Glossary of Finance Terms

The Borrow Now Finance Glossary. We break down the finance jargon for you and explain it in an easy to understand language.

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A - B - C - D - E - F - G - H - I - J - K - L - M - N - O - P - Q - R - S - T - U - V - W - X - Y - Z

- A -

APR - Annual Percentage Rate - the interest rate of a credit contract

Appraised Value - An estimate of the value of property being used as security for a loan

Arrears - Any overdue amounts relating to a credit contract that have not yet been paid

Assets - Any money, property or goods owned

- B -

Breach of Contract - Breaking the conditions of a contractual agreement

Break Costs - A penalty fee for finalising a loan prior to the agreed fixed term of a loan

- C - 

Capital Gains - The financial gain obtained when you sell an asset for more than you purchased it for

Capital Gains Tax - A federal tax on the financial gain obtained when you sell an asset for more than you purchased it (bought and sold after September 1985)

Caveat - Indicates that a third party has a right over or interest in a property

Certificate of Title - The document that identifies the owner of land and if there are any mortgages or other restrictions on it.

Clear Title - A freehold asset (property) with no restrictions or encumbrances attached

Comparison Rate - The real cost of a loan. It includes the nominal interest rate plus any loan approval or up front loan costs and any known ongoing fees

Compliance Plate - A metal plate that is permanently attached to and identifies a vehicle. The compliance plate will contain information on the make, model and the VIN /chassis number. The plate is usually fitted to the vehicle's engine bay

Consumer Credit Code - An Act of Parliament governing the relationship between borrowers and lenders

Consumer Credit Insurance - covers situations where you cannot meet your loan repayments due to unemployment, sickness, injury, disability or death. In these situations the insurance will cover some of the loan repayments

Contract of Sale - A written agreement between the seller and the buyer outlining any terms and conditions for the purchase or sale of an asset

Conveyancing - The legal process of transferring the ownership of real estate

- D -

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Default - Inability to meet the terms (generally repayment) of a contract

Discharge Fees - The administration fee associated when finalising a loan contract

- E -

Encumbrance - An outstanding liability or charge over assets

Equity - A borrowers financial interest in an asset - the difference between the purchase price and the current value of the asset

Exit Fees - The penalty costs for paying out a loan before the end of the loan term

- F -

Fixed Rate - The interest rate on a loan that applies for a specified term

Freehold - An asset with no restrictions or encumbrances attached

- G -

Guarantee - The contract to pay someone else's loan should they not pay

Guarantor - A third party to a loan who is contractually obliged to pay someone else's debt if the prime borrower defaults on payment

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- H - 

Home Equity - A borrowers financial interest in their property - the difference between the purchase price and the current value of the property

- I -

Instalment - The regular required payment to be met as per the loan contract

Interest - The portion of a loan that the financial institution charges you for them lending you money

Interest Only Loan - A loan whereby only the amount of the interest is required as the required repayment for a specified period. Generally this is for 1 to 5 years, with the balance then reverting to a standard loan with interest and principle payments required for the remaining term

Interest Rate - The rate at which interest is charged to a loan

Investment Property - A property purchased to earn a return on the investment either in the form of rent or capital gain. The owner does not live in the property

Impaired Credit - The deterioration of a borrower's credit rating

- J -

Joint Loan - A loan where two parties (or more) are jointly and severally liable for the debt.

Jointly and Severally Liable - All borrowers to a joint loan are responsible for maintaining the required repayment. If one borrower defaults, the other borrower(s) must pay their share

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- L -

Lease - A document granting tenancy of a property under specific terms and conditions

Lenders Mortgage Insurance - An insurance policy that the home loan lender takes out over the loan to ensure that should the loan be unable to repaid, it will cover any shortfall when the financial institution sells the property. Also known as Mortgage Guarantee Insurance. Note that the borrower pays for the insurance, however the financial institution benefits from the policy

Line of Credit Loan - A loan which can be drawn against up to the specified limit at the customer's discretion

Lump Sum Payments - Additional payments made to a loan, over and above the required repayments.

LVR - Loan to Valuation Ratio. The measure of equity in an asset. e.g. If a property is worth $100,000 and the mortgage on that property is $80,000, the LVR would be 80%.

- M -

Maturity - The date at which a debt must be paid in full.

