
end of a term. This generally applies to fixed term
loans and can vary markedly with the movement in
Bridging Finance This is often short term finance that enables a
borrower to cover the cost of a new property
purchase while they are yet to sell their existing
Brokerage Fee charged by some mortgage brokers to arrange
finance for clients. (Often where the broker may be
providing a monitoring service for debt reduction).
Building Conditions The standards formulated by local councils to control
the quality of buildings.
Capital The current value of your long term assets. (e.g.
House, property or business).
Capital Gain The monetary gain obtained as profit from the sale of
a particular asset at a greater price than was paid for
Capital Gains Tax A federal government tax applied to the monetary
gain made on the sale of an asset bought and sold
later than September 1985. (Does not apply to any
profit on a the sale on an owner occupied residence)
Capitalisation When interest payable is added to the total debt
Capped Loan A loan where the interest rate is not to exceed a set
level for a period of time but unlike fixed loans the
rate can actually reduce.
Caveat From the Latin for “beware”, it is usually in the form
of a contract clause that stipulates a particular
requirement. Can delay or prevent the conveyance
of transfer of title. (A warning noted on the Certificate
Certificate of Title Often referred to as a C/T, this document indicates
registered ownership of a property together with
items such as registered mortgages, easements,
covenants and encumbrances.
Chattels Chattels are personal property. There are generally
two types. Real chattels are buildings and fixtures.
Personal chattels are clothes and furniture.
Clear Title Where the vendor has no restrictions on the
property, such as an outstanding mortgage.
Collateral An asset (such as a home or vehicle) which is
mortgaged to a lender to secure the repayment of a
loan. The borrower could risk loosing the asset if the
loan is not repaid in accordance with the terms of the
Combination Loan Often referred to as a “split loan”, providing the
borrower with a choice of loan “mixes”. For example,
they may choose to fix a portion of their loan leaving
the remainder at a variable interest rate or they may
elect to have a portion of their loan as a line of credit
Can be a very useful way of hedging against interest
rate increases and is often suitable for self employed
and investors who wish to keep business /
investment borrowings separate from their personal
Commercial Loan A loan where the property offered as security is of a
commercial nature. It can at times involve residential
security, but generally in both instances the loan
funds are required for commercial purpose.
Common Property An area used by many, not an individual. Owned by
the tenants’ in common.
Company Title A property title that applies when owners of units in a
block form a company.
Comparison Rate Used to compare the actual rate of a loan, taking into
account nominal interest rate per annum and the
compounding frequency of upfront and ongoing fees.
Compound Interest Interest that is paid on both the accumulated interest
as well as the original principal.
Conditional Approval (from a
The lender’s initial approval of the loan submission
generally based on the borrower(s) ability to service
the loan and a satisfactory credit check (Baycorp
Advantage – see later notes in this section).
This approval is normally the preceding step to a
valuation report of the property and subsequent “final
loan approval”. It may also be subject to certain
confirmation of any outstanding documents and may
contain “conditions” required by their lender or
Construction Loan A loan utilised for financing the construction of a
property and funded in stages, referred to as
progress payments. The lender makes payment to
the builder in terms of the agreed building contract.
Generally, the borrower is only required to meet
interest payments until after completion of the
construction. Once complete, the repayments would
normally revert to principal and interest reductions.
Consumer Credit Code Often referred to as the UCCC or “Uniform
Consumer Credit Code” it is an Act of Parliament
which governs the relationship between borrowers
Contingency: A condition which must be met before
a contract becomes legally binding. For example, a
home purchaser will often elect to have a building
and pest inspection and the purchase contract will
include a contingency that the contract is not binding
until the purchaser receives a satisfactory inspection
report from a qualified professional.
Contract of Sale A binding legal document signed by the purchaser(s)
and accepted by the vendor(s) when negotiating a
real estate purchase.
Covenant Terms and conditions that specify the usage of a
block of land or the buildings on it.
