Glossary

Basic Rate
The interest rate applied to loans commonly called "No Frills Loans". These are generally cheaper than Standard Variable Rate Loans but do not have features such as a redraw facility.

Break Cost - Early repayment fees
Relates to Fixed Rate Loans where the borrower terminates the loan contract before the expiry of the fixed rate period. Some lenders have a break cost within the first three years.

Capped Rate
The rate applied to Honeymoon (Introductory) Loans. These loans are capped at a rate that will not rise above the prevailing Standard Variable Rate, but may fall.

Debt Service Ratio (DSR)
Maximum amount of an applicant"s weekly, fortnightly or monthly wage which will support loan repayments over the agreed term of the loan. This is usually expressed as a percentage. Most lenders set a maximum DSR between 30% and 33%.

Establishment Fee
This is often called an Application Fee. This fee covers basic costs in setting up the loan from initial interview to loan drawdown. Some lenders choose to absorb this fee.

Exit Fee
Fee imposed by some lenders where the borrower has sought to refinance with another lender within the first few years of the loan.

Fixed Rate
The rate applied to Honeymoon (Introductory Loans). This is fixed at a set rate which will not change for the duration of the honeymoon rate period.

Home Equity Loan
A home equity loan gives you a revolving line of credit secured by the value of your house. This allows you to use the funds for any other purpose such as the purchase of a second property, or shares or other investments. The interest rate is generally higher than a standard variable rate. These accounts are not suitable for everyone.

Introductory Rate
A term applied to Introductory Loans. The rate can be fixed, capped or variable for the first 12 months of the loan. At the end of the honeymoon period he loan reverts to the standard variable rate.

Legal Fee
Usually charged when an outside party is used to prepare the bank"s documentation.

Lenders Mortgage Insurance (LMI)
Some lenders may provide funds up to 95% of of the valuation if you agree to take out mortgage insurance. This is a one off payment usually made at the time of settlement. The figure is not easy to calculate. It is based on variables such as the loan amount, the value of your property and the exact LVR (i.e. the figure between 80% and 95%). This payment allows the lender to recoup the unpaid principal in the event of default and the borrower"s debt is transferred to the Mortgage Insurer.

Loan to Value Ratio (LVR)
This refers to the maximum amount lenders will approve against the value of any property taken as security for your home loan. For example if you wish to purchase a property worth $200,000 the lender may approve a loan for 80% of the property value. It will then be up to you to provide the remaining 20% plus costs (mortgage registration and stamp duty etc).

Portable Loans
A portable loan allows you to sell your house and move to a new one without having to refinance. This saves application and legal fees. Most lenders however insist that the loan amount is the same or less. Make sure you know the terms of your loan.

Redraw Facility
A redraw facility allows you to make additional repayments on your mortgage. You then have access to the additional repayments if you need them. You must understand the conditions attached to the redraw facility. These can include a minimum amount and a fee every time you use it.

Reverse Mortgages
Loans for seniors with equity in their property. Allows the asset rich to use the equity in their property without having to repay until death.

Serviceablity
Lenders assess each loan application differently depending on the borrower"s ability to service the loan. There are significant differences among lenders in this area. Use a home loan broker who is familiar with serviceablity requirements before you lodge an application.

Service Fee
This is usually a monthly fee levied to cover the bank"s cost of administering and maintaining the loan account.

Standard Variable Rate
The rate which lenders apply to their "premium" home loan product. These loan products carry features such as a redraw facility, portability, and salary account.

Switching Fee
The lender may impose a fee when an existing borrower wishes to change from one loan type to another e.g. Variable Rate Loan to Fixed Rate Loan.

Uniform Consumer Credit Code Legislation
This is a Federal Act of Parliament to ensure uniformity amongst all credit providers. E.g. all loan contracts must now adhere to a uniform format as specified by the act. It must set out all fees / charges that the borrower (and, if required, guarantor) are liable for under the loan contract.

Valuation Fee
Fee which may be charged if the lender seeks to cover the cost of valuing the property taken as security for the loan.

Variable Rate
The rate applied to Honeymoon (Introductory Loans) which is variable and usually set at a discount below the Standard Variable Rate.