Glossary of Terms
AAPR
This stands for "Average Annual Percentage Rate" - also known as the mortgage comparison rate or true rate.
The AAPR (Average Annual Percentage Rate) is also known as the mortgage comparison rate or true rate. It is a "fictional" figure, and is used to compare the actual rate of a loan, taking into account the nominal interest rate per annum, the compounding frequency and upfront and ongoing fees, as outlined in the Consumer Credit Code.
ABA
Australian Bankers' Association.
The Australian Bankers’ Association (ABA) is the national organisation of licensed banks in Australia.
The ABA is funded by its 23 Member banks ranging from traditional retail, trading bank-style organisations to regional banks, foreign and wholesale banks and contributions to its operational expenditure are based on individual member bank liabilities in Australia.
ABIO
Australian Banking Industry Ombudsman. The ABIO exists as a means through which customers can make complaints about a bank, and have them dealt with independently of the particular bank.
The Banking Ombudsman, also known as the Banking and Financial Services Ombudsman (BFSO), is a free and independent dispute resolution service. The Banking Ombudsman considers complaints about banks and their affiliates operating in Australia.
The Banking Ombudsman is able to investigate disputes and make decisions that are binding on the financial services provider. As far as investigations are concerned, the Banking Ombudsman is bound by his terms of reference.
Accelerated approval
This is a means by which you can have your loan approved quickly and without some of the usual checks a more expensive option than standard.
Accelerated repayment
Allows the borrower pay off more of the loan than the minimum set out in the loan agreement.
Account fee
Fee charge by lenders for the cost of setting up and maintaining mortgages.
Accountant
The accountant is the professional whose role it is to examine and record the income and expenditure of a business. According the the Macquarie Dictionary, accounting is the theory and system of setting up and looking after the books of a business, so that its financial position can be examined and the owners can find out how well it is doing.
An accountant is like a doctor for the business. The accountant "keeps a finger on the pulse" of a business, and lets the business owner know what to do to maintain the health of the business. Anyone who is considering embarking on any type of business venture, or investment strategy, should consult an accountant before making any binding decisions.
Accrued interest
Interest earned, but yet to be paid or charged.
Additional Payments
Extra loan repayments made, above the minimum repayment amount, and paid during the loan term.
Adjustments
Apportionment of rates and charges, whereby the vendor pays the rates etc., and the purchaser bears the cost of them beyond the settlement date. The Statement Of Adjustments is the document that sets out the rates and any other charges that have to be apportioned as between the vendor and the purchaser.
The Statement Of Adjustments will show the full purchase price, the amount of deposit deducted from the full purchase price, and then the balance owing. The amount due for the full year's council rates, and amounts due for water rates and body corporate fees, if applicable, are also stated. If penalty interest has been incurred, this too will be stated.
It is a standard contractual requirement that the vendor must pay the full year's rates, and then the purchaser is required to reimburse the vendor for the amount paid for the period from settlement to the end of the rating year.
Affordability
A measurement made on the basis of an index which is the ratio of average household disposable income to the income required to meet payments of a typical dwelling. The higher the figure, the more affordable property..
Agent
The law of agency is a branch of the law of Contract. Basically "agency" is a relationship whereby one person, known as the "principal", authorizes another person, called the "agent", to act on behalf of the principal. The agent is appointed by the principal for the purpose of bringing a third person into a contractual relationship with the principal.
All-in-one facility
Facility that allows the borrower to deposit all funds into the loan account, and then draw on those funds for smaller expenses. In all in one facility allows you to combine your home loan with your normal personal accounts, such as savings account, cheque account, and credit card account. An all in one facility provides one of the best mortgage strategies available, if managed properly.
Amortisation Period
Time over which the loan is to be repaid at the agreed rate. Amortisation is the payment of debt in regular, periodic instalments of principal and interest, as opposed to interest only payments. Amortisation can also be described as the process of reducing principal and interest, in equal instalment payments, at specific intervals over a set period of time. Over time, the interest portion of the loan decreases as the loan balance decreases, in the amount applied to the principal increases, so that the loan is paid off in the specified term.
Annual percentage rate
The advertised rate of interest per annum. The annual percentage rate is a figure that states the total yearly cost of a mortgage, as expressed by the actual rate of interest paid.
The annual percentage rate includes the base rate of interest, and any other add-on loan fees, costs and charges. Because it also incorporates other costs and charges, the annual percentage rate will be higher than the rate of interest quoted by the lender for the mortgage product, to which it relates. However, it does give a more accurate indication of the true cost of the loan.
Borrowers should be in mind the fact that most home loans do not run for their full term, as the majority of home loans are paid out before they have run their full term. This may result in the effective annual percentage rate being higher than the quoted annual percentage rate, because the loan fees and charges are spread out over fewer years.
Application fee
The fee a lender may charge for setting up a loan approval for a home buyer. While some lenders do not charge application fees, they usually charge higher interest rates.
The application fee is a fee charged by the lender in order to cover the initial costs of processing a home loan application.
The application fee may include the cost of obtaining a property valuation, a credit report, and other costs associated with a home loan application process. In some cases, these fees may be charged separately, and the application fee charged as a stand-alone fee.
Appraisal
"Appraisal" is just another term for valuation, but is used instead of the word "valuation" because estate agents are not permitted to provide true valuations on real estate. Only an accredited valuer can provide a genuine property "valuation".
