Glossary
Common terms used
by Property Investors and Financial Institutions.
|
| Term |
Description |
| Application fee |
A fee paid by a
borrower for setting up a loan. |
| Basis points |
One basis point
equals 0.01% interest. For example, 25 basis points equals
0.25%. |
| Bridging finance |
A loan/facility
that can be used when buying a new home before selling
an existing home. Bridging finance is generally temporary/short
term. |
| Comparison rate |
A rate which includes
both the interest rate and most fees and charges payable
during the life of the loan, expressed as a single percentage
figure. Costs such as redraw fees or early repayment fees,
and cost savings such as fee waivers, are not included
and may influence the cost of the loan. |
| Conveyancer |
A third party hired
by the buyer/seller to represent them to facilitate the
conveyancing process. |
Conveyancing
|
The legal process
of transferring ownership of property from the seller to
the buyer. |
Credit limit
(or facility limit) |
The maximum loan
amount that a borrower can borrow under their home loan
contract. |
| Credit reference
or credit report |
A report, prepared
by an authorised credit reporting agency, that shows the
credit history of a borrower. A lender needs permission
from the borrower to obtain a credit report. |
| Deposit guarantee |
A substitute for
a cash deposit to assist with the purchase of a property.
The buyer is required to pay the full purchase price at
settlement. Find
out more. |
| Drawdown date |
The first time
the borrower uses the loan funds, for example, to pay the
vendor. |
| Economic costs
(or break costs) |
A fee which may
be payable if, during a fixed rate period, the borrower
makes certain changes such as switching the loan from a
fixed to variable rate or fully prepaying the loan prior
to the expiry of the fixed rate period. Economic cost is
the lender’s estimate of its loss resulting from
the change. |
| Equity |
The amount of an
asset that is owned (e.g. the value of the property less
any outstanding loans secured by the property). |
| First Home Owner
Grant (FHOG) |
A Federal Government
grant given to first home buyers. Find
out more. |
| Fixed interest
rate |
An interest rate
that is locked in for a specified period of time. |
| Government charges |
Refers to various
charges payable to the government/s. Examples include stamp
duty and transfer and mortgage registration fees. Amounts
vary for each State and Territory. |
| Guarantee |
A promise by a
third party to meet a borrower’s payment obligations
if they are unable to pay. |
| Guarantor |
The third party
who is providing the guarantee for the borrower. |
| Honeymoon rate |
A low interest
rate offered at the start of a loan. At the end of the
specified time period the interest rate converts to a standard
variable rate. |
| Interest in advance |
When interest is
charged at the beginning of a period of time. For example,
charging the first year’s interest in the first month
of a loan. It is generally only available on fixed rate
loans for investment purposes. |
| Interest in arrears |
Interest charged
at the end of a period of time, generally the end of the
month. |
| Interest only loan |
The borrower only
has to pay the interest that is accrued on the loan and
no principal payments for a specified time period. |
| Introductory rate |
A low interest
rate offered at the start of a loan. At the end of the
specified time period the interest rate converts to a standard
rate. |
| Investment loans |
Loans used for
investment purposes, such as the purchase of an investment
property. |
| Lenders Mortgage
Insurance (LMI) |
Insurance taken
out by the lender to protect itself from default by the
borrower. Generally required for home loans with a Loan
to Value Ratio (LVR) above 80%. |
| Line of credit |
A fully functional
transaction account that has a credit limit attached to
it. The borrower can generally withdraw funds at any time,
up to the credit (or facility) limit. (If the credit limit
is attached to more than one account, the borrower may
only be able to draw up to the account limit on each account.)
There is usually no fixed repayment schedule; however,
the borrower is usually required to make payments to at
least cover the interest and fees on the loan. Find
out more. |
Loan agreement
(or facility agreement) |
The formal contract
between the borrower and the lender which sets out the
terms and conditions of the loan. |
| Loan Trimmer |
A feature which
may help reduce interest payable on a NAB home loan when
the loan account is linked to a deposit account. Find
out more. |
| Loan to Value Ratio
(LVR) |
The total amount
of the loan divided by the appraised value of the property.
