Language of Loans

Loan jargon explained

Some of the terms and phrases you come across when you arrange a home loan may be confusing. Here's a guide to some of the most common ones:

Asking price - the advertised price for a property. The price you actually pay can be different.

Auction - a public sale of property where prospective buyers bid for the house until the highest price is reached. There's often a reserve (a minimum price) set by the seller. Once the auction is above this amount, the seller must accept the highest bid.

Bridging loans -designed to bridge the gap between the purchase of your new home and the sale of your current home. Bridging loans are short-term loans and for as long as you have one, you'll be making payments on two loans. Bridging loans are charged at 1% above our standard variable interest rate.

Buyer Budget Over (or BBO) - similar to BEO (see below), but there's no obligation on the seller to consider offers.

Buyer Enquiry Over (or BEO) - potential buyers can often expect to pay above this price. If you offer over this amount the seller has to consider your offer.

Chattels - items in a property that are usually movable but are considered as included in the property sale. Chattels that are often listed in the sale and purchase agreement can include curtains, carpets, light fittings, and TV aerials.

Conditional offer - an offer that depends on other factors, e.g. getting a home loan approved (conditional on finance), a satisfactory builder's report or getting a satisfactory valuation. You or the seller can list as many conditions as you want.

Conveyancing - the process of transferring legal ownership of a property from one person to another. This will be handled by your lawyer.

Cross lease - this is where a number of people share the ownership of a piece of land. Cross leases might be used for flats or townhouses, or for 2 properties with a shared right of way such as a driveway.

Date of drawdown - the date your home loan is started (drawn down) and the date your interest and repayments are calculated from.

Deposit - after your offer on a property has been accepted, you might be asked to pay a deposit - often 5-10% of the purchase price. If you're dealing with a real estate agent, the deposit goes into a trust account operated by the agent. It's counted as part of your overall payment to the seller. A deposit isn't compulsory but in most cases is expected.

Equity - simply take away the amount still owing on your home loan, and any other debts you may have secured against it from the property's current market value to calculate your equity. What's left is the amount you actually own of your house.

Fixed interest period or fixed term - how long a certain fixed interest rate applies to a loan. Can be between 6 months and 5 years.

Fixed interest rate - means the interest rate won't change for a set period of time.

Freehold - describes a form of ownership. Owning a freehold property means you own the building and the land it sits on absolutely - as opposed to a leaseholder (see 'Leasehold').

GV - Government Valuation - see Rateable Valuation (RV).

Interest - what the bank charges you on the money you borrow. Expressed as an annual percentage of the amount you borrow.

Leasehold - ordinarily you own the building or house, but the land itself is owned by someone else who may charge you rent to occupy it. As long as your lease payments are up-to-date, you have the right to exclusive possession of the building or house for the duration of the lease term.

Lender's Mortgage Insurance (LMI) - a one off payment to a third party insurer. This insurance usually applies to customers who have less than 20% deposit.

LIM report - Land Information Memorandum report on the property prepared by the local council. It should include and show alterations that have been permitted.

Loan repayment term - how many years it'll take to pay off your home loan. You can choose a loan repayment term from one to 30 years when you apply for your loan.

Loan to Value Ratio (LVR) - the amount you wish to borrow as a percentage of the property's market value.

Market value - an estimate of the property value right now (that is, what a buyer would be prepared to pay and what a seller would accept, for the property at any point in time).

Marketed Without Price (MWP) - similar to Price by Negotiation where it's uncertain what the demand for a property is and therefore uncertain what the ideal price would be.

Mortgage - sometimes used to describe a home loan. The mortgage is the pledging of a property to a lender as a security for a loan.

Payments/repayments - the amount that the loan contract specifies must be paid at an agreed frequency (e.g. fortnightly or monthly).

Pre-approval - an offer in principle from the bank of how much they could lend you, with final acceptance subject to the confirmation of certain criteria, such as the value of the house you want to buy.

Price By Negotiation (PBN) - the buyer and seller negotiate until they reach an agreed price. The real estate agent usually acts as a go-between.

Price On Application (POA) - the agent will only disclose the seller's ideal price if the buyer is serious.

Principal - the amount you borrow. The amounts you repay regularly are usually made up of both principal and interest.

Purchase price - how much you end up paying for the property (including chattels).

Purchaser - the person who is buying the home.

Rateable Value (RV) - (also known as the Government Valuation or GV) - The value placed on a property by the local council for rating purposes.

Sales and purchase agreement - this is the written contract for a property that is usually handled by a real estate agent and a lawyer. The agreement usually outlines your offer, the settlement date and any conditions that must be met before the sale goes ahead.

Security value - the value of the property that the Bank will be prepared to lend against, usually the same as the market value, or the agreed purchase price.

Settlement day - the date you pay the seller and legally own the property.

Tender - Buyers submit formal offers (or tenders) by a set date. The highest tender amount usually wins. There are several versions of tenders and you should ask your agent about these. For example, a 'tender with reserve' means that once an offer is received above its reserve, it must be accepted.

Term - another word for 'period' or 'duration'. This word is used to describe the length an interest rate or loan will apply for.

Title (Certificate of Title) - a document that is the legal description of the property, who owns it and who has a mortgage over it.

Unconditional offer - an outright offer to buy with no conditions attached. An offer also becomes unconditional once any conditions have been met, e.g. getting a valuation report from a registered independent valuer. See 'Conditional offer'.

Unit title - allows people to individually own an apartment, unit or flat in a building, with multiple ownership of the common spaces and facilities, such as driveways and elevators.

Valuation - a written report of the current market value of a property, prepared by a registered independent valuer.

Variable interest rate - also known as floating interest rate. It's an interest rate that can go up or down.

Vendor - the person selling the property.

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