Your Home Loan Dictionary
Are you looking at home loans or have an existing home loan but not sure about the different and sometimes confusing terminology the banks use?
We don’t blame you! so we’ve put together a glossary or Home Loan Dictionary as we like to call it so you’ll be an expert in no time!
Application fee
A fee you pay the bank when you set up your loan
Basis points
One basis point equals 0.01% interest. So, when the RBA or banks increase or decrease the rates of 25 basis points- it equals 0.25%
Bridging finance
A loan designed to help people complete the purchase of a property before selling their existing home. Generally, a short term option
Comparison rate
Includes both the interest rate and most of the fees and charges that are payable over the life of the loan. It’s especially useful to compare the comparison rate between different lenders (note; redraw and early repayment fees, or fee waivers are not included and may affect the cost of your loan)
Conditional approval
Your loan application has been approved subject to some terms and conditions (exceptions) the bank issue. These have to be met before you get your full approval. These can range from valuations, evidence of assets or liabilities or further info required by lender
Conveyancer
A conveyancer (or sometimes referred to as the solicitor) is an expert that represents you during the home transfer process and calculates things such as rates, water etc.
Conveyancing
The legal process of transferring ownership of your new home from seller to you
Credit reference or credit report
A report from an authorised credit reporting agency which shows your credit history (note: we need your permission to obtain this)
Economic costs (or break costs)
Economic costs, or more commonly referred to as ‘break costs’ are a fee that may be payable if you switch your loan from a fixed to a variable rate (during the fixed rate period). Or if you pay out some or all of your loan before the fixed rate period ends
Equity
Equity is the part of your property that belongs to you and not the bank (ie. The value of your property, less the outstanding amount you still owe the bank)
First Home Owner Grant (FHOG)
The First Home Owner Grant (FHOG) is a national grant (funded by the states and territories) that’s given to first home buyers under certain circumstances
Fixed interest rate
An interest rate that stays the same for a set period of time, and accordingly, your repayments will also stay the same
Government charges
Charges set out by the government including stamp duty, mortgage registration fees etc
Guarantee
An agreement by a third party (friends or family) to pay your loan if you’re unable to
Guarantor
The third party (usually friends or family) who provide the guarantee
Honeymoon rate / Introductory rate
A lower interest rate offered at the start of your loan. Often called the ‘honeymoon period’. When this period finishes your loan will revert to a standard variable rate
Interest in advance
Interest charged on a loan at the beginning of a set time. For instance, charging your first year’s interest at the first month of the loan
Interest in arrears
Interest charged on a loan at the end of a set time
Interest only repayments
Interest only repayments are where you defer the repayment of the principle portion of your loan for an agreed period of time and only make interest payments. Once the agreed interest only period ends, you will begin to repay your principle. Please check out pros and cons of paying interest only on our other fact sheet or check out MoneySmart on the web
Investment loans
loans used for investment purposes such as a purchase of an investment property
Lenders Mortgage Insurance (LMI)
is required for home loans with a loan to value ratio (LVR) over 80%. It is an insurance payment which covers the bank in case you can’t make your repayments and they need to sell your property
Line of credit
is a transaction account with a credit limit (like a giant credit card) while there is no fixed repayment, you need to make payments to cover the interest and fees on the loan
Loan agreement (or facility agreement)
The contract between you and the bank which sets out the terms and conditions of your loan
Loan to Value Ratio (LVR)
our loan amount divided by the appraised value of the property. Example? If your property valuation is $300,000 and your loan is $240,000, then the LVR is 80%
Lump sum payment
Any unscheduled extra repayments you make to your loan on top of your normal regular repayments
Monthly service fee
A fee you pay each month on your loan account
Mortgage
Your home loan. A document we use as security for your loan
Mortgagee
The bank, they’re the ones who make the loan (and hold a mortgage as security)
Mortgagor
That’s you—you are repaying the loan (and you give the bank a mortgage as security)
