Home Buyers

Homebuyers Glossary


 

 A-B C-E F-L M-Z


A-B

A & L
Assets and liabilities

ABN
see Australian Business Number

Additional Loan
Any increase above the original amortised loan balance.

Allotment
A block of land created out of a larger area.

Amortisation
Reduction of debt over a period of loan.

Amortisation Schedule
A table showing the mortgage payment, broken down by interest and amortisation, the loan balance, and perhaps other data.

Annual Percentage Rate
The advertised rate of interest per annum for a loan.

APR
see Annual Percentage Rate

APRA
see Australian Prudential Regulation Authority

Approved Deposit Taking Institutions (ADI's)
A financial body authorised by APRA to accept deposits e.g. Banks, Building Societies, Credit Unions.

Arrears
Unpaid repayment.

Assets
Money, property or goods owned.

Australian Business Number (ABN)
Businesses must apply for an ABN to comply with the requirements of the GST. It is the identifier for all dealings with the Australian Tax Office. QBE LMI ABN is 70 000 511 071. ( Australia only)

Australian Consumer & Competition Commission (ACCC)
An independent statutory authority, the Commission administers the Trade Practices Act 1974 and the Prices Surveillance Act 1983 and has additional responsibilities under other legislation. In broad terms, the Act covers anti-competitive and unfair market practices, mergers or acquisitions of companies, product safety/liability, and third party access to facilities of national significance. The Commission is the only national agency dealing generally with competition matters and the only agency with responsibility for enforcement of the Trade Practices Act and the associated State/Territory application legislation.

Australian Prudential Regulation Authority (APRA)
APRA is the prudential regulator of banks, insurance companies and superannuation funds, credit unions, building societies and friendly societies.

Australian Securities & Investments Commission (ASIC)
ASIC is one of three Commonwealth Government bodies that regulate financial services and are the single national regulator of Australia 's 1.1 million companies. ASIC regulates advising, selling and disclosure of financial products and services to consumers so they have adequate information, are treated fairly and have adequate avenues for redress.They protect markets and consumers from manipulation, deception and unfair practices.

Balance
The amount of the original loan remaining to be paid. It is equal to the loan amount less the sum of all prior payments of principal.

Balance Sheet
A statement of assets, liabilities and net equity for an enterprise at a point of time.

Bankruptcy
A declaration by the Federal Court to place all of an individual's assets and liabilities with an official receiver to liquidate and distribute to creditors, according to prescribed legal guidelines. Bankruptcy can be declared if an individual's liabilities exceed his or her assets or accounts can not be paid. Note that bankruptcy applies to an individual; the equivalent status for a corporation is receivership or liquidation.

BAS
see Business Activity Statement

Bedsitter
Small unit without a separate bedroom.

Body Corporate 
A corporation of the owners of units within a strata building. They form a self-elected council for the management of the building and common areas.

Borrower
A Borrower requires funds to purchase a home and provide a registered mortgage in favour of the lending institution as security for the loan to be advanced.

Borrower Sale
Sale of property by mortgagor or borrower.

Bridging Loan
A short-term loan that covers a financial gap between the purchase of a new property and the sale of an old property.

Builder Programs
Building company package (e.g. a company such as AV Jennings) such as house or land packages, savings plan, builder incentive.

Business Activity Statement (BAS)
The BAS is a report on a company's tax obligations and entitlements, covering:
- the price of things acquired
- Pay As You Go installments
- amounts withheld from payments to others
- details of the Fringe Benefit Tax installments.( Australia only)


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C-E

Composite Loan
A composite loan is where the loan comprises a standard home loan plus funds for other purposes.

Consolidation Loan
Combining two or more debts into one.

Construction Loan
Loan for the purposes of constructing a dwelling.

Contract of Sale
Legal document agreed by the vendor for sale of the property.

Covenant
Terms and conditions that specify the usage of a block of land or the buildings on it.

Credit Rating (Individual)
The financial rating or credit worthiness of a company, government or financial institution relative to others. The credit rating determines what the institution will be charged to raise funds, in relation both to the amount it is able to raise and the interest it will be charged.

Crown Lease
Holding of Crown lands under a lease or agreement. Lease term can be up to 100 years.

Deposit
A sum given as security or part payment; in real estate transactions the usual deposit is 20% of the purchase price. It is often the difference between the purchase price of the property and the loan amount, expressed in dollars, or as a percentage of the price. For example, if the house sells for $400,000 and the loan is for $320,000, the deposit is $80,000 or 20%. Loan amount used in this calculation does not include any prepaid finance charges that are included in the loan.

