A unique 11-digit identifier issued to businesses operating in Australia. Self-employed applicants are often asked for their ABN, and how long it has been registered, as part of verifying their income and trading history.
Mortgage Jargon
Navigating the home loan process can feel confusing when you’re faced with unfamiliar financial terms. This guide helps you understand your loan options.
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A unique 11-digit identifier issued to businesses operating in Australia. Self-employed applicants are often asked for their ABN, and how long it has been registered, as part of verifying their income and trading history.
A signed statement from a qualified accountant confirming an applicant’s income, financial position or the nature of their business. Lenders may request one to support a self-employed or low-doc application.
Payments made above your required minimum repayment. On most variable loans they reduce your balance faster and cut the total interest you pay. Fixed loans often limit how much extra you can pay without a fee.
Recurring income received on top of a base salary, such as a car, travel or shift allowance. Lenders may count all, part or none of it depending on how regular and ongoing it is.
The process of gradually paying off a loan through regular repayments of principal and interest, so the balance reduces to zero by the end of the loan term.
An upfront fee some lenders charge to process and set up a new loan. It may also be called an establishment or set-up fee, and is sometimes waived as part of a deal.
Loan repayments that are overdue because they were missed or not paid in full by the due date. Falling into arrears can affect your credit file and your standing with the lender.
Something you own that has value, such as property, savings, shares or a vehicle. Lenders review your assets and liabilities to understand your overall financial position.
The federal government agency responsible for tax and parts of the superannuation system. Lenders may rely on ATO documents, such as notices of assessment, to verify income.
The underlying interest rate a lender applies before any discounts, margins or package benefits. Your actual rate is usually the base rate adjusted up or down based on your loan and profile.
A unit used to describe small changes in interest rates. One basis point is 0.01%, so 25 basis points is 0.25% and 100 basis points is 1%.
A legal obligation requiring mortgage brokers in Australia to act in the best interests of their clients when recommending loans, putting your interests ahead of their own.
The maximum amount a lender is likely to lend you, based on your income, living expenses, existing debts and credit history. Also called borrowing or servicing capacity.
A fee a lender may charge if you repay or refinance a fixed-rate loan, or make large extra repayments, before the fixed period ends. The cost depends on how rates have moved since you fixed.
Short-term finance that covers the gap when you buy a new property before selling your existing one, so you are not forced to sell first.
Insurance covering the structure of a property against events like fire or storm. Lenders generally require it to be in place before settlement, since the property is their security.
Tax that may apply to the profit when you sell an investment property or other asset for more than it cost you. Your main residence is generally exempt. Seek advice from your accountant.
The benchmark interest rate set by the Reserve Bank of Australia. It influences, but does not directly set, the interest rates lenders charge on home loans.
A legal notice recorded on a property’s title indicating that someone has an interest in it. A caveat can prevent certain dealings with the property until it is resolved.
A rate that combines the interest rate with most standard fees and charges into a single figure, designed to help you compare loans on a more like-for-like basis.
An early indication from a lender of how much you may be able to borrow, subject to conditions such as a valuation and final checks. Also known as pre-approval or approval in principle.
A home loan for building or substantially renovating, where funds are released in stages as the build progresses and you pay interest only on the amount drawn so far.
The legal process of transferring property ownership from the seller to the buyer, usually handled by a conveyancer or solicitor.
A short window after signing a contract of sale during which a buyer can usually withdraw, sometimes for a small penalty. It does not apply to all purchases, such as those bought at auction.
When more than one property is used as security for one or more loans, linking them together. It can reduce flexibility when you later want to sell or refinance one property.
Combining multiple debts, such as credit cards and personal loans, into a single loan, often your home loan, to simplify repayments and potentially lower the overall interest rate.
A failure to meet the terms of your loan, most commonly by missing repayments. A serious or prolonged default can be recorded on your credit file and affect future borrowing.
The portion of a property’s price you pay upfront from your own funds. A larger deposit usually means a lower loan-to-value ratio and may help you avoid Lenders Mortgage Insurance.
A guarantee that can be used in place of a cash deposit at exchange of contracts, with the actual funds paid at settlement. Useful when your cash is tied up until then.
A fee charged by a lender to finalise and release a loan, typically when you refinance to another lender or sell the property. Government discharge fees may also apply.
The difference between your property’s value and the amount you still owe on it. As you repay the loan or the property grows in value, your equity increases.
An upfront fee to set up a new loan, sometimes called an application or set-up fee. It may be waived depending on the lender and the deal.
A clear plan showing how a loan will be repaid, particularly important for older borrowers whose loan extends past retirement. Examples include downsizing, selling assets or using superannuation.
An interest rate locked in for a set period, giving certainty over repayments during that time. Fixed loans often limit extra repayments and may carry break costs if ended early.
Income earned overseas, relevant to Australian expats buying at home. Lenders often discount foreign income and only accept certain currencies, so policies vary widely.
Making repayments every two weeks rather than monthly. Because there are 26 fortnights in a year, this can result in the equivalent of an extra monthly payment annually, reducing your loan faster.
Funds you have accumulated and held over time, often three months or more, which some lenders require as evidence of financial discipline. A consistent rent history can sometimes substitute.
