Industry jargon
What are those banks talking about? Is that some sort of new language? Well, yes… kind of. So let’s cut the bank cr*p, talk like normal people and decipher this for you.
A is for…
Amortisation
Another way of saying a regular loan repayment. Principle & interest is another way of saying it. We just prefer to say “pay it off”
Annual Fee
A fee charged by the bank, for the privilege of having a loan, which is charged every single year of your loan, normally on the anniversary of your loan. A nice reminder from the bank, just in case you forgot that you were giving them so much money every month.
Application Fees
A fee the bank may charge to cover their cost of setting up your loan. No one likes them, but sometimes they can be better than an Annual fee.
Approval (Conditional)
The lender has said ‘Yes’ for your loan, but with a few strings attached. A bit like a half-yes, definitely stronger than a ‘Maybe’. Essentially, they’d like to lend you the money, but they just want to check a few things first.
Approval (Formal)
The lender has said ‘yes’ for your loan. No more questions, no strings attached; no conditions. You’re good to go! Finally!
B to the E
Break Costs
The fee you pay the bank if you want to pay off a fixed-rate loan early. Because you wanted to lock in the interest rate for a certain period, if you change your mind during that period to get a different interest rate, you’ll probably have to pay a fee to the bank to cover the difference., Because the banks never lose.
Credit
A bit like the English language, this is a word that can have 2 meanings in finance: 1) The more formal word for your loan; 2) The person at the bank who formally gives you the approval for your loan - is short for Credit Officer. So essentially, your loan application can be put to a Credit Officer in the Credit Department who will confirm you can have some Credit. Because that is soooo not confusing!
comparision rate
It’s effectively the interest rate you would be paying if all the fees are added in to a loan repayment. It’s calculated on a loan of $150,000 over 125 years - helping you to to compare apples to apples.
Discharge (of your Mortgage)
When you pay off your loan, the bank needs to remove their name from your mortgage. This can be when you have sold the property, changing banks (refinancing) or have totally repaid your loan (at some point waaaay in the future), You’ll have to complete a form for the bank AND the bank generally charges a fee to cover the ‘administration’ costs of the bank. Of course there is!
DTI
Simply the debt to income ratio is a number that shows how much total debt you have, as a multiple of your income. The higher the number, the more debt that you have, when compared to your income. The income is measured before tax & includes all your loans. Read more.
EQUITY
The amount of the property that you actually own. E.g. The property value minus your current loan equals your equity. The more equity to have the richer you are! Sometimes you can use this equity to buy another property.
Establishment Fee
Same as an Application Fee, just a different name. Not like they are trying to trick you, right, by calling it something else?
For F’s sake
FAMILY GUARANTEE
When your Mum and Dad (or another family member) offer to help you buy your first home, by guaranteeing your loan and using their home as extra security. Comes into play when you don’t have your 20% deposit and want to avoid Lenders Mortgage Insurance. Also known as a family Pledge; playfully known as the Bank of Mum & Dad.
Fees
There are heaps of them that the bank can charge when you want a loan (See Application Fee, Establishment Fee, Annual Fee etc), because apparently they are not making enough money from the interest on your loan as it is!
First Home Owners Grant
A government scheme in each state where you could receive a cash contribution towards your first home! Generally available for a new home or if you’re building a home. The cash varies in each state and is available for first home buyers only.
G, I wish I’d known…
Guarantee
A promise to the bank that you’ll repay the loan for someone else, if they are unable to repay themselves. Normally something a parent will provide (see Family Guarantee) because they love you. Can also come into play when your private entity (like a trust or company) owns a property (like an investment property) and has a loan on it.
Interest (Loan)
The cost for borrowing money from the bank, which they often charge every single damn month.
Interest (Deposit)
The amount the bank pays you for letting them lend out your money to borrowers, which they often pay you every month. The interest rate you are paid will be lower than the interest rate they charge the borrower (otherwise the bank will not make any money)!
Interest Only
Your loan repayment where you pay only the interest each month, and no Principal. It means you loan never goes down. Your other option then, is to pay it Off (See Principle & Interest or Amortisation).
Interest rate (Fixed)
The rate for your loan, often shown as an annual percentage, that is set for an agreed period of time, such as 1, 3 or 5 years. It means the loan repayment is exactly the same during that period, even if interest rates go up or down. The bank can’t change the rate during the term, no matter what happens. Ha!
Interest rate (Variable)
The interest rate for your loan, often shown as an annual percentage, that can vary depending on the how economy is performing and how your bank feels about things. It can be moved up or down by the bank at any time they want, as many times they want, by as much as they want. Nice to know that you have no control over it, isn’t it? (NOT!)
Investment Loan
A loan where you borrow the money specifically for an investment purpose, like a property (so not for a home for you to live in). Interest rates are generally a little higher for these types of loans.
Investment Property
A property that you buy as an investment, which you probably will rent out. This means you are now a scary Landlord! And you’ll need an Investment Loan for it.
L is for…
Lenders Mortgage Insurance
Is commonly known as ‘LMI’ and is an insurance normally paid by you to protect the bank from you. Normally only required when your loan is higher than 80% of the value of the property (see LVR) at the time you take out the loan. It covers the bank if you can’t repay your loan and there is not enough money to clear your loan after the bank sells your property. Unfortunately, it generally doesn’t cover you at all, only the bank.