Discharged Bankrupt
Person discharged from bankruptcy. The debts of the person concerned are considered to be settled and, if solvent, he or she can begin again.

Discharging the Mortgage
Releasing the loan security.

Disclosure
The duty of the borrower, lender and any intermediaries to tell the insurer every matter which they know to be relevant to the decision of the insurer as to whether to accept the risk and, if so, on what terms.

Domicile
Principal place of residence.

Encumbrance
An outstanding liability or charge on a property.

Enforceable Registered Mortgage
A valid mortgage enabling sale of security to recoup debt.

Equity
The proportion of the value of the home which the borrower owns.

Equity Loan
A loan secured by the part of the value of an asset (usually a house) which the borrower owns.


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F-L

Family Allowance
Federal Government assistance payment for dependent children under the age of 16 years.

Fiduciary
A person or organisation entrusted with the responsibility of managing, holding or investing assets in the best interests of the owner of the assets.

First Mortgage
The first-priority claim against the property in the event the borrower defaults on the loan.

Fixed Rate Loan
A loan where the interest rate is fixed for an agreed period for all or part of the loan amount (typically 1 – 5 years but not available above 10 years). The borrower could then select another fixed rate period or revert to Variable Interest for the remaining loan period

Freehold
The dwelling and the land on which it stands is owned by the owner until they choose to sell it.

GST
Goods and Services Tax ( Australia only)

GST First Home Buyer Grant
A grant of $7,000 for first owner-occupier home buyers. This scheme was introduced to compensate for the introduction of GST in Australia.

Guarantee
A promise made as bound by the terms of a contract.

Guarantor
A person who guarantees, if necessary, to pay someone else's debt

High Density
A development of 4 or more floors and more than 30 accommodation units.

Housing Affordability
Housing affordability is measured by an index known as the Housing Affordability Index which is the ratio of average household disposable income to the income required to meet payments of a typical dwelling. The higher the number, the more affordable property is.

Homebuyer
A person who buys a house or one who is in the process of buying a home.

Income Statement
A statement of income and expenditure for a period, usually a year.

Indemnity
A legal agreement under which one party agrees to pay for losses incurred by another.

Interest Only Loan
A loan where the principal is paid back at the end of the term and only interest is paid during the term. The loans are usually for a short term of 1 to 5 years.

Interest Payment
The dollar amount of interest paid each month.

Interest Rate
The rate charged to the borrower each period, usually quoted on an annual basis. A rate of 6%, for example, means a rate of 1/2 % per month. For a monthly payment mortgage the rate divided by 12 is multiplied by the balance at the end of the preceding month to determine the monthly interest due.

Introductory Loan
A loan is offered at a reduced rate for an introductory period (usually no longer than 15 months) to new borrowers.

Investment Loan
A loan with the purpose of producing additional income or capital gain.

Joint Tenants
Equal holding of property between two or more persons. If one party dies, their share passes to the survivor(s).

Leasehold
Property held by lease. On leasehold land, the lessee pays ground rent to the owner of the freehold.

Lender
The party who: - provides the funds to purchase the security - receives evidence of the borrower's debt and obligation to repay, and - receives the mortgage on the security.

Lenders' Mortgage Insurance (LMI)
Lender's Mortgage Insurance protects the Lender against loss if for some reason the borrower stops making mortgage repayments. Lender's Mortgage Insurance should not be confused with Mortgage Repayment Insurance which is a form of life insurance that repays the mortgage on the death or permanent disability of the borrower.

Liabilities
A person's or organisation's debts or obligations.

Lien
The right to hold property as security against a debt or loan.

Line of Credit
A flexible loan arrangement with a specified ceiling to be used at customers' discretion.

LMI Fee
The fee paid by the borrower to insure the lender against loss of income resulting from the borrower defaulting on mortgage repayments. In all cases, QBE LMI invoices the lender for the payment.

Loan Amount
The amount the borrower promises to repay, as set out in the mortgage contract.

Loan Originator
Any person who is involved in the marketing or establishment of the insured mortgage. This could be a mortgage broker, a mortgage manager or a trust manager.

Loan-to-Value Ratio (LVR)
The ratio of the amount lent to the valuation of the security, which is taken as the lesser of the selling price or the appraised value.


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M-Z

Maturity
The period until the last loan payment is due.

Maturity Date
The date a debt or investment must be paid in full.

Medium Density
A development of more than 3 levels and more than 6 dwelling units.

Mortgage
A form of security for a loan usually taken over real estate. The lender (mortgagee) has the right to take the real estate if the borrower (mortgagor) fails to repay the loan.

