Mortgage Glossary

Approved loan application made before a property is purchased.  Can be just a broad an indication of likely loan approval based purely on loan application information or can be a fully assessed loan application with supporting documents verified and approval granted subject only to the property being acceptable.

An applicant is an individual or group of individuals who are applying for a mortgage loan to purchase a property.

A Home loan application is a formal request submitted by an individual or couple seeking financial assistance to purchase a property.

A home loan application form is a document that individuals or borrowers need to complete and submit to a financial institution or lender when applying for a home loan or mortgage. It is a formal request and the information included will help the lender assess the borrower’s eligibility in making a lending decision.

Home loan arrears occur when you miss or fall behind on your mortgage repayments.

An item of value which in a loan application commonly includes property, savings, shares, super, motor vehicles and general household contents

Borrowing capacity typically refers to the maximum amount of money that an individual, company, or entity can borrow from a lender, such as a bank or financial institution.

A short-term loan which allows a property owner to buy a property before selling an existing property.

Refers to increasing your existing borrowings with the loan proceeds controlled by the applicant.

A person who applies for and shares liability of a loan with another borrower. They are equally responsible for repaying the loan and meeting any requirements associated with it.

Commission is paid by the lender to a mortgage broker for introduction of a new client with way of a home loan.

Conditional home loan approval (also known as pre-approval) means that a lender has made an initial evaluation and decided, in principle, to lend you money towards the purchase of your home.

A loan specifically used for building a new property or doing renovations to an existing property. Loan funds are released in stages to the builder as the build progresses.

The process of transferring a property from one owner to the next, can be done by a lawyer or licensed conveyancer

A credit check, credit enquiry or credit review is a process where your broker or lender access a potential client’s credit report to evaluate their creditworthiness.

Cross collateralisation is the term used to describe when two or more properties linked together to secure one or more loans by the same lender.

Debt is a financial obligation or liability that arises when one party borrows money or receives goods, services, or assets on credit and is required to repay the amount borrowed, typically with interest, over a specified period of time.

A deposit is a sum of money payable as a first instalment on a property at the time the contracts are exchanged with the balance being paid at a later stage on settlement.

Discharge is described as the removal of a mortgage off the title of a property, normally when the mortgage has been paid off in full, you have sold your home or it is refinanced to another lender.

Total debt divided by total annual gross income.

A borrowers employment income is a key factor when taking out a home loan. Each lender has their own policies on full & part time work, self-employed, casual or contract employment and length of employment history in the same job or field.

Determining monthly living expenses is a crucial aspect of the home loan application as they help determine the borrower’s ability to afford the mortgage repayments along with their other financial obligations.

Equity is described as the difference between your property’s market value and the existing debt/loan amounts secured by the property.

Is the terms of a mortgage, it means a lender has given loan approval or provided funds to a borrower. 

A financial position, often referred to as a financial statement or financial snapshot, provides an overview of an individual’s or an entity’s financial health at a specific point in time. It summarizes the assets, liabilities and the equity and the entity and helps stakeholders understand the financial wellbeing of the entity.

A first homeowner is an individual or household who is buying their first property.

Is an interest rate on a loan that is locked in for a specific period, normally 1-5 years. This allows the borrower to accurately predict their future payments as the repayments do not change for the life of the fixed period.

A guarantor is someone who provides a guarantee to a lender to assist someone in securing a loan for a property. The guarantor normally agrees to be responsible for repaying a home loan if the borrower is unable to do so. They are normally a parent, family member or close friend, who provide their own security as collateral.

This is a loan scheme whereby a university student pays back their university course fees. Repayments are based on a progressively scaled percentage of annual earnings once a minimum earnings threshold is met. Tertiary education fees in Australia are payable for courses at tertiary education institutions. The Commonwealth government provides loans and subsidies to relieve the cost of tertiary education for some students. 

The Higher Education Loan Scheme (HELP) is a financial assistance program for eligible students in Australia.

Each lender has their own ‘benchmark’ of what they will consider ‘living expenses’ to be, based on your income. This is known as HEM (Household Expenditure Measure). It is important for borrowers to provide accurate and comprehensive information about their living expenses as it can lead to problems down the track and may affect the lender’s decision.

