Glossary

Basic Rate
Applied to loans commonly called 'No Frills Loans' which have are generally cheaper than Standard Variable Rate Loans but do not have features such as a redraw facility or mortgage offset.

Break Cost
Relates to Fixed Rate Loans where the borrower terminates the loan contract before the expiry of the fixed rate period.

Capped Rate
The rate applied to Honeymoon (Introductory Loans) which is capped at a rate that will not rise above the prevailing Standard Variable Rate, but may fall.

DSR - Debt Service Ratio
Maximum of the applicants weekly, fortnightly or monthly wage which will support loan repayments over the agreed loan term. Usually expressed as a percentage - most lenders set a maximum DSR between 30% to 33%.

Establishment Fee
Also called Application Fee. Fee which covers basic costs in setting up loan from initial interview to loan drawdown. Some lenders choose to absorb this fee.

Exit Fee
Fee imposed by some lenders where the borrower has sought refinance with another lender within the first few years of the loan.

Fixed Rate
The rate applied to Honeymoon (Introductory Loans) which is fixed at a set rate which will not change for the duration of the honeymoon rate period.

Home Equity Loan
A home equity account gives you a revolving line of credit secured by the value of your house.

This allows you to use the funds for any other purpose such as the purchase of a second property, or shares or other investments.

The interest rate is generally higher than a standard variable rate, and these accounts are not suitable for everyone.

Honeymoon Rate
Colloquial term applied to Introductory Loans. The rate can be fixed, capped or variable for the first 12 months of the loan. At the end of the term the loan reverts to the standard variable rate.

Legal Fee
May be charged where an outside party is used to prepare bank documentation.

Lenders Mortgage Insurance (LMI)
Some lenders may provide up to 95% of funds for a loan if you agree to take out mortgage insurance. This figure is a one off payment usually made at the time of settlement. The figure is not easy to calculate being based on variables such as the loan amount, the value of your property and the exact LVR (i.e. the figure between 80% & 95%).

This payment allows the lender to recoup the unpaid principal in the event of default and the borrowers debt is transferred to the Mortgage Insurer.

LVR
Loan to Value Ratio. Refers to the maximum amount lenders will approve against the value of any property taken as security for your home loan.

For example if you wish to purchase a property worth $100,000 the lender may approve a loan for 80% of the property value. It will then be up to you to provide the remaining 20% plus costs (mortgage registration and stamp duty etc).

Lo-doc
A loan available to applicants unable to meet the required income levels to service the loan. These loans generally carry an interest rate loading to reflect the higher risk to the lender.

Mortgage Offset
Offset accounts can help reduce your tax bill by offsetting taxable income from deposit accounts against interest paid in after tax dollars on mortgage repayments. However, not all offset accounts are equal, with many not paying the same interest as you are charged on your mortgage. In this case, the account would be a partial offset.

Non Conforming Loans
Loans available to applicants who do not meet the criteria for regular lending. Typical reasons could range from impaired credit history, insufficient income or business start up finance. These loans generally carry an interest rate loading to reflect the higher risk to the lender.

Portable Loans
A portable loan allows you to sell your house and move to a new one without having to refinance. This saves application and legal fees. Most lenders however insist that the loan amount is the same or less. Make sure you know the terms of your loan.

Redraw Facility
A redraw facility allows you to make additional repayments on your mortgage, and then have access to the additional repayments if you need to. Make sure you understand the conditions attached to the redraw facility that can include a minimum amount and a fee every time you use it.

Serviceablity
Lenders will assess each applicant differently on their ability to service the loan. There are significant differences within lenders in this area and it pays to use a home loan broker familiar with serviceablity requirements before an application is submitted.

Service Fee
Usually a monthly fee levied to cover bank cost of administering & maintaining the loan account i.e. fixed and variable costs such as staff, IT software / hardware.

Standard Variable Rate
The rate which lenders apply to their 'premium' home loan product. Carries features such as a redraw facility, portability, salary account and mortgage offset.

Switching Fee
The lender may impose a switching fee where an existing borrower wishes to change from one loan type to another e.g. Variable Rate Loan to Fixed Rate Loan.

UCCL
The Uniform Consumer Credit Code Legislation - a Federal Act of Parliament to ensure uniformity amongst all credit providers. E.g. all loan contracts must now adhere to a uniform format as specified by the act. It must set out all fees / charges that the borrower (and, if required, guarantor) are liable for under the loan contract.

Valuation Fee
Fee which may be charged if the lender seeks to cover the cost of valuing the property taken as security for the loan.

Variable Rate
The rate applied to Honeymoon (Introductory Loans) which is variable and usually set at a discount below the Standard Variable Rate.