100% offset
100% Offset is a transaction or deposit account that's linked to your loan so it ‘offsets’ the loan principal. How does it work? If your loan is $180,000 and you have $5000 in your transaction account, then interest for that month is calculated on $175,000
Portability
The ability to ‘move’ a loan from one security (property, term deposit, etc.) to another. For instance, you can use your current loan to buy a new home, then swap the security from your current loan to your new home
Prepayment fee
You may pay this if you pay out your loan in full during a fixed interest rate period, or if you make extra payments. Only applies to fixed rate loans
Principal
The amount still owing on your loan (note: interest is calculated on the principal)
Principal and interest repayments
A repayment structure where you repay not only the interest, but start chipping away at the principal
Property value
Our property value as determined by us. We could use your property's purchase price, get an external valuer in, or else do our own valuation
Rate Lock
Let’s you lock in a fixed interest rate quote for three months when your loan's approved. If interest rates go up before the loan drawdown date, you’re guaranteed the original rate
Redraw
A loan feature that lets you withdraw any extra repayments you may have made. Access these funds easily online
Refinancing
Where you pay off an existing loan—and set up a new one. This could be with the same bank or completely changing banks
Repayments
The amount your loan contract says you must pay at an agreed time (like weekly, fortnightly or monthly)
Repayment holiday
If you’re ahead in your repayments, you may be able to apply for a break—a 'holiday'—on your repayments
Security
An asset (eg. property, term deposit etc.) that's used to secure your loan
Settlement
The process where you finish up either selling—or buying—a property
Split loans
Splitting your loan into more than one loan account—one could be fixed rate, the other, variable
Stamp duty
Stamp duty is a tax you pay to the state or territory government when a property is sold
Term
The length of your loan—usually 15, 20 or 30 years
Valuation
The value of your property as determined by us, or by an independent valuer
Variable interest rate
Where your loan's interest rate can move up or down. Your minimum repayments might increase if this happens
Basic Loan Repayments Calculator
Extra Repayments Calculator
How Much Can I Borrow Calculator
Stamp Duty Calculator
Budget Calculator
Could you be paying too much for your new home?
You’ve been spending every spare minute on Real Estate apps and every spare minute on the weekend doing drive-buys of the houses you’ve shortlisted, waiting for their open homes. By this time, you should have your approval in principle in place, so you will know exactly how much you can borrow but how do you know when you find your dream house that it’s worth what the real estate agent is telling you it is?
Knowing what a property is worth is essential so you’re not paying too much for it.
Set a benchmark
Comparing nearby properties that have sold recently is the best way to assess an acceptable price for the property you are looking at and provides a valuable bargaining tool when you are negotiating with a seller or agent. Don’t stress though because that’s what we’re here for, we can send you comparison sales, suburb reports and tell you what else is on the market in the area you’re looking at, so you have all the info you need plus more!
Expand your search
Try not to limit yourself to one suburb, most first-home buyers end up buying in the more affordable suburb next door to the first one they wanted to buy in.
Budgeting 101: It’s pretty basic, work out what comes in and what goes out.
Working out a realistic budget is a great way to take control of your finances- even though it might seem like a chore!
A budget shows how much you’re earning (what’s coming in), how much you’re saving and how much you’re spending (what’s going out) and while it can be tempting to always put it off, creating a realistic budget can help hit your savings goals faster. It can even show you where you can stop spending unnecessary money on things that you may not need so you can start paying debt off quicker.
What’s coming in? Working out your current income-
Check your pay slip but make sure you are looking at your ‘net income’ which is the actual amount of money that goes into your bank account after super and tax is paid. This can be a little harder if you’re a contractor or self-employed or if your income changes from month to month. Use your last tax return and work out your weekly net income.
Have you got extra funds coming in like Centrelink, child support, interest from investments etc.? Work out the average of these week to week then add this in also.