Arrears
Amount overdue on an account.
Arrears is the term used to describe money which has not been paid on time. For example, if a borrower has not made the last two mortgage payments, then that borrower is said to be “in arrears” with the mortgage payments.
Similarly, where money is payable at the end of the year, rather than at the beginning, it is referred to as being money “due in arrears”, rather than money due in advance”.
Assets
The items a person or company owns and which are worth money in the open market. Assets include real estate and other items that can be sold anything from which a person may derive a benefit.
Assets are any property or resources which have a monetary value. Assets include cash on hand in cheque accounts and savings accounts, stock, bonds and other securities, real estate, income producing property, and business equipment.
Intangible assets include goodwill (the value of the company's name in the market), patents and other intellectual property that are owned by a company and given financial value in the company's balance sheet.
At call
An account from which money can be withdrawn immediately.
ATM
Automatic Teller Machine. Most bank customers are familiar with electronic banking through the use of automatic teller machines. Automatic teller machines are accessed with a plastic card that automatically debits or credits a nominated account whenever cash is withdrawn or deposited.
Auction
An auction is a form of sale where potential purchasers make competing offers or "bids", with the person offering the highest bid being declared as the purchaser. Unfortunately, the auction concept is falling into disrepute with regard to the sale of real estate. This is because many of those who promote real estate auctions tend to resort to tricks and deceptions in order to make the concept work.
Balance Sheet
Statement of assets, liabilities and net worth for an individual or a business.
The balance sheet is a financial statement that lists the company's assets and liabilities as at a specified date.
The balance sheet presents a company's financial position by listing what the company owns (including cash, infantry, planned, equipment, and accounts receivable), and what the company owes (liabilities such as short-term and long-term debt, and the accounts payable).
The difference between assets and liabilities is known as equity or book value.
Balloon payment
Large loan repayment to clear a debt.
A balloon payment is where a lump sum, usually representing the balance of the loan principal, is paid before the end of the term.
Similarly, a balloon mortgage is where the balance of the loan principal is paid as a lump sum at the end of the term.
Bank cheque
Cheque purchased from a bank, usually on a cash basis, and regarded as being almost as acceptable as cash in a sale transaction.
Bankruptcy
Situation where a debtor is unable to repay debts, and his/her estate placed into the hands of a receiver who has the responsibility for its distribution.
Basic/Standard variable
Variable home loan at an attractive rate, but without all of the features of a loan at the standard variable rate.
Bearer
A person who holds a document. In the case of a cheque, it is the person presenting the cheque (may or may not be the owner of the cheque).
Body Corporate
A body corporate comes into existence when a plan of subdivision, allowing the creation of a body corporate, is registered at the Land Titles Office. Owners of the Lots specified on the plant of subdivision become members of the body corporate.
Bond
Money paid by the tenant and held by the Residential Bond Authority as security against damage or rent default by the tenant.
Breach of contract
This occurs where a party fails comply with the terms/conditions of a contract.
Break Costs
Costs payable by a borrower where a loan is paid in full before the end of the term of the loan. Generally applies to fixed loans.
Bridging Finance
Finance used to "bridge" the gap between the purchase of a new property, and receipt of funds from the sale of purchaser's existing property.
Building inspection
Inspection carried out by a purchaser (usually by engaging a professional building inspection service) to discover any defects in a building which may affect the preparedness of the purchaser to buy the property at the asking price.
Building society
An institution which takes deposits and provides loans just like a bank, but without the Reserve Bank oversight given to banks.
Buyer's Agents
The buyer's agent is simply an estate agent who "spots" properties for people who cannot afford the time to seek out a suitable property in person. Unfortunately, the term is also used to describe estate agents who falsely pretend to provide a service in terms of "negotiating" on behalf of inexperienced purchasers.
Capitalising interest
When interest that has accrued is added to the total debt rather than being paid when due.
Capital gain
Profit realised from the sale of an asset, when it is sold for a higher market price than the owner initially paid for it. (See Capital gains tax below).
Capital gains tax
Liability to pay tax on the Capital gain (See Capital gain above) made on the sale of an asset. Usually a taxpayer's principal place of residence is exempt from capital gains tax.
Capital growth
The difference between the value of an asset when purchased, and its current value.
Capped Loan
A loan where there is a ceiling on the interest rate.
Caveat
A caveat prevents the Registrar Of Titles from registering another interest against the title without first giving notice to the person who lodged the caveat. Generally speaking, once a caveat has been lodged against a property, nothing else can be lodged against the property without the consent of the person who lodged the caveat.
Caveat emptor
'Let the buyer beware' - the principle that puts the onus on buyers to be satisfied with any item before buying.
Certificate of Occupancy
As the name implies, the Certificate of Occupancy certifies that a home can be lived in. It is a requirement of most local government or shire councils that an occupancy certificate be issued prior to the purchaser of a home taking occupation.
Certificate of Title
A simple explanation: Imagine a huge book kept at the Land Titles Office, in which every block of land in the State of Victoria has its own page. Of course, such a book would have many volumes and many pages (folios). If you wanted to identify a particular block of land, you would find out its volume and folio number, and use these numbers to look up the relevant page. To find out who owns the land, you would simply turn over the page, and see whose name was last added to the page. This person is the owner.