For example, if a property is valued at $300,000 and the
loan amount is $240,000 then the LVR is 80%. |
'Low Doc'
(documentation) loans |
A loan process
generally for self-employed people who do not have the
standard financial statements required to obtain a loan. Find
out more. |
| Lump sum payment |
An extra repayment
made to a loan, outside of the scheduled repayments. |
| Monthly service
fee |
A fee which may
be payable each month on a loan account. The fee varies
depending on the type of loan. |
| Mortgage |
A document which
creates a security interest over a property to a creditor
as security for a loan. |
| Mortgagee |
A person who holds
a mortgage as security. For example, if a bank holds a
mortgage, the bank is the mortgagee. |
| Mortgagor |
A person who gives
a mortgage. For example, a borrower who provides a mortgage
over their house as security for a loan is a mortgagor. |
| 100% offset |
Helps reduce interest
costs on a loan by linking the loan to a transaction or
deposit account. The balance in the transaction account ‘offsets’ the
loan principal. Interest is then calculated on the loan
principal minus the balance in the account. For example,
if the principal on the loan is $180,000 and there is $5000
in the transaction account, then interest is only calculated
on $175,000. |
| Portability |
The ability to ‘move’ a
loan from one security (e.g. property) to another. For
example, borrowers can usually take their current loan
with them when buying a new home by swapping the security
held on the loan to the new property. |
Pre approval
(or approval in principle) |
Initial approval
process which provides an estimate of how much someone
can borrow (before finding the property), based on the
information provided to the bank. |
| Prepayment |
Additional payment(s)
made to a loan, in addition to the scheduled principal
and interest repayments. |
| Prepayment fee |
Applies to NAB
fixed rate loans. A fee is payable when the whole loan
amount is prepaid during a fixed interest rate period.
It may also be payable when partial prepayments are made
(generally in excess of $20,000 per fixed rate period). |
| Principal |
The amount owing
on a loan. Interest is calculated on the principal. |
| Principal and interest
loan |
A loan where the
repayments are made up of principal and interest. |
| Property value |
The value of the
property as determined by NAB - usually by referring to
the property's purchase price, engaging an external valuer
or doing an internal valuation of the property. |
| Rate Lock |
Allows a NAB borrower
to lock in the fixed interest rate that is quoted at the
time of loan approval for up to 3 months. If interest rates
change prior to the loan drawdown date then the borrower
is guaranteed the original rate (provided the time between
approval and drawdown is within the 3 months). A Rate Lock
fee may be payable. |
| Redraw |
A loan feature
that allows the withdrawal of funds from a loan, if the
borrower has made additional repayments. |
| Reference rate |
A feature, offered
by NAB, which lets the borrower ‘step up’ their
home loan repayments each year of the loan’s variable
rate period to help pay off the loan faster. Find
out more. |
| Refinancing |
Paying off an existing
loan and establishing a new one. |
| Repayments |
The amount that
the loan contract specifies must be paid at an agreed frequency
(e.g. fortnightly or monthly). |
| Repayment holiday |
If a borrower is
ahead in their repayments, they can apply for a break in
making loan repayments. |
| Suitable for building
or BICOE (Building In Course Of Erection) |
Allows for a NAB
home loan to be used when building a new house or renovating
a house. The loan allows for the money to be progressively
accessed (drawn down) as the building progresses. BICOE
functionality is available on selected variable rate loans. |
| Security |
The asset used
to secure repayment of a loan. For example, a property. |
| Settlement |
The completion
of the process to sell or purchase a property. |
| Split loans |
Splitting a loan
into more than one loan account. For example, a fixed rate
loan account and a variable rate loan account. |
| Stamp duty |
Government duty.
For example, stamp duty is payable by the buyer on a transfer
of land when a property is sold. The amount varies for
each State and Territory. |
| Switch fee |
Payable under NAB
home loans whenever we agree to a request to change the
type of interest rate (except where we replace one fixed
rate with another fixed rate during an interest only repayment
period), or the type of repayments, or to increase the
amount of credit except by way of redraw. |
| Term |
The length of a
loan. For example, 30 years. |
| Valuation |
The value of a
property as determined by the bank or an independent valuer. |
| Variable interest
rate |
An interest rate
that can fluctuate over the term of the loan and is not
locked in for a specified period. |