Peard Finance

Finance Jargon Made Simple

Below is a glossary of terms you may encounter when purchasing property or obtaining a mortgage. The list is by no means exhaustive, and definitions and terms may be interpreted differently to thise included below.

AAPR
Average Annualised Percentage Rate. Sometimes referred to as the Compulsory Comparison Rate, this figure takes into account the other costs associated with the loan etc, and expresses them as an average interest rate, to create a level field with which to compare like loan product interest rates.

Acceptance
Agree to the terms of an offer or contract.

Additional Repayment
Extra funds paid into the loan in addition to the minimum monthly payments.

Agent
Real Estate Agent.

Amortisation Period
The period of time a loan is calculated over (and repaid).

Application fee
The fee charged by the lender to cover or partially cover the lender's costs of setting up or establishing the loan.

Arrears
An overdue account yet to be paid.

Assets
Money, property or goods owned.

Bankruptcy
The legal finacial state an individual or Company is in when unable to meet it's debts. A debtor may be declared bankrupt by the Federal Court at either the debtors or the creditors instigation, and the debtors estate will be placed in the hands of an official receiver who will distribute the estate in accordance to the provisions of the Bankruptcy Act.

Borrower
A person, persons, or entity borrowing money to purchase, payoff, or refinance a product or effect.

Charge (over property)
The term used to describe any right established over a borrower's property to secure a debt or performance of an obligation.

Collateral Security
Additional or supporting security given in addition to the principal security.

Comparison Rates Schedule (CRS)
Is the figure expressed as an interest rate, that takes into account some of the extra cost of a loan product. The formula used to calculate the CRS is regulated by the Uniform Consumer Credit Code (UCCC) and all Australian lenders are required to use the same formula.

Consumer Credit
Legislation designed to protect the rights of the individual (personal consumer).

Code
By ensuring banks and other financial institutions all adhere to the same rules when providing personal, domestic or household credit. It should provide borrowers with complete and honest information. Also known as the Unifom Consumer Credit Code or UCCC.

Contract of Sale

A written agreement outlining the terms and conditions for the purchase and sale of a property.

Conveyancing
The legal process for the transferral of ownership of real estate

COSL
Credit Ombudsman Service Limited.

Daily Interest Rate
Interest calculated on a daily basis - varies according to daily account balance.

Debtor
Someone who owes money to another and can be compelled to perform an obligation.

Deed
A document in writing, which is signed, sealed and delivered by the parties thereto, to prove and testify the agreement of the parties whose deed it is, to things contained in the deed.

Depreciation
The accounting practice where the cost of a fixed asset of a business is spread over the life of an asset. Depreciation is a non-cash expense which allows money to be retained by the business, thus technically allowing the business the capacity to replace the asset over time.

Direct Debit
Where the lender debits (deducts) a payment from a client's bank, credit union or building society account.

Disbursements
Solicitors incidental costs involved when dealing with the client on behalf of the lender, e.e. title searches, certificates, pest reports, etc.

Draw Down
Act of transferring money from a lending institution to the borrower after the loan has settled.

DSR
Debt Servicing Ratio.

Encumbrance
A charge or liability, e.g. a mortgage

Equity
Generally used to denote the financial interest of a person in a property or business enterprise, e.g. a person's equity in his or her house is the difference between it's value and the amount still owed to the lender. A person's overall equity refers to his net financial worth, or the difference between what he or she owns and what he or she owes (i.e. Assets - Liabilities = Equity).

Estate
An interest in land.

Exchange
The legal point of time when the vendor and the buyer swap documentation with a view to settlement.

Fittings
Items that can be removed from a property without causing damage to it.

Fixed Interest (Fixed Rate)
An interest rate set at an agreed percentage, on an agreed loan amount for an agreed term.

Fixtures
Items that would cause damage to the property if removed. Their removal must be stipulated in the contract sale, and damage made good by the seller
e.g. oven and bath etc.

General Lien
Sets out in writing the Bank's right to retain property until a debt is paid. Includes Power of Attorney and other clauses generally contained in bank
security forms.

Government Fees
State and government charges at the time of settlement, e.g. Stamp duty.

Gross Income/Profit
Income from a person or company, before tax, superannuation or payroll deductions.

Guarantor
A person or persons who agree to be responsible for the payment of another person's debts.