Certification
The planning authority "certifies" a plan of subdivision when it is satisfied that the plan is in compliance with the all requirements. Upon certification the plan of subdivision is lodged at the Land Titles Office.
Chattels
Fixtures & Chattels:
Fixtures are things that are permanently attached to the land so as to become part of the land. Chattels are things that are not part of the land. When land is sold, all fixtures (the house, and things permanently attached to the house) will pass to the Purchaser as part of the land.
Collateral
An asset (such as a car or a home) which the borrower must give to the lender if the loan is not repaid. In a home loan, the home itself is usually the main collateral.
Combination loans
Also known as "cocktail loans or "split" loans. Different types of loans combined to form one loan product. For example, the loan may have a portion variable, fixed or even a portion as a line of credit.
Commission
Commission is the way in which estate agents are paid for their services, and is probably the most unfair and unethical form of payment imaginable. Real estate commissions have been described as a form of "wealth tax" levied by estate agents.
Common property
This is the land on a plan of subdivision that does not form any of the lots, but is the subject of shared ownership by the Lot owners as members of the body corporate. Common property may take the form of land, air space, space below the ground or buildings.
Company Share Scheme
This was the first type of "unit" development. While it appears to be similar to a strata unit development, is really quite different.
Comparison rate
The comparison rate is a standard to be used in advertising material. It is used to compare the actual rate of a loan, taking into account nominal interest rate per annum, the compounding frequency and upfront and ongoing fees.
Compound interest
This is interest that is paid on the accumulated interest as well as the principal amount of a loan.
Conditioning
Conditioning the vendor is the term used to describe the process where an estate agent strives to convince the vendor to lower the asking price on a property so that the estate agent can secure a sale.
Conditions
Conditions are the "rules" of the contract. They tell the parties who is responsible for what, the dates by which things must be done, and what will happen if things are not done as agreed.
Conflict of Interests
A conflict of interests occurs when a person who has a duty to act in the interests of a client also has a duty to act against the interests of that same client. A conflict of interests also occurs when a person who has a duty to act in the interests of a client is in a position where he/she may be tempted by money or some other motive to act against the interests of that same client.
Construction loan
This is a loan for the purpose of building a dwelling. Funds are usually drawn down on a staged basis, upon completion of each building stage.
Consumer Credit Code
The Uniform Consumer Credit Code (UCCC) was passed by the Commonwealth government, with identical legislation passed by most states, to provide uniform consumer credit law throughout Australia. The Code governs the relationship between borrowers and lenders.
Contract of Sale
The Contract of Sale is the term used to describe the document prepared by a lawyer, and used to formalise the sale of real estate. However, the word "Contract" has more than one meaning: 1. Contract can mean an agreement; or 2. Contract can mean the document that sets out the agreement.
Contract Note
This is another nasty device used by estate agents (see also the "Exclusive Sale Authority"). The name of the document is the first trick - Contract Note. To most people the term "Contract Note" suggests that the document is something less than a Contract, and that a real Contract will be drawn up later. In fact a "Contract Note" is a full contract, but the terms and conditions are hidden.
Conveyancer
The Legal Practice Act 1996 states, at Section 326: "conveyancer" means a person, other than a current (legal) practitioner or registered (legal) practitioner, who carries on a business in the course of which conveyancing work is carried out directly or indirectly for fee or reward;". Conveyancers attend to the clerical work associated with conveyancing matters, but are prohibited from performing legal work or giving legal advice.
Conveyancing Work
The Legal Practice Act 1996 states, at Section 326: "conveyancing work" means work, other than legal work, carried out in connection with the transfer...of...interest in land. In effect, "conveyancing work" is confined to the clerical tasks associated with arranging for the transfer of ownership from one person to another.
Conveyancing Kits
In their promotional material, conveyancing kit-writers don't emphasise that those who use the kit will still have to pay for rate and planning certificates, title searches, postage, transport to settlement, etc. There is also an assumption that kit-users have plenty of spare time, and that their time is of no value. Otherwise, the amount of time needed for reading and learning about conveyancing has to be taken into account.
Cooling Off
In certain circumstances, the Purchaser of real estate is permitted to cancel the Contract and walk away from it all together, within 3 days of having signed it.
Covenant
A covenant is a way in which the use of one person's land can be controlled by another, and is commonly to protect the "amenity" or value of an area. A developer, for example, could prevent the building of front fences, the parking of heavy vehicles or the building of low-quality homes in a new estate by placing a special condition in the Contract of Sale, requiring the Purchaser to register a restrictive covenant on the Purchaser's new title.
Cover note
A temporary insurance policy, designed to be issued at short notice to provide cover between the time the cover note is issued, and the issue of a full insurance policy.
Credit Limit
This is the maximum amount a borrower can use on a credit facility. For example, the maximum amount that can be used on a credit card.
Credit unions
Also known as credit co-operatives, these are finance groups owned and controlled by the people who use it. Usually based on common employment e.g. VTU Credit Union or Victoria Police Credit Co-Operative.
Creditor
The party to whom the debtor owes money.
Crossed cheque
A bank cheque or personal cheque with two parallel vertical lines across it to specify that the cheque must be paid into an account and cannot be cashed. Usually includes the words "Not Negotiable" written or printed between the two parallel lines.