Interest only payments are a type of loan repayment in which the borrower is only required to pay the interest that accrues on the principal balance for a certain period, typically set for 1 to 5 years. During this time, the borrower is not required to make any payments towards the principal amount borrowed.

A property that has been purchased with the objective of earning a return on the investment, normally through rental income or through a profit with the resale of the property in the future

It is loan you share with one or more people. Each borrower is jointly liable for a joint loan.

Properties listed for auction can often sell beforehand. You can make an offer on a property before the auction and if accepted the contracts can be quickly exchanged and the auction cancelled. This is called a pre auction offer. 

Is a financial institution or bank that offers and funds home loans with the expectation that the borrowed money will be paid back, often with interest, over a specified period of time.

A liability Is a financial obligation or debt that an individual or business owes to another party (ie. bank or other financial institution).

A line of credit allows you to access funds when you need extra money up to a certain credit limit. Unlike a personal loan they have no fixed term and you only pay interest on what you have spent not on the entire limit.

LMI or Lenders Mortgage Insurance is a type of insurance that protects the lender (usually a bank or financial institution) in the event that a borrower defaults on their mortgage loan.

LVR stands for 'Loan to Value ratio', which is a financial term used in the context of mortgage lending and real estate. The LVR is a percentage that represents the ratio between the loan amount and the appraised value/purchase price of a property. It helps lenders assess the level of risk associated with a mortgage.

A mortgage is a type of loan used to purchase real estate, such as a house, apartment or land.

A Mortgagor is an individual or entity that borrows money from a lender to purchase real estate, can be to live in or an investment property. 

A liaison who deals with banks or other lenders to arrange a home loan on your behalf. They must act in your best interests when recommending a loan for you. 

NMS is your net income minus your total monthly living expenses. It is then divided by your current debt and the monthly payment amount of the home loan you want to apply for. Each lender has their own criteria for the NMS, but they are usually similar. This determines overall the amount you have of additional spending per month.

A non-applicant is typically an individual who is included in the application process but is not seeking an interest in the property that the loan is being used to finance.

A non-conforming lender provides loans to borrowers who do not meet the typical lending requirements set out by traditional banks. These requirements often relate to credit scores, income verification and debt to income ratios.

Borrowers may be able to avoid taking out a Construction Loan if their proposed improvements don't affect the supporting structure of the dwelling, this is considered a non-structural renovation.

Offset accounts help you save interest on your home loan. The balance in your offset will go against the amount you own on loan, so the interest you pay will be calculated on the reduced amount

An owner-occupier is an individual who purchases a property with the intention of living in it as their primary residence.

A pay slip is a document provided by employers to employees each time they are paid, whether that's on a weekly, fortnightly, or monthly basis.

PAYG stands for ‘Pay as you go’ and it’s where an employer withholds the tax from an individual’s pay/income and pays it in installments to the ATO (Australian Tax Office).

There are lenders who will use income generated from your superannuation to fund a home loan.

Mortgage preapproval is a process where a lender assesses a borrower's financial situation and creditworthiness to provide a preliminary approval for a mortgage loan

"Principal" and "interest" are two key components of a mortgage loan.

The principal is the original amount of money borrowed or the outstanding balance of a loan. It represents the initial loan amount before interest is added.

The term "principal place of residence" typically refers to the primary or main location where an individual or a family lives. It is the primary dwelling where a person resides on a regular basis.

A product comparison from a mortgage broker involves evaluating and contrasting different mortgage products offered by various lenders to help borrowers find the most suitable option for their needs.

When purchasing an investment property, the rental income that asset will produce in the future can be used for servicing calculations, it will depend on which lender, but as a rule they will normally use 80% of this income in your borrowing capacity calculations.

When you purchase a property, it means that you are acquiring ownership of that property in exchange for some form of consideration, usually money.

The purpose of a loan can help determine the loan product that best suits the borrowers requirements and objectives.