Low Doc Loan
A loan where you don’t need as much information for an application as a normal loan, but the interest rate is often higher. Often is most suitable for those who are self-employed or have an irregular income.
Loan Documents
The legal documents for your loan, which you need to sign. They will be prepared by the bank or their lawyers, with all of the details, conditions & security for your loan. Really important bits of paper.
Loan term
Refers to how long your loan is going to go for. Can be expressed as months or years, but never weeks - it’s often too many weeks to think about! It’s most common to be 30 years or 360 months for a home loan.
LVR
This is the very important Loan-to-Value Ratio. This ratio is the amount of the loan against the value of the property. E.g. A loan of $800,000 against a value of $1,000,000 is an LVR of 80%. This LVR determines how much the bank likes you; how much they are willing to lend to you; what interest rate they will offer you; and whether you need LMI. 80% or lower is good; the lower it is the better. Learn more
M, N, O
Mortgage
The legal document that enables the bank to take security over your beautiful new home. It outlines the details of the property and is registered with your state titles office. Will often note the details of the bank and the borrower (See Mortgagor & Mortgagee). People have been known to shed a tear when signing a mortgage!
Mortgage Discharge Fee
A fee charged by the bank, for the privilege of having a loan, when you are closing your loan and it apparently covers the bank’s ‘Administration’ costs. Why would you close your loan? See Refinancing or Unencumbered
Mortgagee
The business who is lending the money to the person so they can buy the property and they want to get their grubby little fingers on it. - I.e. The Bank!
Mortgagor
The person who is borrowing the money to buy the property, and is letting the bank put a mortgage on their beautiful new home. - I.e. You!
Negative Gearing
A term used to describe the financial returns from an investment, when the outgoings are higher than the income for the investment. Another way to put it is ‘loss making’. Accountants love it.
Non-bank lenders
A term used to describe the financial returns from an investment, when the outgoings are higher than the income for the investment. Another way to put it is ‘loss making’. Accountants love it.
Offset Account
A bank account that is linked to your loan, with the money in the bank account helping to reduce the interest you pay on the loan. So if you had a $100,000 loan and $10,000 in your offset account, the interest would be calculated on $90,000!
Ongoing Fee
Any fee charged by the bank, for the privilege of having a loan, which is charged at regularly, such as fortnightly, monthly or annually.
Owner Occupied
It is the house that you own & live in. Or better still: it’s your home! It’s not an investment property.
P is for Package?
Package
Let’s keep it clean, peeps! A package is a way of offering extra bank products to you, bundled up into your home loan, such as an offset account, discounted insurance or a credit card. Generally has a fee! (See Annual Fee of Ongoing Fee). Of course it does.
Principal
The total amount of the loan, excluding the interest. Also the head of a school. But that is irrelevant here.
Principal and Interest
Another way of saying a regular loan repayment. Amortisation is another way of saying it. We just prefer to say “pay it off”. Often referred to as P&I.
R, S
Redraw
Where you can make additional repayments to your loan, then can access and withdraw the extra funds at another time that suits you. Some lenders may charge a fee for this privilege of accessing your own funds!
Refinancing
The name for when you move your loan from one lender to another lender. Generally happens because you are sick of the bank’s service or not happy with their interest rate or loan conditions. In Facebook terms, you want to Unlike them!
Security
The bank lends you the money to buy a property and they want some ‘collateral’ for their money in case you can’t repay the loan (because it is a lot of money)! Generally the security is taken over the property you are buying (or own) and they take their security by putting a mortgage on your property. Seems fair!
Serviceability
A financial assessment to confirm whether you can afford to repay the loan. The result can vary with each bank, depending on the way they assess you, and their policies.
Settlement
The day when you become the owner of the property, because you have made the final payment to purchase it. Also the day that you most likely have a Mortgage. A sweet and sour day, so celebrate with some nice champagne!
Split loan
When you want your loan to be part on a fixed interest rate and part on a variable interest rate, so you end up with two loans for the same house. Normally happens when your aren’t sure which way the interest rates may go, so it’s a good thing. Some might say that you’re sitting on the fence; others might say you’re managing your risk - and they’re both right!
Stamp Duty
A state government tax on you, for buying a property. The amount varies in each state and is often based on the contact price. Why? Because they can! Discounts can apply for first home buyers. Phew!
Switching Fee
A fee charged by the bank, for the privilege of having a loan, when you are wanting to change from one loan type to another. (E.g. from a fixed rate loan to a variable loan). Apparently this covers the cost of the ‘paperwork’!
T to the U to the V
Transfer Duty
Another state government tax on you, for buying a property, when then ownership is ‘transferred’. The amount varies in each state and is often based on the contact price.
Transfer Deed
The document which confirms a change of ownership of a property for a state land titles office. It often completed by your conveyancer/solicitor when buying or selling your property and the result is reflected on the Title Deed.
Upfront Fee
Any fee charged by the bank, for the privilege of having a loan, which is charged at the start of the loan. (See Application Fee or Establishment Fee)
Unencumbered
The way it is described when your property does not have a mortgage on it. Probably because you paid it off. Lucky you!
Valuation
A report requested by the bank, and for the bank, to help the bank confirm the value of a property. Especially helpful when a property isn’t being purchased and you’re changing banks. It doesn’t matter what the real estate agent thinks it is worth, this is the one that counts!