Maximum Loan Amount - The maximum amount that can be borrowed based on an applicants’ disposable income, deposit, and the purchase price of the property

Minimum Repayment Required - The amount you are contractually obliged to repay each month, in order to repay your loan within the agreed term

Mortgage - A form of security assigned to the mortgage for a loan, usually taken over real estate (such as your home)

Mortgage Guarantee Insurance - An insurance policy that the home loan lender takes out over the loan to ensure that should the loan be unable to repaid, it will cover any shortfall when the financial institution sells the property. Note that the borrower pays for the insurance, however the financial institution benefits from the policy. Also known as Lenders Mortgage Insurance

Mortgage Offset Account - A savings account run in conjunction with a home loan. The interest earned on the account is applied to reduce the interest paid on the loan. A 100% offset is where the interest rates earned and paid are the same. A partial offset account is where the interest earned on the offset account is only a portion of the rate paid on the home loan

Mortgage Protection Insurance - This type of insurance is taken out by a borrower to cover the borrowers’ loan repayments in the event that they are not able to meet them through specific events such as serious illness or redundancy.

Mortgage Registration Fee - State Government charge for the registration of a loan

Mortgagee - The financial institution that lends the funds

Mortgagor - The person(s) who owns the property offered in support of the loan 

- N -

Negative Equity - Where the value of an asset is lower than the current loan balance

Negative Gearing - When purchasing an investment with borrowed funds where the interest on the borrowing exceeds the income from the investment

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- O -

Odometer - A measuring instrument that records the distance travelled by a motor vehicle

Ombudsman - An independent, impartial adjudicator of complaints

Credit Ombudsman Service - A free and independent external dispute resolution (EDR) scheme. It provides consumers with an alternative to legal proceedings for resolving disputes with participating Members of the scheme operating in the Credit marketplace

 

Banking & Financial Services Ombudsman - A dispute resolution service dealing with disputes that individuals and small business have with their financial service providers

- P -

Passed In - The highest bid at an auction does not meet the reserve price the seller has set

Principle - The initial amount borrowed, upon which interest is payable

Principle & Interest Loan - A loan whereby the principle and interest form the required payments during the set term

- R -

Realise - to sell an asset (and 'realise' its cash worth)

Real Property - Land with or without improvements

Redraw Facility - A variable rate home loan whereby you can make additional payments when you are able to, and draw against when required

Refinance - To pay out your existing mortgage with the proceeds of a new mortgage (Generally from a different lender) using the same security

Repossession - Where a lender will take property that has been taken as security for a loan. This will generally happen when the borrower has ceased making the required repayments. The lender can sell the property and the money obtained from the sale used to repay or reduce the debt

Reserve Price - The vendors minimum set price at auction

REVS - Register of Encumbered Vehicles. It's a service provided by the Office of Fair Trading that maintains information on cars and boats that have interests/ encumbrances registered against them.

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- S -

Security - The asset used as collateral against a loan

Settlement - The date loan funds are advanced to you or your legal representative

Split Loan - A combination of loan types forming one loan. e.g. part fixed loan and part variable loan

Stamp Duty - A state tax on conveyance or transfer of real property calculated on the total value of the property

Strata Title - A form of title used for units and townhouses. It gives the owner membership of an Owners’ Corporation, and the ownership of a defined part of a building

- T -

Term - The duration of a loan, or a specific period within that loan. This is usually written in months, e.g. 360, which is 30 years.

Title deed – A legal document registered at and issued by the LPI as proof of ownership of property.

Title documents – The set of legal documents (including a title deed) which evidence legal ownership of a property.

Title search – A title search details the names of the owners of a property and other information such as encumbrances, covenants and caveats.

Torrens Title  – A system of recording property ownership where registration on the Certificate of Title guarantees ownership.

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- U -

Unencumbered - An asset free of any outstanding liability or charge

- V -

Valuation - An assessment of the value of a property given in a written report by a registered valuer

Variable Rate - A rate that goes up or down depending on money market interest rates

Variation - Any change to any part of a loan contract

Vendor - The seller of an asset

V.I.N. - Vehicle Identification Number. A unique number (Generally 16 letters and numbers) given to each vehicle which also gives details of the cars' make and model

- Z -

Zoning Certificate - A certificate issued by a local council disclosing the nature of the zoning of a property and any adverse affectations recorded in the Council’s records with respect to the property

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