Mortgage Glossary

Home loan terms explained in plain English

Amortisation

The process of gradually paying off a loan through regular repayments that cover both principal and interest over time. Most home loans in Australia are amortised over 25 to 30 years.

Approval (Conditional)

An initial approval from a lender indicating they are likely to fund your loan, subject to conditions such as a satisfactory property valuation and verification of your documents.

Approval (Unconditional)

Also called formal or final approval. This means the lender has fully assessed your application and confirmed they will provide the loan. Also known as full approval.

Asset Finance

A type of lending used to purchase business assets such as vehicles, equipment, or machinery. The asset itself typically serves as security for the loan.

Borrowing Power

The maximum amount a lender will allow you to borrow based on your income, expenses, existing debts, and other financial commitments. Also called borrowing capacity.

Bridging Loan

A short-term loan that helps you finance the purchase of a new property before selling your existing one. It bridges the gap between buying and selling.

Break Cost

A fee charged by the lender if you pay off a fixed-rate loan early, switch to a variable rate, or make extra repayments beyond the allowed limit during the fixed period.

Capital Gains Tax (CGT)

A tax on the profit you make when you sell an investment property or other asset for more than you paid for it. Your primary residence is generally exempt.

Comparison Rate

An interest rate that includes both the base rate and most fees and charges associated with a loan. It gives you a more accurate picture of the true cost of a loan.

Construction Loan

A loan designed for building a new home. Funds are drawn down in stages as construction progresses, and you typically only pay interest on the amount drawn.

Conveyancer

A licensed professional who handles the legal aspects of buying and selling property, including title searches, contract review, and settlement coordination.

Deposit

The upfront amount you contribute towards the purchase price of a property. In Australia, a 20% deposit avoids LMI, though some schemes allow as low as 2-5%.

Discharge Fee

A fee charged by the lender when you pay off your loan in full and the mortgage is removed (discharged) from the property title.

Draw Down

The process of accessing loan funds, either in full or in stages. Construction loans are typically drawn down progressively as building milestones are completed.

Equity

The difference between your property's current market value and the amount you still owe on your mortgage. For example, a home worth $800,000 with a $500,000 loan has $300,000 in equity.

Establishment Fee

A one-off fee charged by some lenders to set up your loan. Also known as an application fee or upfront fee. Not all lenders charge this.

Exchange of Contracts

The point in a property transaction where the buyer and seller swap signed contracts, making the agreement legally binding. A deposit is usually paid at this stage.

Fixed Rate

An interest rate that stays the same for a set period (typically 1 to 5 years), giving you certainty over your repayments. After the fixed term, the loan usually reverts to a variable rate.

First Home Owner Grant (FHOG)

A government grant available to eligible first home buyers. In Victoria, the grant is $10,000 for new homes valued up to $750,000.

Guarantor

A person (usually a parent or close family member) who uses the equity in their own property as additional security for your loan, helping you borrow more or avoid LMI.

Genuine Savings

Savings that you have accumulated over time (usually at least 3 months) through regular deposits. Lenders look for genuine savings to demonstrate your ability to manage money.

Home Equity

The portion of your home that you truly own — calculated as the current market value minus the outstanding mortgage balance. Home equity grows as you pay down your loan and as property values increase.

Interest-Only

A repayment type where you only pay the interest on the loan for a set period (usually 1-5 years), not the principal. Your repayments are lower, but you are not reducing the loan balance.

Interest Rate

The percentage charged by a lender on the amount you borrow. It determines how much you pay to borrow money, expressed as an annual percentage.

LMI (Lenders Mortgage Insurance)

Insurance that protects the lender (not you) if you default on your loan. It is required when your deposit is less than 20% of the property value. LMI can cost thousands of dollars.

LVR (Loan-to-Value Ratio)

The amount of your loan expressed as a percentage of the property value. For example, borrowing $400,000 on a $500,000 property gives an LVR of 80%. Lower LVRs generally mean better rates.

Low-Doc Loan

A loan for self-employed borrowers or those who cannot provide standard income documentation. Typically requires alternative evidence of income such as BAS statements or accountant declarations.

Mortgage

A loan used to purchase property, where the property itself is used as security. If you fail to make repayments, the lender can sell the property to recover the debt.

Mortgage Broker

A licensed professional who compares home loans from multiple lenders to find the best option for your situation. Brokers are typically paid by the lender, not the borrower.

Mortgage Offset Account

A transaction account linked to your home loan. The balance in this account is offset against your loan principal, reducing the interest you pay. See also Offset Account.

Negative Gearing

An investment strategy where the costs of owning a property (interest, maintenance, etc.) exceed the rental income, creating a tax-deductible loss that can reduce your taxable income.

Offset Account

A savings or transaction account linked to your home loan. Money in this account reduces the loan balance on which interest is calculated, potentially saving you thousands over the life of the loan.

Pre-Approval

A conditional commitment from a lender indicating how much they are willing to lend you, based on an initial assessment of your finances. It gives you confidence to shop for property within your budget.

Principal and Interest (P&I)

A repayment type where each payment covers both the interest charged and a portion of the loan principal. Over time, you pay off the entire loan. This is the most common repayment type.

Portability

A loan feature that allows you to transfer your existing mortgage to a new property without having to discharge and re-establish the loan, potentially saving on fees.

Redraw Facility

A feature that lets you access any extra repayments you have made on your loan. It provides flexibility if you need funds later, though some lenders may have minimum redraw amounts.

Refinancing

The process of replacing your existing home loan with a new one, usually to get a lower interest rate, access equity, or change loan features. Refinancing can save you money or free up cash.

Repayment

The regular payment you make to your lender, typically monthly or fortnightly. Repayments include interest and, for P&I loans, a portion of the principal amount borrowed.

Settlement

The final stage of a property purchase where ownership is officially transferred from the seller to the buyer. The lender releases the loan funds, and the buyer receives the keys.

Split Loan

A loan where you divide the total amount between a fixed-rate portion and a variable-rate portion. This gives you some repayment certainty while still allowing flexibility on part of the loan.

Stamp Duty

A state government tax paid when you purchase property. The amount depends on the property value, location, and whether you are a first home buyer. First home buyers may be eligible for exemptions.

Serviceability

A lender's assessment of your ability to afford loan repayments based on your income, expenses, and existing debts. Lenders use a serviceability buffer (usually 3% above the current rate) to stress-test your capacity.

Term

The length of time over which you agree to repay your loan. Standard home loan terms in Australia are 25 or 30 years, though you can choose shorter terms for faster repayment.

Transfer Fee

A government fee charged to transfer the property title from the seller's name to the buyer's name at settlement. This is separate from stamp duty.

Valuation

An independent assessment of a property's market value, conducted by a qualified valuer. Lenders require a valuation to ensure the property is worth enough to secure the loan.

Variable Rate

An interest rate that can change at any time based on market conditions or the lender's discretion. Variable rates offer flexibility (extra repayments, offset accounts) but less repayment certainty.

Still Have Questions?

Mortgage jargon can be confusing. Book a free consultation and we will walk you through everything in plain English.

Get in Touch View Our Services