Home loans glossary

Basic variable rate home loans are extremely popular due to their low fees and interest rates but the trade-off is limited features.

The cost of paying off your fixed-rate loan or switching to a variable rate before the end of the fixed rate period.

We all know fine wine gets better over time, and sometimes your property does too. Capital growth is the increase in the value of your property over time.

Who doesn’t love a cashback deal? In the home loan world, cashback is when a lender offers an incentive for refinancing with them. Make sure to compare their advertised interest rates, comparison rates and other fees to make sure it’s worth it.

A comparison rate makes the world of home loans a little clearer by factoring in all costs associated with a loan - think interest rate plus fees and charges. By understanding the true cost of a loan, you’re better informed to compare loans from different lenders.

This is a legal document outlining the terms and conditions for the sale of a property, between the parties. Always seek advice from your solicitor or conveyancer before signing.

This is the legal process of transferring the ownership of real estate.

Disbursements are incidental costs incurred by a solicitor when acting for a client, such as searches, certificates, past records, etc.

The difference between your home’s market value and what you owe on your loan.

This is a fee that is charged by banks when applying for a new home loan.

Buying your first home? The FHOG is a one-off government grant to help you in paying for your first home.

If you value consistency, a fixed interest rate is probably for you. Find a rate, lock it in and keep it the same repayment for a set period or ‘fixed term’ - often between one and five years.

This is person who agrees to be responsible for the payment of the loan if the borrower defaults or is unable to pay – usually a parent.

Home equity loans or lines of credit allow borrowers to unlock the equity in their property for any purpose such as renovating, investing, motor vehicles, education, etc. Home equity loans provide a low cost option to other forms of lending with the flexibility of interest-only repayments.

A home loan deposit is the initial amount you put down as a contribution to the purchase price of a house - typically 20% of the property value but it some cases it can be as low as 5%.

For a set period (usually 1 to 5 years) only interest is paid off your home loan, while the principal remains the same. At the end of the interest only period, the loan repayments will automatically switch to principal and interest, meaning your loan repayments will be higher.

The interest rate is the percentage a lender uses to calculate interest amount charged on your home loan.

If you are planning to buy a residential or commercial property to rent out and earn an income from, you might decide to take out an investment property loan to fund the purchase.

Simple, the loan term is how long the loan will last. It can be subject to change if you pay it off early or choose to refinance.

Line of credit loans are similar to overdraft facilities where income and expenses are paid and withdrawn from a single account. The concept is to minimise interest by depositing your salary directly into the loan account and only withdrawing living expenses as required. The downside is that without strict budgeting and controls, the loan could remain fully drawn. Instead, if you are looking to minimise interest, consider a suitable home loan with a 100% offset facility.

Most lenders charge LMI if the home loan is greater than 80% of the property’s value. Although LMI only protects the lender if the borrower can’t repay the loan, the borrower needs to pay the insurance premium.

Low-doc home loans suit self-employed borrowers who can afford to repay a loan but are unable to provide full financial statements or where they have an irregular or lumpy income stream.

This is the amount of your loan compared to the value of your property, expressed as a percentage. Lenders place a limit on the LVR depending on things such as the type of loan, property, location and financial position of the borrower.

A mortgage is your lender's parachute. This legal document gives the lender conditional ownership of the property as security for the repayment of the loan.

This is the entity who lends the money to the borrower.

This is the entity who borrows money from the lender.

Want to save more time and money? Set up an offset account. This is an everyday bank account linked to your home loan. When money comes in, the balance is offset against the amount owing on your home loan, helping to reduce interest paid and the overall loan term.

A pre-approval is a provisional figure of what a lender might be able to lend you, giving you confidence to search for a new home within your budget.

This is the amount of the loan owed to the lender and which the interest is calculated against.

Simply put, refinancing means moving your home loan to a different lender. When life changes, so do your home loan goals and refinancing allows you to find a new loan that best suits you.

Redraw is feature that provides borrowers access to any surplus funds they have over-paid into their home loan account. So if you make extra repayments on your home loan, redraw allows you to access these funds at any time.

Fixed rate term coming to an end? Don’t stress - you can lock in a new fixed rate with your lender leading up to the expiration date. Not currently on a fixed rate? You can fix your home loan interest rate at any time.

Revert rate is the interest rate a fixed rate home loan switches to at the end of the term. Typically, it’s a higher rate than what you were paying so make sure you look at refinancing as an alternate option.

Security refers to the property being used as collateral in exchange for the home loan.

This refers to a borrower’s capacity and meet the loan repayments, based on income, expenses and all other debts.

Settlement is the legalities of transferring property ownership from seller to buyer.

A SMSF is a way of saving for your retirement. The difference between a SMSF and an Industry Super Fund is that the members of a SMSF are usually the trustees and make all the investment decisions. Using a SMSF to purchase investment properties has become very popular in recent times.

Specialist or non-conforming home loans are designed to benefit borrowers who pass loan servicing benchmarks but don’t meet mainstream credit rules, due to a one-off situation that impaired their credit rating.

Split or blended home loans allow borrowers to divide their home loans into partly fixed and variable portions. This provides borrowers with the flexibility of a variable rate and the added certainty of a fixed rate loan.

Standard variable rate loans are known for their flexibility and features such as partly fixing, loan splits, offset, additional repayments and redraw.

This is a registered document stating who owns the property.

A variable interest rate is subject to change over time. Variable rates are like a roller coaster - they go up, they go down and they favour the risk-takers.