Mortgage Broker
An independent contractor who offers the loan products of multiple lenders. A mortgage broker counsels on the loans available from different lenders, takes the application, and usually processes the loan. When the file is complete, the lender underwrites the loan and funds it. A mortgage broker does not fund a loan.

Mortgage Finance Association of Australia (MFAA)
Finance industry association that ensures best practice and fair dealing within the mortgage industry. Membership of the MFAA is very broad and includes: mortgage brokers, mortgage originators, mortgage managers, credit providers, LMI’s, securitisers, lawyers and valuers.

Mortgage Insurance
Insurance provided to the lender against loss on a mortgage in the event of borrower default.

Mortgage Insurance Premium
The upfront charge that the lender pays for mortgage insurance.

Mortgage Insurers
Provide cover to protect lenders from default by borrowers on loans secured by mortgage. Mortgage insurers are substantially different from other insurers and are subject to special conditions of authority.

Mortgage Manager
A party (often the Mortgage Originator) who undertakes certain mortgage functions in an agency capacity on behalf of the mortgage funder/ servicer e.g. assisting in the processing of loans applications from approval to settlement, providing customer service and collections of mortgage payment. Examples are RESI, RAMS, and Aussie Home Loans. Some mortgage managers (particularly those above) also act as mortgage originators where they process and service the loans. They may or may not underwrite but do not fund the loan.

Mortgage Originator/ Introducer/ Broker/ Advisor
An entity that takes an application for a loan and refers it to a lender for subsequent activities (e.g. processing, etc) in exchange for a fee. This entity does not undertake a mortgage management or servicing role. Examples are: Mortgage Choice, Mortgage House and Smartline.

Mortgage Payment
The repayment (usually monthly) of monies secured by the mortgage.

Mortgage Repayment Insurance
Mortgage Repayment Insurance is a form of life insurance that repays the mortgage on the death or permanent disability of the borrower.

Mortgagee
Party who lends money using a mortgage as security.

Mortgagee Sale
Sale of property by mortgagee after taking possession of a property following default of a loan contract.

Mortgagor
Party who takes out a mortgage in order to borrow money (usually to buy a property).

National Consumer Credit Protection (NCCP) Act
The National Consumer Credit Protection Act 2009 (Cth) or the NCCP Act, is legislation that is designed to protect consumers & ensure ethical & professional standards in the finance industry through the National Credit Code (NCC). The NCCP Act is regulated & enforced by ASIC. The NCCP Act provides that all persons engaged in credit activities are required to hold an Australian credit licence or be registered as an authorised credit representative.

No Documentation
Absence of support documentation to verify the borrower's credentials. Usually low LVR.

No Valuation Policy
Where a lender provides a loan without requiring a formal valuation of the security property and where an LMI will provide insurance.

Non Bank Financial Institution (NBFI)
All financial institutions that are not banks and do not have a banking licence. There are different licences required for Banks, Building Societies and Credit Unions. APRA rules cover Banks, Building Societies, Credit Unions, Friendly Societies & Superannuation funds. Mortgage Originators etc are not covered by APRA and will also be included in the NBFI range.

Non Conforming Loans
Loans that do not comply with particular criteria/ policy e.g. loans falling outside policy and practice.

Off-the-Plan
Property to be constructed as part of a development with completion at some future date. Properties are purchased based on plans and specifications set by the developer.

Old System Title
Common law title consisting of a chain of title.

Originator
This is the lending institution or party who sources the borrower and underwrites the borrower's loan application. The Originator will usually set up the settlement of the loan in accordance with the legalities to ensure the mortgage documents are legally binding.

Owner Builders
Building undertaken by owner of the property.

Owner Occupied
Property occupied by owner as prime place of residence.

Personal Covenants
The Personal Covenants are contained in the Mortgage document and is mainly concerned with protecting the security of the mortgagee by imposing obligations on the mortgagor. These include the obligation to repay the principal and interest as specified and other various covenants such as to maintain the property and to pay rates and taxes.

Premium
The fee that is paid to QBE LMI for the provision of mortgage insurance. This is usually paid upfront as a single fee by the borrower. The premium rates vary according to coverage type and LVR and are usually expressed as a percentage of the lesser of the property valuation or purchase price.

Prepayment
A payment made by the borrower over and above the scheduled mortgage payment.

Principal
The capital sum borrowed on which interest is paid.

Principal and Interest Loan
A loan in which both the principal and the interest are paid during the term of the loan.

