Amortisation
The gradual repayment of a loan through scheduled payments. For a principal-and-interest loan, each repayment usually covers interest plus part of the amount borrowed.
A
Arrears
Money that is overdue. A loan is in arrears when a required repayment has not been made by its due date.
Available equity
The portion of property equity that may be accessible for another purpose, subject to the lender’s valuation, maximum LVR, serviceability and policy. It is not simply the full difference between value and debt.
B
Base variable rate
A lender’s reference variable rate before any applicable discount. Your actual variable rate may be lower or higher depending on the product and pricing.
Bonus income
Variable employment income paid in addition to base salary. Lenders may require a history, use an average and apply income shading.
Borrowing capacity
The amount a lender may be willing to lend after assessing income, debts, credit limits, expenses, dependants, loan terms and its current policy. It is also called borrowing power.
Bridging finance
Short-term lending that can cover the period between buying a new property and selling an existing one. The assessment needs to consider the temporary peak debt and the intended exit strategy.
C
Cash rate
The Reserve Bank of Australia’s target for the overnight cash rate. It influences funding costs and interest rates but does not move every home-loan rate automatically or by the same amount.
Commission income
Variable pay linked to sales or performance. A lender may examine how long it has been earned, its consistency, payslip and tax evidence, and whether it is likely to continue.
Comparison rate
A percentage intended to help compare the cost of a loan by combining the interest rate with most fees and charges. It is based on a prescribed example and may not reflect your exact loan size or term.
Conditional approval
Also called pre-approvalAn indication that a lender may be prepared to lend up to a stated amount, subject to conditions such as updated documents, an acceptable property and final assessment. It is not an unconditional promise to lend.
Construction loan
A loan designed to fund a build or major renovation in stages. Funds are generally released through progress payments as construction milestones are completed.
Credit enquiry
A record created when a credit provider checks your credit file in connection with a finance application. The number, timing and type of enquiries form part of your broader credit history.
Credit report and credit score
A credit report records information about your credit history, while a credit score summarises aspects of that information into a number. Lenders also conduct their own assessment rather than relying on the score alone.
D
Debt consolidation
Combining multiple debts into one facility or loan structure. A lower repayment can come from extending the term, so total interest and the risk of converting unsecured debt into debt secured by property must be considered.
Debt-to-income ratio
DTITotal debt divided by gross annual income. Lenders may use DTI as one measure of leverage and risk alongside their full serviceability assessment.
Deposit
The money contributed toward a property purchase rather than borrowed. Purchase costs such as stamp duty and legal fees may need to be funded separately.
E
Equity
The difference between a property’s current value and the debt secured against it. Lenders use their accepted valuation, which may differ from an owner’s or agent’s estimate.
Extra repayments
Payments made above the required minimum. They can reduce interest and shorten the loan term, but fixed-rate loans and some products may limit how much can be paid without cost.
F
Fixed interest rate
An interest rate set for an agreed period. It provides repayment certainty during that period, but may limit extra repayments and can involve break costs if the loan changes or is repaid early.
Formal approval
Also called unconditional approvalA lender’s approval after it has assessed the application and required property details. Loan documents and any remaining settlement requirements still need to be completed.
G
Genuine savings
Funds accumulated or held over a period that meet a lender’s policy for demonstrating the borrower’s saving behaviour. What qualifies, and the required period, varies by lender and loan type.
Guarantor
A person who offers a guarantee, often supported by security, to help another borrower obtain a loan. The guarantor takes on real financial and legal risk and should obtain independent legal advice.
H
HELP debt
An Australian Government student loan balance. The outstanding debt and compulsory repayment can affect a lender’s serviceability assessment even though repayments are collected through the tax system.
I
Income shading
A lender using less than 100% of an income source in its assessment. This is common with variable income such as bonuses, commissions, overtime, allowances, rent or some investment income.
Interest-only repayment
A repayment that covers interest without reducing principal during the interest-only period. Repayments usually rise when the loan returns to principal and interest, and total interest may be higher.
Interest rate
The percentage charged for borrowing money. The advertised rate is not the only cost, which is why fees, features and the comparison rate also matter.
