Like most industries, the finance industry has
its own language or jargon. We have provided a glossary of
the most commonly used terms in the industry to help borrowers
make sense of what they are told.
A form of property ownership for a unit within
a block of units. Generally uncommon and found in some older
unit blocks where the owners have not converted to strata
title. Owners have shares in a company, which owns the entire
building proportionate to the entitlement for their unit.
Maximum LVR is quite often less than for other types of security.
Deferred Establishment Fee
A fee levied by some lenders for loans, which
are paid out early in the loan term.
The cost associated with breaking a fixed rate
loan. Generally it's the loss incurred by the lender passed
on to the borrower. There may also be a Prepayment Fee.
An interest rate which is guaranteed not to
change during the fixed rate term. Terms generally range from
1 to 5 years although longer terms are available from some
Repayments calculated to the meet the interest
cost of the loan only. Interest only terms are generally for
a maximum of 5 years when the loan converts to P&I repayments
or has to be renegotiated. The initial loan amount does not
change during the interest only period. Interest only loans
are generally used to purchase investment properties in order
to preserve the
Loan to Valuation Ratio. The loan as a percentage
of the purchase price or valuation of the property being used
as security. Generally lenders will only lend to a maximum
LVR of 95%. This percentage may differ from lender to lender
based on the loan amount, the purpose of the borrowing and
the type of security being offered.
Principal & interest. Refers to loans which
include both principal & interest repayments. Repayments
are calculated at the current interest rate to repay the loan
over the agreed term. If the interest rate changes, lenders
recalculate P&I repayments to ensure the loan is repaid
A fee payable to a lender when an extra/ lump
sum payment is made to a fixed rate loan. An economic cost
may also be payable.
A package of discounted, fully featured loan
and transactional banking products provided by some lenders,
usually for an annual fee. Qualification for packages varies
from lender to lender but generally include income, loan size
The most commonly used form of property ownership
The maximum loan term for residential
mortgage lending is usually either 25 or 30 years. A longer
loan term reduces the repayment amount and therefore increases
borrowing capacity. Borrowers may be required to reduce the
loan term if the loan is not expected to be repaid before
retirement and a substitute income stream is not available.