Product
Service or any capability which can be communicated to the market. A tangible offer to customers which satisfies a specific or group of needs. (See Complementary Products and Value Added Service)

Redraw
Available funds that a borrower may access as a result of payments made in excess of scheduled repayments. In such a case, the loan may be "redrawn" to the balance that the loan would be if no additional payments were made in excess of scheduled payments.

Refinancing
To replace or extend on an existing loan with funds from the same institution or another.

Regulated loan
A loan that is regulated by the Australian Consumer Credit Code. The test for regulation is whether the loan is predominantly for personal use. If it is not, it is an unregulated loan. Also see Unregulated Loan.

Rental Guarantees
Where a developer will offer a guaranteed rental return on a particular property to attract purchasers.

Residential Investment
A non-primary residence used for acquiring additional income or capital gain.

Second Mortgage
The second-priority claim against a property in the event that the borrower defaults on the loan. The lender who holds the second mortgage gets paid only after the lender holding the first mortgage is paid.

Security
An asset that guarantees the lender their borrowings until the loan is repaid in full. Usually the property is offered to secure the loan.

Serviced Apartment
A unit purchased in a serviced apartment pool or scheme, which is purchased inclusive of all furnishings, and tenanted via the scheme. Often short stay or tourist accommodation.

Serviceability
The borrower's financial capacity to repay the loan.

Shared Equity Loan
A government subsidised loan for low-income earners, e.g. HOLS. In this type of loan a share of the property is purchased which may be between 20 to 80% depending on what the borrower can afford. The rest of the property is purchased by the scheme and the borrower rents this remaining share. The shared home ownership repayments are based on a percentage of the borrower's commencing eligible income and increased annually. Once the loan component is repaid in full the borrower may purchase an additional share in the same property.

Stamp Duty
A government charge on contracts of insurance. The charge is made by State and Territory governments and is calculated as a proportion of the LMI premium. Stamp duty rates vary from state to state, and only apply in Australia.

Strata Title
Title maintenance system. A property is Strata Title where there are multiple owners sharing the land i.e. units, townhouses. This title gives ownership of a ‘unit’ of a larger building which the owner may sell, lease or transfer at their discretion. Also entitles the owner to membership of the body corporate. Issued as confirmation of ownership of title to an individual lot (unit) in a multi-dwelling development (ie. multi-storey, duplex or other horizontal development) and a share in the common property of the development (Strata Plan).

Tenants in Common
Tenants in common have undivided possession in the land. No one tenant in common is entitled to the exclusive possession of any part of the land and each is entitled to occupy the whole in common with the co-owners. In contrast to co-ownership of land as joint tenants, there is no right of survivorship. The share of a tenant in common does not pass onto surviving tenants but instead passes to the tenant's legal personal representative. Tenants in common may be terminated by converting to separate ownership by sale or buying out the share of co-tenant.

Term
The length of a home loan or a specific portion within that loan.

Torrens Title
Title maintenance system. A property is normally held by Torrens Title if there is no shared ownership of the land. See also Strata Title.

Total Interest Payments
The sum of all interest payments to date or over the life of the loan. This is an incomplete measure of the cost of credit to the borrower because it does not include upfront cash payments, and it is not adjusted for the time value of money.

Town House
Usually a two storey dwelling registered under a strata title.

Trust
The difference between a trust and company or partnership is that the Trust has neither separate legal identity (as a Company) nor does it involve a contractual relationship between all persons in it (as does a partnership). Trust structures provide tax planning benefits and limitations of legal liability to creditors (through the use of a $2 Company as Trustee). As a Trust is not a legal entity a Trustee must be appointed for the purpose of borrowing funds. A trust is formed when assets are transferred to a Trustee, which holds legal title to the assets on behalf of one or more beneficiaries.

Uncommitted Income
Surplus net income after meeting all living expenses and fixed commitments.

Undischarged Bankrupt
When the debts of the bankrupt have not been paid.

Unencumbered
A property free of liabilities, encumbrances or restrictions.

Vacant Land
Property on which no dwelling or other improvements have been erected.

Vacant Possession
Refers to the physical possession of a property after it has been vacated by the borrower/ tenant.

Valuation
A written report as to the value of a security from a person who is at the time of provision of the report a Valuer. A Valuer is a person who is a member of the Australian Institute of Valuers and Land Economists in the real property valuation category.

Valuation Report
The physical report prepared by a licensed valuer, detailing a professional opinion of a property's value.

Vendor
The party selling the property, the present owner.

Villa
A style of housing, often an attached dwelling.

Zoning
The Local Government Authority's approved use for a property. For example: residential, commercial, industrial etc.



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