Your income before tax and other deductions. Lenders look at both gross and net income when assessing how much you can borrow.
A reduced introductory interest rate offered for an initial period of a loan, after which the rate usually reverts to a higher standard variable rate.
A repayment type where, for a set period, you pay only the interest and not the principal. Repayments are lower during this time, but the loan balance does not reduce.
The cost of borrowing money, expressed as a percentage of the loan. It can be fixed, variable, or a combination, and directly affects your repayments.
A loan used to buy a property to rent out or hold for capital growth, rather than to live in. Investment loans often have different rates and features to owner-occupier loans.
A loan application made by two or more people together, such as a couple, where all applicants share responsibility for the debt and their combined finances are assessed.
A one-off insurance premium that protects the lender, not you, if you default. It generally applies when you borrow more than 80% of a property’s value, and can add thousands to your costs.
A flexible loan that lets you draw funds up to an approved limit as needed, paying interest only on the amount you use. Often secured against property equity.
Your loan amount expressed as a percentage of the property’s value. A lower LVR generally means better rates and a lower chance of paying LMI. Above 80% usually triggers LMI.
A loan for borrowers, often self-employed, who cannot provide standard income documents. It uses alternative evidence such as BAS statements or an accountant’s declaration.
A legal agreement where a lender provides funds to buy property and the property is used as security until the loan is repaid.
The lender that provides the loan and holds the mortgage over the property as security.
The borrower who takes out the mortgage and offers their property as security for the loan.
When the cost of owning an investment property, including loan interest, exceeds the rental income it earns. The resulting loss may be offset against other income for tax. Seek advice from your accountant.
A lender that provides loans without holding a banking licence or taking deposits. Non-banks can be more flexible on policy and are a valuable option for borrowers who do not fit a standard mould.
A loan for borrowers who fall outside standard lending criteria, such as those with past credit issues or irregular income. These loans may carry different rates and conditions.
A transaction account linked to your home loan. The balance is offset against your loan, so you are charged interest only on the difference, which can save interest and shorten your loan.
A borrower who lives in the property they are buying, as opposed to renting it out. Owner-occupier loans are often priced more sharply than investment loans.
A loan feature that lets you keep your existing loan when moving home, substituting the new property as security, which can avoid the cost of setting up a new loan.
When an investment property’s rental income exceeds the costs of owning it, including loan interest, producing a net income. The surplus is generally taxable. Seek advice from your accountant.
A conditional indication from a lender of how much you can borrow, based on verified information. It confirms your budget and strengthens your position when making an offer.
The amount of money you borrow, not including interest. Your repayments on a principal and interest loan reduce this balance over time.
A repayment type where each repayment covers both the interest charged and a portion of the amount borrowed, so the loan is gradually paid off over its term.
A feature that lets you access extra repayments you have made above the minimum, giving you flexibility while still reducing interest while the funds stay in the loan.
Replacing your existing loan with a new one, either with your current lender or a new one, usually to secure a better rate, access equity, or change features.
A temporary pause or reduction in repayments that some lenders allow in certain circumstances. Interest usually continues to accrue, increasing the overall cost.
Australia’s central bank, which sets the official cash rate. Its decisions influence the interest rates lenders charge, though lenders set their own rates.
A loan that lets older home owners borrow against the equity in their home, with the debt typically repaid when the home is sold. Interest compounds over time.
An asset, usually the property being purchased, that a lender holds against a loan. If the loan is not repaid, the lender can take steps to recover the debt from the security.
A private superannuation fund that members manage themselves, giving direct control over investments. An SMSF can borrow to invest in property under strict rules.
A lender’s assessment of whether you can comfortably afford a loan’s repayments, based on your income, expenses, debts and a safety buffer added to the interest rate.
The final stage of a property purchase, where the balance is paid, legal documents are exchanged, and ownership transfers from the seller to the buyer.
A loan divided into separate portions, commonly part fixed and part variable, letting you balance repayment certainty with flexibility.
A government tax on property purchases, calculated on the price or value. Rates and first home buyer concessions vary by state and territory and change over time.
The money left over after all your income is reduced by your living expenses, debts and commitments. Lenders look at your surplus to gauge how much you can repay.
A form of co-ownership where each owner holds a defined share, which can be unequal, and can pass their share to whomever they choose. Compare with joint tenants.
The length of time over which a loan is scheduled to be repaid, commonly up to 30 years for home loans. A longer term lowers repayments but increases total interest.
The legal record of property ownership. A title search reveals the owner and any interests, such as mortgages or caveats, registered against the property.
A lender’s final, formal confirmation that your loan is approved after all checks are complete, subject only to any remaining standard requirements. Also called formal approval.
A property that is owned outright with no mortgage or other financial claim registered against it, meaning the owner holds it debt-free.
A lender-ordered assessment of a property’s market value, used to confirm it provides adequate security. A valuation can differ from the price you agree to pay.
An interest rate that can rise or fall over time with the market and the lender’s decisions. Variable loans usually offer more flexibility, such as extra repayments and offset.
The legal term for the seller of a property in a sale transaction.
A measure of an investment property’s return, expressed as its annual rent as a percentage of its value. Gross yield ignores costs; net yield subtracts expenses such as rates, insurance and management.
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