Cover Note A note of temporary property insurance before the
implementation of a formal policy. (This type of cover
is rarely offered today)
Credit An account entry to deposit funds to a specified
Credit Rating Often a misunderstood term. A credit rating is often
determined on a borrower’s performance with
previous finance. For example the rating could be
judged “poor” if there have been late payments,
arrears and credit defaults registered through a
reporting agency. (e.g. Baycorp Advantage) or
possibly a “good” history proven through regular
repayment of previous or existing commitments.
Creditor A party to whom money is owed.
Debit An account entry to charge a withdrawal to a
Debtor Someone who owes money to someone else.
Deed A legal document that states an agreement or
obligation regarding a property.
Default A borrower(s) failure to meet loan repayment in
terms of their contract.
Deposit (Property) The amount of money often held in trust (Real Estate
Trust) or paid direct to the vendor as intention to
proceed on an agreement of sale. In the majority of
cases, this will represent 10% of the contract price.
Deposit Bond A document which guarantees that the purchaser of
a property will pay the full deposit by the due date.
Organisations providing deposit bonds act as a
guarantor that payment will be made. They are often
used as surety when cash isn’t readily available at
Depreciation An allowance made under accounting convention on
the depreciating value of a business asset. Can
often be used as an add-back when calculating self
Disposable Income The income left over after all known commitments
and expenses have been met.
Disbursement Generally, a signed authority from the borrower(s)
indicating the proceeds of funds at property
Discharge (Mortgage) Required when a loan is paid out or sold and
property is held as security. The release or
discharge of mortgage can then be removed from
the property title.
Draw Down Disbursement of loan funds as instructed to the
financial institution. This could be at settlement or
staggered depending on the loan purpose and
product. (e.g. Progress payments on a construction
loan or a line of credit facility)
Debt Servicing Ratio Indicates the percentage of a borrower(s) gross
income that will be required to “service” their
proposed level of commitment (Debt).
Early Termination Costs Fees which are sometimes payable if a loan is paid
in full early.
Easement A right of way on a property that provides access to
other than the owner. (e.g. Battle-axe block, Energex
EFTPOS “Electronic Funds Transfer Point of Sale” A facility
which allows purchases or cash withdrawals form a
credit / debit card. Daily maximum limits apply in
Encumbrance An outstanding liability or charge against a property.
(e.g. Mortgages, Leases, Restrictions or Easements)
Equity The amount of an asset actually owned.
Equity Loan A loan generally secured by the proportion of the
value of a property which the borrower owns.
Escrow An item of value (money or documents) held by a
third party until certain conditions have been met.
Establishment Fees Lending institution fees which may or may not be
Charged to set up a loan.
Exchange of Contract The point in time when the vendor and purchaser
exchange documentation to initiate the purchase
process to eventual settlement.
Execution of Documents The signing and witnessing of legal documents such
as mortgages. Normally “executed” in the presence
of the customer’s Legal or Conveyancing
Factoring A loan secured against the debtor income of a
Fee Simple See “Freehold”
FID “Financial Institutions Duty” State duty charged on
First Mortgage A mortgage which gives the holder (mortgagee) first
claim on the proceeds of the sale of a property.
Fittings Items that can be removed from a property without
Fixed Interest An interest rate set for an agreed term. Break costs
often apply if the term is not completed.
Fixtures These are items that would cause damage to a
property if removed. Their removal must be
stipulated in a contract of sale and any damage
made good by the vendor.
Foreclosure Generally where the mortgagee forces sale of a
Formal Approval (by Lender) A lender’s final approval of a loan application where
all conditions to the loan have been met. For
example, a property valuation has generally been
completed and any outstanding documentation
supporting the loan has been provided to the lender.
The lender could still impose additional conditions,
which would normally be included in a formal letter of
loan offer or contract to the borrower(s) and
guarantor(s) (if applicable).