Current Market Value
The current market value of a property is determined according the following standard: The price at which a willing but not anxious vendor would sell, and at which a willing but now anxious purchaser would buy. Theoretically, if someone bought the property at current market value as an investment, then decided to sell it again, they should be able to find someone else who is prepared to pay the same price in the same market, and so on.
Daily interest
Interest that is calculated on a daily basis, varying in accordance with the account balance as at the end of each day.
Debtor
The borrower the party who owes money to the creditor.
Default
Occurs where the borrower fails to meet payments by the agreed due date.
Default rate
This is the rate to which a loan reverts or automatically adjusts to at the end of any fixed period.
Deposit
A deposit is an amount of money, usually 10%, paid by the purchaser to secure the contract of sale. Generally, if the purchaser repudiates the contract, the deposit will be forfeited.
Deposit bond
A deposit bond is a form of guarantee, usually provided by an insurance company, that a purchaser will pay the full deposit when it becomes due (i.e. at settlement, or upon rescission of the contract).
Disbursements
Disbursements are the out-of-pocket costs associated with a matter, as opposed to the legal costs charged for the service being provided. For example, in a conveyancing matter the legal costs include checking of the contract and preparation of documents. Disbursements include the amount paid to the Land Titles Office for the title search, and amounts paid to rating authorities for certificates.
Discharge fee
See 'mortgage discharge fee' below.
Disposable income
This is the part of a person's income that is not committed to on-going living expenses, and is available spending on non-essentials or for saving.
Down payment
Similar to a deposit. Usually paid when the sale agreement is made, with the balance due at a later dated.
Draw down
The term used to describe the issuing of funds from the lender for the purposes for which they have been borrowed. Also used to describe access to loan funds, e.g. in a line of credit where the funds are available as needed.
DSR
Debt Service Ratio. This is the amount of a borrower's income which will support loan repayments It is usually expressed as a percentage, with the majority of lenders setting a maximum DSR of between 30% to 33%.
Early termination charges
These are costs a borrower may be required to pay upon the early repayment of the loan.
Easement
An easement is a right that allows one person's land to dominate another person's land by exercising some right of the dominated land. The land that benefits from the easement is called the dominant land, while the land affected by the easement is called the servient land.
EFTPOS
Electronic Funds Transfer Point of Sale. A facility that allows cardholders to access funds held in an account at the point of sale (i.e. shop or supermarket checkout) to pay for goods or to withdraw cash.
Encumbrances
This is the term used to describe a claim that one person has against another person's land. It is important to remember that an encumbrance is against the land and NOT the owner of the land. This means that if the land changes hands, the new owner takes both the land AND encumbrances attached to it.
Equity
This is the term used to describe that part of the property that can be identified as belonging to the borrower. Equity represents the value of the property after debts secured by the property are paid.
Equity loan
This is a loan secured by the borrower's equity in the asset offered as security.
Establishment fees
Term used to describe the fees charged by lenders to cover the costs associated with the arranging of a new mortgages and the preparation of loan documents.
Estate Agent
See Agent above.
Exclusive Sale Authority
This is the document by which an estate agent is able to exclusively secure the Vendor, the property being sold, and all persons who enquire about the property for a set period of time, and then indefinitely until the Vendor cancels in writing. Devised by estate agents, and distributed through the Real Estate Institute of Victoria, it is one of the most complex and deceptive documents a consumer will ever encounter.
Exit fees
See 'break costs' above.
FID
Financial Institutions Duty. This is a government tax levied on the receipts of financial institutions.
Fidelity Insurance
Fidelity insurance protects the clients of professionals against theft or misappropriation of funds by the professional person or an employee while the client's funds are under the control of the professional person. Simply put, if your lawyer had a secret gambling problem and took the proceeds of your property sale to a casino and lost it, there would be little point in trying to sue the now bankrupt lawyer.
Fiduciary Relationship
A fiduciary relationship is one where a professional representative owes the highest duty to the client, and must always act in the utmost good faith. The law requires that the professional representative must never allow his/her own interests conflict with those of the client.
Finance - "Subject To Finance"
Signing "subject to finance" simply means that the Purchaser is not yet sure as to whether their home loan has been approved by the bank, and wants to be able to cancel the Contract if the bank fails to approve their loan application.
Financial planner
Also known as "Financial Advisers", financial planners find out about a client's needs and circumstances, and provide plans and recommendations to assist and benefit the client.
First Home Owner's Grant
This is a government grant $7000 payable to purchasers who are buying their first home. Conditions and qualifications apply.
Fixed interest
This is where the interest rate on a loan is fixed for an agreed period of time.
Fixtures & Chattels
Fixtures are things that are permanently attached to the land so as to become part of the land. Chattels are things that are not part of the land. When land is sold, all fixtures (the house, and things permanently attached to the house) will pass to the Purchaser as part of the land. If a chattel is to be included in the sale, it must be specifically listed in the Contract. If a fixture is to be removed from the property by the Vendor and therefore not included in the sale, then this must be specifically mentioned in the Contract.
Flat interest rate
Interest calculated on the original amount of the loan for the full term of the loan.
Fraud
Fraud is the gaining of an advantage by improper or unfair means. At present, fraud is a major problem in the real estate industry.