What’s going out? Working out what you’re spending-
Housing-rent/mortgage - this will most likely be your biggest expense or outgoings. Your rent or your mortgage. If you own your own home then you’ll also include in there house maintenance or repairs, rates, gas, electricity, water etc.
Food and drink - this will mainly be your groceries, but we do include any takeaway lunches and eating out as well. Oh and don’t forget to include if you’re buying your morning coffee’s or smashed avo for brekky.
Clothing - do you need that new outfit every week? Do you love shoes? Better put those into the budget too.
Transport - do you have your own car? Or do you use public transport? Whatever your thing is transport can easily add up. If you’ve got your own car then fuel and rego, maintenance and even parking will be your biggest expenses related to transport. If public transport is your thing, it can often be cheaper depending on where you live but can still add up.
Phone/internet - whether you’re on a mobile and internet plan or you are prepaid, even if you have the old landline still at home. Consider all of these bills when doing your budget also.
Insurances - The obvious ones for these will be home and contents, or if you’re renting then just contents, car insurance, health, life, medical even maybe income insurance. These might be monthly or yearly but make sure they’re added in too.
Health and wellbeing - anything from your monthly chemist bill (if you are on regular medications) visits to the physio, chiropractor, gym memberships, sporting club.
Life and leisure - Do you like the odd weekend away? Pay for your Netflix? Do you like going to the movies? Pop all of these into your life and leisure section.
Debts/personal loans/credit cards - Personal Loans, credit cards, store cards- even the furniture you bought on interest free is a debt. And Aftepay and Zip Pay? Yep add those in too.
Miscellaneous - school, uni, childcare, beauty, etcThis is where you will add in everything else that doesn’t fit into those other categories such as pet expenses, childcare, uni, beauty expenses etc.
Now how to stick to it!! Check out the government’s MoneySmart website, they have a comprehensive section on budgeting that’s worth having a squiz at.
Top ways to cut your expenses and increase your savings
Is the key to saving a home deposit as simple as giving up smashed avo toast for breakfast? Well not quite, but spending less does make a difference.
On top of a budget, a savings plan and strategies such as a high-interest savings account, an effective way to save is to reduce or eliminate expenses.
Start by understanding your spend
It can be easy to lose track of how you’re spending money, especially due to cashless payments and credit cards. We’ve all been caught with those pending transactions!
Many online banking systems include tools to categorise debits and make a budget – so make sure you take advantage of them.
Find savings in the essentials
Some costs can’t be avoided – but many everyday expenses can be reduced. For example you could:
- Move in with your parents/relatives, or move into a cheaper rental or share house (short-term discomfort can pay off in the long term).
- Implement tactics like meal planning, making grocery lists and buying in bulk to save money on food. Set aside a budget for eating out/take-away and stick to it.
- Shop around to reduce your regular bills – you may get better value if you switch, or tell current providers you intend to switch. Seek discounts for taking out multiple policies with one insurer.
Make sure you’re paying off debts or credit cards completely each month or as much as possible, to avoid the added expense of paying interest. Consider switching credit cards with high interest rates to lower interest rates or even no interest ones.
Reduce common overspending
If you spend excessively on things like buying clothes, going out or expensive hobbies, it may be unrealistic to cut the expense entirely. Set a weekly or monthly limit and reduce that limit over time.
A survey of more than 1000 Australians showed that 73 per cent have a problem with overspending. In particular, people tend to go overboard Christmas rolls around.
To reduce gift expenses, be like Santa: make a list (and a budget). Buy only planned items within your allocated budget – then stop! Ask your family for support; it’s easier to put a cap on gift values if everyone else does too.
Another common way Aussies overspend is on holidays. CommBank research has shown that a third of holidaymakers spent more on their trip than planned. Do your research and set a daily budget.
Costs that could be eliminated
Look for opportunities to eliminate costs. Cancel unused services. Update your internet or mobile plans if you’re always paying for excess data.
Ask yourself: are you really using that gym membership? Are you getting value from your subscriptions? Remember, every wasted dollar is money you could be spending on your own home.