Freehold The common term applied to a property which is an
“estate in fee simple”. It means the title holder of the
land has absolute ownership of the property.
Giropost A facility that permits access to financial transaction
through a post office.
Goodwill Very much an intangible asset. Usually the rewards
of sound business reputation in building a good
customer base, and could be used to increase the
value of the business for a prospective sale.
Guarantee A promise to answer for the debt or default of
Guarantor The party who agrees to be responsible for another
Highest Bid The top price offered by a bidder at auction. If the
reserve price is not reached and the property is
passed in, the highest bidder is given the first option
to negotiate with the vendor.
Holding Deposit A refundable deposit based on the goodwill of the
buyer to go ahead with the purchase.
Inclusions Items included with the property (e.g. light fittings,
Income Statement An analysis or statement of income and expenditure
over a set period of time. (Usually 12 months)
Interest A charge on borrowed funds or return on funds
Interest Only A loan which requires only the interest accrued to be
met each month; hence no principal reduction is met.
This option is often for a term up to 5 years
(sometimes longer) and would normally be sought by
those customers seeking investment or commercial
finance. Many line of credit facilities are provided as
interest only and might only ever require interest
Internet Banking Allows financial transactions such as transfers, loan
repayments and B-Pay through the internet. A
relatively low cost and efficient range of services are
Introductory Loan A loan offered at a reduced rate for an introductory
Inventory A list of items included with the property.
Joint Tenants The holding of land by two or more persons where
there is legal right of survivorship. If one party dies,
their share of the property passes to the survivors.
Land Tax A state tax levied against property (non-owner
Land Transfer Registration A state tax levied (and assessed) on the contract
price of the property.
Lease A document granting a period of tenancy / use of
property under specific terms and conditions. (e.g.
Rental Properties, Motor Vehicles, Business
Leasehold The right of use but not ownership as specified in the
terms and conditions of a lease agreement.
Lenders Mortgage Insurance
Insurance normally paid by the borrower(s) which
protects the lender against potential loss in the event
of default, where the sale of the security property
fails to clear the loan in full.
LMI is usually required where the borrowing exceeds
an 80% loan to value ratio (LVR), although there are
a number of exceptions based on the criteria of the
Letter of Offer A formal offer by the lender which sets out the
specific terms and conditions of the proposed loan.
Liabilities A person’s debts or obligations.
Lien The right to hold property as security against a debt
Line of Credit A flexible loan arrangement with a specified “ceiling”
which can be re-used at the borrower’s discretion.
Loan to Value Ratio (LVR) The ratio representing the amount of the loan
financed against the value of the security.
Low Doc Loan A loan facility offered by a number of lenders which
requires a reduced level of documentary evidence of
income. Generally available to self employed and full
time investors with a lower LVR.
Margin This is the difference between a credit provider’s
interest indicator rate(or other reference rate) and
the rate actually charged to the borrower(s).
Mortgage A legal document which expresses the terms and
conditions applying to the lending of money secured
over real estate.
Mortgage Broker A person or organisation marketing a number of
loans from a panel of lenders. They generally offer a
service where they will select the best loan or a
range of loans based on a customer’s requirements.
Mortgage Discharge Fee An administration fee to cover the costs incurred in
winding up a loan.
Mortgage Manager A company responsible for managing every facet of
a borrower’s loan. Often sources loans from
Mortgagee The mortgagee is the person who loans the money
for the mortgage. (i.e. bank, credit union, building
society, private mortgage lender etc)
Mortgagee Sale See “foreclosure”
Mortgagor The mortgagor is the person(s) who has entered into
the mortgage. (i.e. the borrower)
Multiple Collateral When more than one property is used as security for
Mortgage Insurance (Lender’s) See “Lender’s Mortgage Insurance”
Mortgage Manager A company responsible for managing every facet of
a borrower’s loan. Often sources loans from
Mortgage Originator Retail, but more often wholesale lenders’ who source
securitised funds in order to package them as loans.