Frozen account
This is where an account is rendered inoperative, and no activity permitted. Accounts are often frozen a short time prior to settlement of a borrower's sale if the borrower has a redraw facility. This allows the lender to determine a "payout figure", which will not change through activity on the loan account. (See also "payout figure" below).
Garnishee
The legal process by which a creditor is able to arrange for the diversion of funds. Often used where a debtor's employer can be required to pay part of the debtor's salary to the creditor.
Gearing
This is the term used to describe the ratio of a borrower's contribution to an investment purchase, and borrowed funds for investment purposes. Where a property is 'highly geared' it has a high ratio of borrowed funds compared to ownership. (See also "negative gearing" below.)
General Law Land
This is land that is not under the operation of the Transfer of Land Act. Ownership of general law land is determined by examination of the "chain of title", a collection of documents showing that the land has been transferred from one person to another over many years. A chain of title must show every dealing associated with the land for the past 30 years, if good title is to be established. These days, the purchase of any general law land must be converted so that the land is brought under the operation of the Transfer of Land Act.
GiroPost
Australia Post banking facility.
GST
A Federal Government tax on sales of all goods and services, set at 10 per cent. The tax is levied against the supplier of the goods or service, but is paid by consumers in the form of higher prices. A purchase contract may contain a condition that requires a purchaser to add an amount equal to the GST to the purchase price.
Guarantee
In the context of a home loan, a guarantee is the promise made by a person who will guarantee the lender that the home loan will be repaid. The person giving the guarantee (known as the "guarantor") is legally responsible for the repayment of the loan. If required by the lender to do so, the guarantor must honour the guarantee by repaying the loan in full on behalf of the borrower.
Guarantor
The person who provides a formal guarantee to a lender, that the guarantor will repay the borrower's debt if the lender cannot secure payment from the borrower. If required to repay the loan on the borrower's behalf, the guarantor may stand in the shoes of the lender in order to sue the borrower and recover the funds paid on the borrower's behalf.
Home equity loan
A loan account that gives the borrower access to a revolving line of credit.
Henderson Poverty Line
The Henderson Poverty Line (HPL) was developed by Professor Ronald F. Henderson as an attempt to estimate poverty in Melbourne on the basis of a two adult, two child family set at an income equal to the value of the basic wage plus child endowment (family allowance) payments.
Honeymoon rate
This is a reduced loan rate, usually offered for period of 12 months before reverting to the standard rate.
House & Land Packages
A house and land package is where a home is sold together with the land on which it is to be built. Usually, the process of purchasing a house and land package involves the selection of a display home, and matching it with a block of land from an estate being developed by the vendor.
Housing Affordability Index
Ratio of average disposable income to income needed to make payments on a typical residential property.
Independent Legal Advice
When a person needs legal advice it is important that the person providing that advice not only knows the law and how to apply it, but is also in a position to provide that advice without bias. The lawyer must always be totally "independent" of the matter. In other words, the lawyer should never be personally involved in the matter, and should not be acting for, or advising anyone else who is involved in the matter or who stands to gain anything from it. See "Legal advice" below.
Instructions
This is the term used by lawyers to describe what the client wants done. However, it goes beyond this. Taking instructions is not just a matter of doing as the client directs. The proper taking of instructions requires the lawyer to use his or her legal knowledge and skills to ensure that the client is in a position to make the best decision. This is part of the lawyer's fiduciary duty. After finding out what the client wishes to do, the lawyer will advise the client as to the legalities involved, and the options available to the client as the client pursues his/her goal.
A client is entitled, not only to make the final decision, but also to be in a position to make the best possible decision, based on the best possible advice.
Only after the lawyer has listened, considered, advised, and then been told which direction the client wishes to take, can the lawyer regard him/herself as having been properly instructed.
Interest
This is the cost of the home loan. Interest is the charge the lender makes in return for allowing the borrower to have the use of the borrower's funds for the period of the loan.
Interest only loan
A short-term loan, often used by investors. Allows for payment of the interest payable on the loan, without the loan itself being repaid. The borrower pays the full amount of the loan principal at the end of the agreed term.
Introductory loan
Similar to "honeymoon rate' above.
Investment loan
Loan used to purchase an investment property. Often in the form of an "interest only" loan (see above).
Legal Advice
The giving of good legal advice involves the obtaining of an understanding of what the client wants to achieve, the checking of relevant documents, having a sound understanding of relevant principles of law or researching finer points of law, and then explaining to the client what options are available.
Lender
Term used to describe a bank, building society, credit union, or other lending institution which derives loan moneys deposits. May also be used to refer to a specialised home lender which provides borrowers with access to funds raised on the professional money markets.
Lender's mortgage insurance - LMI
Insurance premium charged to the borrower, but by way of a one off payment for the protection of the lender, allowing the lender to recover any unpaid loan principal in the event of the borrower's default. The borrower's debt is transferred to the Mortgage Insurer.
Letter of offer
Insurance premium charged to the borrower, but by way of a one off payment for the protection of the lender, allowing the lender to recover any unpaid loan principal in the event of the borrower's default. The borrower's debt is transferred to the Mortgage Insurer.
Licence Agreement
Sometimes a purchaser may wish to occupy the property before settlement; or a vendor may wish to continue to occupy the property beyond settlement. A Licence Agreement is a simple contract whereby one party grants another party the right to occupy the property. The difference between a licence and a lease is that the lease is a form of "ownership" of the property for a period of time, and the lessee is entitled to remain in occupation for the period of the lease. The licence, on the other hand, can be revoked at any time. If the licence is revoked, the occupier must leave the property and rely on whatever remedies are provided for in the licence.