L
Lenders mortgage insurance
LMIInsurance that protects the lender, not the borrower, if a loan is not repaid and the secured property sale leaves a shortfall. It commonly arises at higher LVRs, although thresholds and exceptions vary.
Loan term
The period over which the loan is scheduled to be repaid. Extending the term can lower minimum repayments but may increase total interest if the loan remains outstanding longer.
Loan-to-value ratio
LVRThe loan amount divided by the lender’s accepted property value, expressed as a percentage. For example, an $800,000 loan against a $1,000,000 value is an 80% LVR.
Low-doc loan
A loan pathway using alternative income evidence rather than the full documentation usually required. It is generally intended for eligible self-employed borrowers and can involve different pricing, LVR limits and conditions.
M
Mortgage broker
A licensed credit professional or authorised credit representative who helps clients compare and arrange lending from the lenders they can access. A mortgage broker providing credit assistance must act in the client’s best interests.
O
Offset account
A transaction account linked to a home loan. Its balance reduces the loan amount used to calculate interest, for example, a $30,000 offset against a $500,000 loan means interest is calculated on $470,000 while that balance remains.
Overtime, allowances and shift loading
Employment income paid in addition to ordinary base earnings. A lender may consider its history, regularity, role, industry and likelihood of continuing, and may shade the amount used.
Owner-occupied loan
A loan for a property the borrower intends to live in as their home. Pricing and policy can differ from an investment property loan.
P
Principal
The amount borrowed, excluding interest and fees. As principal is repaid, the balance on which interest is calculated generally falls.
Principal and interest
P&IRepayments that cover interest and reduce the amount borrowed. If made as scheduled across the full term, the loan should be repaid by the end of that term.
Pre-approval
A conditional indication of how much a lender may be prepared to lend. It is usually time-limited and subject to final checks, updated circumstances and an acceptable property.
R
Redraw facility
A loan feature that may allow access to eligible extra repayments previously made into the loan. Availability and withdrawal rules depend on the product and lender.
Refinance
Replacing or restructuring an existing loan, either with the same lender or a new one. The comparison should include fees, remaining term, features, break costs and the total benefit, not only the headline rate.
Repayment
An amount paid toward a loan. Required repayments depend on the balance, interest rate, remaining term, repayment type and frequency.
Restricted stock unit income
RSUsEmployer equity that becomes available after specified vesting conditions are met. Lender treatment varies widely and may depend on vesting and sale history, documentation and the employer.
S
Security
An asset, commonly real property, that a lender takes an interest in to support a loan. If the borrower defaults, the lender may enforce its rights against the security.
Self-employed income
Income earned through a business, company, partnership, trust or sole trader structure. Assessment may use tax returns, financial statements, BAS, bank statements and other evidence depending on the lender and pathway.
Serviceability
A lender’s assessment of whether the borrower can afford the proposed loan after considering income, existing commitments, living expenses, dependants and assessed repayments.
Serviceability buffer
An extra margin added above the actual loan rate when a lender tests affordability. It is intended to allow for potential rate rises or financial pressure and makes the assessment repayment higher than the current repayment.
Settlement
The legal completion of a property transaction or refinance. Funds are transferred, loan and title requirements are completed and ownership or mortgage records are updated.
Split loan
A loan divided into separate portions, often with different rate types, repayment settings or purposes. Clear splits can help manage cash flow and keep distinct borrowing purposes separate.
Short-term incentive
STIPerformance-based pay, commonly annual, received in addition to base salary. Lenders may treat it like bonus income and look for evidence, history and continuity.
Stamp duty
Transfer dutyA state or territory tax that can apply when property changes ownership. Rates, concessions and exemptions depend on the jurisdiction and buyer circumstances.
V
Valuation
A lender-accepted assessment of a property’s value used for lending purposes. It may be completed electronically, from the street or through a physical inspection and can differ from the purchase price or agent estimate.
Variable interest rate
An interest rate that can change during the loan term. Repayments may rise or fall when the rate changes, subject to the lender’s pricing decisions and loan terms.
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The glossary explains the language. Your loan strategy still depends on your income, property plans and the lender policies available at the time.