Mortgage Protection Insurance Not to be confused with mortgage insurance (LMI),
this insurance covers borrowers’ loan repayments in
the event of death or perhaps illness.
Mortgage Registration Fee A state government fee for the registration (and
release) of a mortgage.
Mortgage Registration Fee Negative Gearing: A term generally reserved under
accounting standards and applies when an
investment return is less than the outgoings. For
example, if an investment property was returning say
$10,000 in rental income and the outgoing costs
(Interest, Rates, Insurance, maintenance etc) was
$12,000 for the same period; there would be an
available tax deduction of $2,000.
(NOTE: Never Provide Taxation or Legal Advice)
Non-Conforming Loans Loans offered to customers whose eligibility falls
outside the requirements of mainstream credit
Off the Plan The purchase of a property, often a unit or
apartment, before it has actually been completed or
in some cases even before construction has started.
Offset Account A savings account linked to a mortgage in such a
way that the interest normally earned on the savings
is applied to reduce the interest on the mortgage.
Ombudsman See “ABIO”
Ongoing Fee Any loan maintenance fee charged regularly over the
life of the loan.
Overdraft A pre-arranged limit to which a customer can exceed
an account balance.
Partial Discharge Where a borrower has two or more properties as
security for their loan, they may discharge (or sell)
one of the properties providing the remaining
property(s) value(s) is enough to secure the loan.
Passed In A property is “passed in” at auction if the highest bid
fails to meet the reserve price set by the vendor.
Plan Detailed illustration of a property that shows the
internal layout, dimensions and the position of the
property on the land. Could also be a plan of a land
Portability Where a lender allows an existing property which is
held as security for a loan to be substituted with
another property. In this case, the mortgage is
transferred to the new property.
Predominant Purpose Relates to the application of the Consumer Credit
Code and the predominant purpose for the loan
funds. If a loan is predominantly (above 50% of
purpose) for business or investment, the UCCC does
Principal The amount of debt not including interest.
Principal and Interest Loan A loan in which both the principal and interest are
paid during the term of the loan.
Principal Reduction When a borrower makes a lump sum reduction to
their loan. This amount would normally be available
by way of redraw, subject to loan product selected.
Private Sale The sale of a property without an estate agent.
Private Treaty Sale A property sale where the buyer negotiates on a
price set by the vendor, as opposed to an auction
Progress Payment Payments made by the lender to the builder in the
course of property construction. Often 3 to 5
payments are made throughout the construction
Redraw Facility A loan facility where a borrower can make additional
repayments to their loan and can subsequently
access those extra funds when necessary. There will
often be limitations such as a minimum redraw
amount and a possible fee for each redraw.
Regulated Loan A loan which falls under the terms and conditions of
the Uniform Consumer Credit Code. Normally a loan
where the purpose is predominantly for owner
occupation or personal use.
Refinancing To replace or extend an existing loan with funds from
the same lender or another.
Rental Guarantee A promise by the developer guaranteeing a certain
level of return on an investment property. Usually
stated as a percentage of the purchase price of the
property. It often relates to rental properties
purchased off the plan.
Reserve Price Specified minimum price acceptable to a vendor at
Residential Investment Loan A loan granted to purchase a property intended for
Residential Loan A loan granted where the property used as security
is for residential owner occupation.
Search An examination to confirm that a vendor is in a
position to sell a property and to check any possible
encumbrances on the property title.
Securitisation The process of taking a pool of diverse assets such
as different home loans and converting them into
tradable security such as a bond which investors can
then purchase and trade.
Security An asset that guarantees the credit provider’s funds
until a loan is repaid in full. Usually the property is
offered to secure the loan.
Second Mortgage Unlike a first mortgage, where the holder
(mortgagee) has first claim on the proceeds on the
sale of the property, the second mortgage holder (as
implied) has second claim to sales proceeds after
the first mortgage has been satisfied.