Line of credit
Borrowing arrangement by which the borrower may access any amount up to a specified limit, with the value of the borrower's property as security for the loan.
Listing
This is the term used to describe the arrangement between a Vendor and an estate agent, whereby the agent is appointed to act on behalf of the Vendor to sell real estate. Estate agents rely on a contract called the Exclusive Sale Authority to bind the vendor, the property and all enquirers, to the agent. This document is so heavily biased in favour of the estate agent that obtaining a listing with it is almost as good as "money in the bank" for the agent. (See also "Exclusive Sale Authority")
Loan-to-value ratio
Often referred to simply as the LVR, this is the ratio derived from the amount being borrowed, as against the valuation of the security (usually the property being purchased).
Lot
A lot is simply a separately identifiable piece of land, part of a building, or air space, that is created when a plan of subdivision is registered.
Low docs loans
Low document loans do not require the support of pay slips, tax returns, etc. and are often used by self-employed borrowers. These loans are well suited to borrowers who have substantial equity and serviceability capacity, but are unable to provide traditional forms of income verification. Because proof of income is not requied, the amount of paperwork is significantly reduced.
Margin
Term used to describe the difference between the lender's interest indicator rate and the rate actually charged to borrowers.
Maturity
This is the date a debt or investment matures, and is to be paid in full.
Mortgage
A mortgage is basically a scheme or an arrangement whereby one person borrows money from another, and promises to pay the money back in return for offering land as security for the loan. The offer of land as security becomes an interest in the land for the lender. The land itself becomes encumbered by the mortgage.
Mortgage broker
An individual or an organisation who provides consumers with access to a variety of loan products offered by a panel of lenders. The role of the mortgage broker is to assist the customer to select the most appropriate loan for the borrower's purpose, and to assist the borrower in his/her dealings with the lender.
Mortgage comparison rate
See "comparison rate" above.
Mortgage discharge fee
Fee charged by a lender for the administrative services associated with the finalization of a loan.
Mortgage document
The mortgage document is the means by which the lender’s rights or “interest” in the property is registered on title.
Mortgage insurance
Insurance premium charged to the borrower, by way of a one off payment, for the protection of the lender. It allows the lender to recover any unpaid loan principal in the event of the borrower's default. The borrower's debt is transferred to the mortgage insurer.
Mortgage intermediaries
Term used to describe mortgage managers who are positioned between the lenders and the mortgage originators.
Mortgage manager
Term used to describe the company responsible for managing a loan. The mortgage manager liaises with the panel lenders, and co-ordinates the mortgage originators.
Mortgage offset account
This is a savings account associated with a home loan, the contents of which are paid into the borrower's home loan, thereby reducing the amount to be repaid. A 100% offset is achieved where the interest rates earned and paid are the same. A partial offset occurs where the interest rate earned on the offset account is only a portion of the rate paid on the home loan.
Mortgage originator
This is the term used to describe a wholesale lender whose role it is to source securitised funds that are then provided to consumers through loan brokers in the form of loan products.
Mortgage protection insurance
Unlike "mortgage insurance" (see above), mortgage protection insurance is cover that protects the borrower by meeting repayments in the event of the borrower's death, illness or loss of employment.
Mortgage registration fee
This is a fee paid to the Land Titles Office for registration of the mortgage. The mortgage is usually registered by the lender or the lender's solicitors together with the Transfer of Land after settlement.
Mortgage stamp duty
This is a state government tax, determined by reference to the amount of the mortgage. It is usually paid on the borrower's behalf to the State Revenue Office by the lender, and deducted from the loan funds.
Mortgagee
The mortgagee is the person to whom a mortgage is given the lender.
Mortgagor
The mortgagor is the person who gives a mortgage over their property as security for a loan the borrower.
Negative gearing
The term used to describe the situation where an investor buys the right property in the right location, and then has the tenant and the taxman partially fund the repayments. The investor sits back and counts the profit from the appreciating property value. The property is purchased using borrowed funds, and the interest payable on the borrowings exceeds the income produced by the asset (after expenses), resulting in a negative cash flow.
Negotiation
Negotiation involves conferring or discussing matters with another person, with a view to reaching some form of compromise or agreement. To be effective as a negotiator, your representative must be well informed about the rules and laws associated with the matter under negotiation, and must have precise instructions as to their capacity to negotiate on your behalf.
Non-conforming loans
Term used to describe loan products designed for borrowers who do not meet the criteria for regular lending due to impaired credit history, insufficient income or business start up finance.
Off The Plan
This term describes the sale of land that does not yet exist as a separate "Lot". The land is described as a proposed Lot only. The Vendor of an "off the plan" lot is obliged to complete the subdivision process or building of units, and to have the Lots individually created through registration of the plan of subdivision.
Offer
For the average consumer, the term offer has a simple and straight-forward meaning. However, when applied to the law of Contract, it has a very specific meaning. The confusion between these two meanings is often manipulated, and used against consumers.
Ombudsman (Banking)
See ABIO (above)
Ongoing fees
Any fees charged in association with the loan on a regular basis over the life of the loan.