Outlines to the best of the brokers knowledge all the relevant information about the loan and credit proposal they are is proposing. This includes a breakdown of the loan details as well as disclosures regarding commissions. All borrowers are required to sign before we can submit your application to the lender.

Where you can make extra payments overtime but then access the funds by taking back out again if needed.

Refinance is the process of replacing an existing mortgage with another one. It is normally to take advantage of lower rates and repayments, to change up the loan term or even switch from variable to fixed rates or vice versa at the end of a fixed term.

A repayment type is generally Principal & Interest or Interest Only.

Quite often people will seek equity releases (increases to their loan) to fund renovations / improvements of their property).

Income derived from investment properties. This will improve a client’s serviceability and DTI. Rental and other rental-related income is the full amount of rent and associated payments that you receive, or become entitled to, when you rent out your property, whether it is paid to you or your agent. As a rule, they will normally use 80% of this income in your borrowing capacity calculations.

One key aspect of responsible lending involves conducting thorough inquiries and assessments of a borrower's financial situation before suggesting lending options. The purpose of these inquiries is to gather information about the borrower's financial position, needs, and objectives. Some of these elements include income and expenses, debt obligations, financial goals and the purpose of the loan and credit history.

The property that you are putting up as a ‘warranty’ for the loan

Refers to the borrower’s capability to meet the repayments of a home loan. Lenders will access the borrower’s income, expenses and any other financial obligations to determine if they will be able to afford the loan repayments in their current circumstances.

Is the formal process performed by the legal and financial agents of both buyer and the seller. It varies from state to state but can take anywhere between 30 and 90 days. Sometimes the length is determined by how long the bank takes to sign off on your mortgage.

A person who acts to facilitate settlement between lender and client

When you divide your home loan into 2 or more parts. This way you can fix an amount of the loan for a certain period without any changes for extra security and another part can be a variable loan which may change over time.

This is a government scheme that helps you save money in your superannuation fund to help buy your first property to live in, it can be a new or existing home.

When you buy a home, you’ll need to pay tax which is charged by each state and territory governments what’s known as stamp duty. Essentially this payment transfers the ownership of a property to someone else. It applies to the buyer, not the seller.

A standard variable rate is a rate that will go up and down over time, which means your repayments may change over the life of your loan. Your lender determines your standard variable rate (SVR) but these are often influenced by the broader financial market including the RBA (Reserve Bank of Australia) and the economy.

A Home loan submission is a collection of documents that accompany a mortgage application sent to a lender for approval. It will include the lender application form, ID Documents, proof of income and employment details and any assets and liabilities. Submissions are normally organised by a mortgage broker or a loan officer at a bank branch.

The Australian Tax Office (ATO) collects income tax from working Australians each financial year.

May be used along with a NOA (Notice of Assessment) to annualise your income if you are self employed

A home loan top up or loan increase lets you borrow against the equity you may have built in your current property. You can then use the borrowed money to fund another goal like a pool, nonstructural renovations, debt consolidation, investing or other financial needs. A home loan top-up often works out cheaper than taking out a personal loan or a car loan as your interest rate and repayments will be lower.

Investment vehicle ie family trust, unit trust. Changes the way taxes are paid. Lenders can accept loan applications when the Trust is the borrower. The term trust fund refers to an estate planning tool that establishes a legal entity to hold property or assets for a person or organisation.

An unconditional approval means that a lender has taken the time to formally review all your paperwork with your signed loan application and decided that the borrower meets all criteria necessary to offer you a home loan based on the property you have chosen to buy.

It is a comprehensive inspection of your property that can be used to value the security for your mortgage. It's basically alleviates the risk lenders take, so that should there be a forced sale of your property, your house's market value could cover the outstanding home loan.

A variable interest rate is where the rate can fluctuate over time, it means the borrower’s monthly repayments can vary throughout the life of the loan.

Yield represents the income an investment generates and is usually expressed as a percentage.

A Mortgagee is an entity or lender that lends money to a borrower for the purpose of purchasing real estate. The Mortgagee holds the title as security over the loan incase the borrower defaults on the loan, allowing them to recover any funds owing.