Semi-Detached Two houses that share a common wall or walls.
Serviceability Credit providers assess each loan application
depending on the borrower’s ability to service the
debt. Often there can be significant differences
between credit providers.
Settlement Date The date on which the new owner finalises payment
and assumes possession of the property.
Split Accounts See “Combination Loan”.
Stamp Duty (Contract) A state tax on the purchase of real estate, calculated
on the contract price.
Stamp Duty (Mortgage) A state tax charged on the amount borrowed.
Standard Variable A loan where the interest may rise and fall with
Strata Title A system of title which allows the owner of a unit in a
block of units to have a separate deed for that unit.
The common property is owned conjointly with all of
the unit owners.
Stratum Title A title that records a person’s ownership of a “unit” of
a larger property. Unlike a ”strata title”, the owner
becomes a shareholder in the company that
manages the common area.
Survey A plan that shows the boundaries of, and the position
of any dwelling(s) within a block of land.
Switching Fee The credit provider may impose a fee when an
existing borrower wishes to change from one loan
type to another. (e.g. Standard Variable Loan to a
Tenants in Common The equal or unequal holding of property by two or
more persons. If one party dies, the property is
divided according to law.
Term Loan A loan over a prescribed period. Although many
loans will have a maximum term of 30 years, a
shorter period can be prescribed by the lender based
on a number of lending decisions and customer
Title Deed A legal document which provides proof of ownership
of a property.
Title Search Process to ensure that a vendor has the right to sell
and transfer ownership.
Torrens Title A title to land under a government system of
registration. Titles are registered each time the
property changes hands. Torrens is the most
common land title in Australia.
Transfer A document registered with the Land Titles Office
that confirms the change of ownership as noted on
the Certificate of Title.
Trust Funds or other assets which are controlled by an
independent third party and administered on behalf
of the trustees. (For example, deposit monies for a
real estate purchase are usually held by the real
estate agent until settlement. Here the agent acts in
trust for the vendor)
There are many variations of “Trust” including such
items as: family, unit, discretionary etc, each with
varying requirements and quite often complex
structures and “trust deeds” outlining the entity.
Unencumbered Describes a property free of encumbrances such as
mortgages, covenants, restrictions, caveats etc.
Valuation A report as required by the lender detailing a
professional opinion of a property’s value.
Variable Interest An interest rate that move up or down in line with
market rate changes.
Yield Annual return on an investment, expressed as a
Zoning Local authority guidelines as to the permitted uses of
AAPR Annualised Average Percentage Rate
ABIO Australian Banking Industry Ombudsman
APR Annual Percentage Rate
ASIC Australian Securities and Investments Commission
ATM Automatic Teller Machine
BUP Building Unit Plan
C/T Certificate of Title
CC Credit Card
CLP Core Lending Product
DBR Debt to Borrowing Ratio
DM Discharge of Mortgage
DSR Debt Servicing Ratio
FBAA Finance Brokers Association of Australia
FHOG First Home Owners Grant
FIRB Foreign Investment Review Board
FTRA Financial Transactions Reports Act
IO Interest Only
IOA Interest Offset Account
IRL Introductory Rate Loan
K Equals $1,000 (e.g. $10K represents $10,000)
LMI Lenders Mortgage Insurance
LOC Line of Credit
LOO Letter of Offer
LSR Loan to Security Ratio
L/U Letter of Undertaking
MBC Maximum Borrowing Capacity
MIAA Mortgage Industry Association of Australia
OO Owner Occupied
OSR Office of State Revenue
OTC Over the Counter
OTP Off the Plan
PAYG Pay as You Go
P&I Principal and Interest
RM Registered Mortgage
R2M Registered Second Mortgage
S/E Self Employed
SOP Statement of Position
SVR Standard Variable Rate
UCCC Uniform Consumer Credit Code
UMI Uncommitted Monthly Income
VIR Variable Interest Rate