Overcapitalising
Term used to describe the situation where a property owner spends more money in improving a the property than can be recovered upon sale.
Overdraft
Prearranged limit to which an account holder can access funds in excess of the account balance.
Payout figure
This is a figure provided by a borrower's lender to confirm the amount of sale proceeds to be applied to repayment of the borrower's mortgage upon the sale of the security property. Usually, the lender will "freeze" the borrower's loan account, to ensure that the payout figure will not be changed through the use of any redraw facility.
Penalty Interest
Condition 4 of Table A, Schedule 7 of the Transfer of Land Act provides for the payment of penalty interest if either party delays the payment of money. The most common form of delay is the postponement of settlement.
Plan of Subdivision
Basically, the plan of subdivision is a map of a large area of land that has been divided into small blocks of land or "Lots". The plan shows the dimensions of each Lot, and its location in relation to every other Lot in the subdivision. Each Lot is separately numbered. When the plan of subdivision is registered, each lot is identified in terms of its Lot number and the number of the plan of subdivision. Each Lot is registered by way of a Certificate of Title bearing distinct Volume and Folio numbers to identify the title, and the title itself records the Lot and Plan Number of the Lot it represents.
Portability
A loan facility that provides for the substitution of one security property for another in relation to an existing loan.
Payee
The person to whom payment is to be made. E.g. the person to whom a cheque is payable.
Pre-Approval
If you’re thinking of buying a home, then obtaining pre-approval for a mortgage is a good idea. This determines the size of the mortgage you qualify for, and therefore, decides the price range for the homes you can look at.
Pre-Contract Legal Advice
Advice provided by a qualified lawyer prior to the signing of a Contract to buy or sell real estate. By obtaining pre-contract legal advice a consumer is able to consider what matters should be investigated before deciding to buy, what responsibilities have to be fulfilled before selling, and what special conditions may have to be inserted into a Contract to protect his/her interests. See also "Independent Legal Advice" above.
Price Ranges
Also called a "buyer enquiry range" this is a trick that involves the invention of two figures: one much lower that the vendor intends to accept, and the other much higher than the vendor expects the property to make. Purchasers are expected to make offers somewhere in between the two false figures. Any form of marketing that involves "invented" figures is fraudulent. The Northern Territory government recently wrote to all estate agents in that State, warning them that price ranges and buyer enquiry ranges amount to misleading and deceptive conduct.
Principal
Term used to describe the actual amount of money borrowed. The term is used to distinguish this component of a repayment from the "interest" component. (See "interest" above).
Principal and interest loan
The most common form of home loan, where both the principal and the interest are repaid during the term of the loan. (Compare with "interest only" loan above.)
Professional Indemnity Insurance
Professional indemnity insurance is held by a professional person to ensure that any claims of professional negligence made against the professional person can be met. To put it another way, there is not much point in suing a professional person if they do not have enough money to pay for your loss - so professional indemnity insurance comes in to cover the cost.
Rates
This is the term used to describe amounts payable to the local council and the water authority for services provided to a property. Rates are adjusted on a pro-rata basis, together with any other outgoings that are payable as a consequence of land ownership.
Real Estate Institute Of Victoria
The Real Estate Institute of Victoria is the professional body representing real estate agents in the State of Victoria. Known as the R.E.I.V., it also acts as a lobby group to protect and further the interests of real estate agents.
Real property
This is another term for real estate, or land. It is used to distinguish land (which is permanent in nature) with personal property (which is not permanent and can be destroyed).
Rebate
Term used to describe a situation where money paid is refunded as a form of incentive. E.g. where a vendor pays a rebate of $3,000 if the purchaser can settle prior to a specified date.
Redraw facility
A facility which allows the borrower to make mortgage repayments beyond those required in the loan agreement, and "redraw" them as needed.
Refinancing
This is the term used to describe the situation where a borrower decides to change lender or loan product by repaying the existing loan and then obtaining another.
Registrable Documents
These are the documents, usually collected at settlement in return for the payment of the balance of the purchaser price, that are lodged at the Land Titles Office to transfer ownership of the property to the purchaser. They must be property signed or endorsed so as to allow registration.
Requisitions On Title
These are a series of questions formally served on the Vendor of a property by the Purchaser, by which the Purchaser discovers any issues relating to "title" (i.e. the right or capacity of the Vendor to legally sell the property). Requisitions often include a variety of other questions that are not related to "title", and can run to many pages. Many lawyers now replace the right to submit requisitions on title with warranties in the Contract of Sale.
Reserve Bank
The Reserve Bank of Australia is responsible for independently maintaining Australia's financial system, and for setting the official short-term interest rates on which many variable-rate home loans are based.
Residential Investment Loan
A loan obtained for the purpose of purchasing real estate for investment purposes (for example, to be rented out) rather than for owner-occupier purposes.
Retirement Villages
While most people understand the term "Retirement Village" as meaning a form of unit accommodation, it often comes as a surprise to find that there are different ways of "owning" or "occupying" a retirement unit.
Securitisation
This is the term used to describe the process of taking a pool of various assets, such as different home loan products, and converting them into a tradable security such a bond which investors can then purchase and trade.
Security
This is the term used to describe an asset that is put forward by a borrower on the basis that the lender will be able to sell the asset or convert it to the lender's use in the event that the borrower fails to repay the loan in full.