Indemnity
Security against damage or loss; sum paid in compensation for loss incurred.

Interest
The lender's charge for the use of funds or the return on deposited funds.

Interest Only Loans
A loan where the principle is paid back at the end of the term and only interest is paid during the term. These loans are usually for a short period of time, 1 to 5 years.

Joint and Several Liability
The bank's joint account authorities, guarantee forms, etc are framed to ensure that joint account holders with debts due to the bank of joint guarantors liable to the bank shall be severally laible (i.e. individually), as well as jointly. With Joint and Several Liability a creditor has as many rights of action as there are debtors; he or she can sue them jointly or severally until they have obtained payment, and an unsatisfied judgment against one debtor will not be a bar to an action against the others.

Joint Tenancy
Property in the names of two or more persons, where all persons have an equal interest in the whole property. When one person dies his or her interest passes to the survivor(s). They are know Joint Tenants or Joint Proprietors of that property.

Liability
A debt which one is liable for; being responsible only to a limited amount.

Loan
An advance of funds from a lender to a borrower on the agreement that the borrower pays interest on the loan, plus paying back the initial amount of the loan at or over an agreed time.

LVR
Loan to Value Ratio. The ratio of the amount lent, relevant to the valaution of the property securing the debt.

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

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

Mortgagee
The lender of the funds.

Mortgagor
The person borrowing money in the terms of the mortgage.

Negative Gearing
Gearing your investment so that the cost to maintain (loan repayments, council rates, maintenance etc) out weigh the income produced by the investment, leading to a reduction in taxable income.

Net Income
The income received by an individual after tax has been taken out.

Net Profit
The profit remaining in a business after all expenses have been taken out, but before tax.

Off the Plan Purchase
Buying a property from the plans only, not the finished product.

Portability
Where a new property can be used as security for an existing loan, i.e. when the loan is transferred to a new securityproperty without needing to repay the loan, reapply, or restructure.

Power of Attorney
A written authorisationto another person, or persons, to perform certain acts for the signer, as if they were the signer.

Principal
The capital sum borrowed on which interest is paid during the term of the loan.

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

Property
A person's property is "what he or she owns to do what they like with." It may be tangible or intangible, and may be given a monetary value (e.g. house,car, goodwill). Property may be classed 'real' which relates to land or interests in land (except leaseholds) and buildings, etc or 'personal', which relates to other kinds of property such as cars, bank accounts, leasehold interests in land.

Redraw
Borrower is able to draw on pre-paid funds.

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

Search
An examination to confirm that the vendor is in a position to sell the property and that there are no encumbrances on the property.

Securitisation
Is the packaging of cash flow producing assets into a marketable security, e.g. property, roads, bridges, etc. The process where mortgage backed securities (in the form of bonds) are sold directly into the capital markets. Investors in the bonds comprise of Superannuation funds as well as other major institutions.

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

Serviceability
Ability of the borrower to make and meet repayments on a loan, based on the borrowers expenses and income(s).

Settlement
Finalisation of payment by the new owner, and assumption of possession. When you pick up the keys!

Tenants in Common
Property in the names of two or more persons and in which each has a seperate and distinct share. When one person dies his or her share is not passed to the survivor(s) but becomes part of his estate for disposal according to his will.

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

Third Party Security
Security provided for a mortgage by a third party (some one different from the actual borrowers) who is legally different from the borrower or debtor.

Title Deed
Registration showing the ownership of property.

Torrens System
System whereby ownership and all dealings on a property are detailed on the one document, i.e. Certificate of Title or Deed of Grant. Under this system a mortgage is a charge or encumbrance on the title. Registration is compulsory to effect legal transfer of an interest in a property and each time the property is sold, mortgaged, or has a mortgage discharged, the transaction is recorded on the Certificate of Title.

Unencumbered
A property free of liabilities, restrictions or mortgages.

Valuation
A report as required by the lender, detailing a professional opinion of a property's value.

Variable Interest Rate
A rate that changes in accordance with the rates in the marketplace.

Variation
Changing any part of the original loan contract.

VEDA
The company which records and holds credit information on everyone, such as loan applications, credit defaults, and so on. Was previously know as
Baycorp Advantage and the credit report was often referred to as a CRAA report.

Vendor
Person selling a property who is the current owner.