Serviceability
This is the term used to describe the borrower's ability to make regular repayments of an agreed amount.
Settlement
Settlement is the term used to describe the moment when all of the parties involved in a sale of real estate meet together and exchange documents and cheques to complete the matter. Often there are four parties at settlement: the Vendor, the Vendor's Mortgagee, the Purchaser and the Purchaser's Mortgagee. Usually each of these is represented by a lawyer or other representative.
Signatory
Term used to describe a person who has authority to operate an account.
Solicitor
The terms "solicitor" or "legal practitioner" or "barrister" are just other terms used to describe a lawyer. The term "barrister" is used to describe a lawyer who appears in court on behalf of clients. Barristers usually avoid accepting clients direct, and prefer to act on behalf of lawyers in a form of "sub-contacting" capacity. Many law firms described their lawyers as "Barristers & Solicitors". In the State of Victoria, all lawyers can describe themselves as "barrister and solicitor", and all are equally entitled to represent their clients in court. We prefer the term "lawyer" because it is readily understood by everyone as meaning a person whose role it is to advise and assist clients in matters of law.
Solicitors mortgages
These are mortgages offered through solicitors firms, utilising funds offered by clients for this purpose.
Solicitor supervision
The Legal Practice Act prohibits unqualified people from giving legal advice or performing legal work. This means that conveyancers are not permitted to offer any form of legal services to their clients, even though conveyancing matters essentially involve legal issues.
Because most consumers would be reluctant to use conveyancers if they knew that their conveyancer could not perform the legal work associated with a conveyancing matter, the concept of "solicitor supervision" has been developed to make conveyancers appear more credible.
Split loan
See "Combination loans" above
Stamp duty
This is a government charge incurred by the Purchaser of real estate, and payable to the State Revenue Office prior to lodging of the Transfer of Land at the Land Titles Office. It is usually paid by the Purchaser's lender after settlement, with funds retained from the loan moneys. If there is no lender involved, a cheque will be obtained from the Purchaser and paid to the State Revenue Office by the Purchaser's lawyer.
Stamping and lodging
This is the term used to describe the process of taking the registrable documents (obtained at settlement) to the State Revenue Office, payable stamp duty and having the Transfer of Land "stamped" to show that stamp duty has been paid, and then lodging the documents at the Land Titles Office for registration.
Standard variable home loan
As compared with a "basic variable" loan (see above), a standard variable home loan, usually includes a suite of features, and is charged at the standard variable rate.
Standard variable rate
This is the rate a lender will apply to its 'premium' home loan product.
Statement of Adjustments
This document sets out the way in which rates and other outgoings have been apportioned as at the day of settlement. It shows the purchase price, the deposit paid, the amount of rates paid for the rating period and the proportion of those rates to be paid by the Purchaser for the period beyond the settlement date.
Strata Title
This is the term used to describe a title where there is a building on land. The title covers not only depth and width, but also the height between upper and lower boundaries.
Stratum Title
In a stratum subdivision the building is subdivided into lots, with common land, i.e. driveways, stairwells, gardens being owned by a service company and appearing on the subdivision as an additional lot. Stratum units are regarded as unattractive because of difficulties and complexities involving the operation of the company, Corporations Law obligations, and a reluctance on the part of lenders to accept them as security.
Studio Apartments
A studio apartment is the term used to describe a small unit, usually comprising one open-plan room. Care should be taken when considering the purchase of a studio apartment!
Subject To Finance
Where the purchaser had not yet received formal home loan approval, and wants to be able to end the contract in the event that the home loan is rejected, the contract can be made "subject to finance". This means that a condition is added to the contract that allows a fixed period of time, by which the home loan must be approved. If the home loan is not approved, then the purchase may elect to end the contract. Purchasers should always ensure that the finance condition is drafted by their lawyer, or at least with advice from their lawyer. It is often the case that estate agents draft finance conditions such that the purchaser can't help but breach the terms, and risk losing the deposit.
Term
The term of the loan is the period over which the loan is to be repaid.
Transaction fees
These are fees charged by the lender on particular transactions, such as withdrawals, transfers, deposits etc., usually on an item by item basis.
Transfer of Land
This is the document by which the Vendor and the Purchaser direct the Registrar of Titles to transfer ownership of the property from the Vendor to the Purchaser. It may also direct the Registrar to include a covenant or other encumbrance on title.
UCCC
See "Consumer Credit Code" above.
Valuation
See "Valuer" below.
Valuer
A valuer is a professional person whose role it is to determine the current market value of a property. Valuers are tertiary trained, and accredited by the Australian Property Institute (API).
Variable interest rate
An interest rate that varies in accordance with the rates in the marketplace.
Vendor finance
Vendor finance (also known as a “wrap”) is where the owner of a property offers to finance the purchase of that property. The person who buys the property does not gain legal ownership of the property until the final installment on the property has been paid.
Vendor terms
Vendor terms may be used to describe a terms contract, but may also be used to describe vendor finance.
Vendor terms contract
A vendor terms contract arises in two ways. The first is where the contract provides for occupation or possession of the property by the purchaser before settlement has been effected (i.e. before the balance of the purchase price has been paid).
Yield
Term used to describe the income derived from real estate, ordinarily expressed as a percentage of the value or cost of the investment.
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