Mortgage Jargon Explained: 50 Home Loan Terms Every Australian Buyer Should Know

The home loan industry runs on jargon. From amortisation to LVR to serviceability, the terminology can make the process feel more complicated than it needs to be. This plain-language glossary covers 50 of the most commonly used terms in Australian home lending so you can walk into any conversation with a lender or broker knowing exactly what is being discussed.

A

Amortisation The process of gradually paying off a loan through regular scheduled repayments. In an amortising loan, each payment covers interest on the outstanding balance plus a portion of the principal. Over time, the principal portion of each payment increases as the balance reduces.

APRA (Australian Prudential Regulation Authority) The government body that supervises banks, credit unions and other deposit-taking institutions in Australia. APRA sets the macro-prudential lending rules that affect how much banks can lend, including the DTI cap and the serviceability buffer.

Assessment Rate The interest rate that lenders use to assess whether you can afford a loan. Under APRA guidelines, lenders must assess serviceability at the loan rate plus a minimum three per cent buffer. Also called the floor rate or buffer rate.

Offset Account A transaction account linked to a home loan. The balance in the account is offset against the loan balance daily before interest is calculated. Reduces interest without reducing the loan balance itself.

B

Basis Point One hundredth of one per cent. Used when describing interest rate changes. A 25 basis point rate cut means a 0.25 per cent reduction.

Body Corporate / Owners Corporation The legal entity that manages a strata-titled building or complex. Body corporate fees (levies) cover building insurance, common area maintenance and contributions to the sinking fund.

Borrowing Capacity The maximum amount a lender is prepared to lend you, based on your income, expenses, existing debts and the lender's assessment criteria.

Break Cost The fee charged when exiting a fixed rate loan before the end of the fixed term. Calculated based on the difference between the fixed rate and current wholesale rates for the remaining period. Can be very large.

Bridging Loan A short-term loan used to bridge the gap between buying a new property and selling an existing one. Repaid when the existing property is sold.

C

Capital Gain The profit made when you sell an asset for more than you paid for it. Subject to capital gains tax in Australia, with a 50 per cent discount for assets held for more than 12 months.

Cash Rate The interest rate set by the Reserve Bank of Australia at which banks lend to each other overnight. The primary driver of variable home loan rates.

CGTD (Capital Gains Tax Discount) A 50 per cent reduction in the assessable capital gain for individuals who have held an asset for more than 12 months. Reduces the tax payable when selling investment property.

Comparison Rate A standardised annual percentage rate that incorporates the interest rate and most fees, based on a $150,000 loan over 25 years. Designed to assist loan comparison. Has limitations, particularly for larger loans.

Conditional Approval Approval in principle for a loan, subject to further conditions being met, typically including a satisfactory property valuation and final income verification. Also called pre-approval.

Conveyancer A licensed professional who manages the legal transfer of property from one owner to another, including contract review, title searches and settlement coordination.

Cross-Collateralisation Using more than one property as security for a loan. Allows borrowers to leverage multiple properties but can complicate future transactions.

D

Debt-to-Income Ratio (DTI) Your total outstanding debt divided by your gross annual income. APRA limits loans with a DTI above six to no more than 20 per cent of any bank's new lending.

Deposit The portion of the purchase price you contribute from your own funds, not borrowed. Typically expressed as a percentage of the property value.

Depreciation The decline in value of a building or its fixtures and fittings over time. A tax deduction available to investment property owners, calculated by a quantity surveyor.

Discharge Fee A fee charged by the lender when a home loan is fully paid out. Applies when selling the property or refinancing to another lender. Typically $300 to $500.

E

Equity The difference between the market value of your property and the amount you owe on it. Grows through repayments and capital growth.

Exit Strategy A plan for how a loan will be repaid, required by lenders for older borrowers whose loan term may extend beyond their expected working life. May include property sale, superannuation or investment proceeds.

F

Fixed Rate An interest rate that is locked in for a defined period, typically one to five years. Repayments do not change during the fixed term regardless of cash rate movements.

Formal Approval Unconditional approval for a specific loan on a specific property after all conditions have been satisfied. Also called full approval or unconditional approval.

Funds to Complete The total amount of cash you need at settlement to complete the purchase: deposit, stamp duty, conveyancing fees and other upfront costs.

G

Genuine Savings Funds accumulated by the borrower through regular saving over at least three months. Lenders typically require a portion of the deposit to consist of genuine savings. Gifts, grants and asset sale proceeds may be treated differently.

Guarantor A person, typically a family member, who offers the equity in their own property as additional security for someone else's home loan. Reduces the effective LVR and can eliminate LMI.

H

HECS/HELP The Higher Education Loan Program debt (originally called HECS). Treated as a debt by most lenders and included in serviceability assessments.

I

Interest-Only (IO) A repayment type where only the interest is paid and the principal does not reduce during the interest-only period. Typically capped at five years for owner-occupiers.

J

Joint Tenants A form of co-ownership where both parties own the whole property together. On death, the property passes automatically to the surviving co-owner.

L

LMI (Lenders Mortgage Insurance) Insurance paid by the borrower to protect the lender if the borrower defaults and the property sale does not recover the full loan amount. Required when LVR exceeds 80 per cent on a standard loan.

LVR (Loan-to-Value Ratio) The loan amount expressed as a percentage of the property value. A $480,000 loan on a $600,000 property is an 80 per cent LVR.

Low-Doc Loan A home loan assessed using alternative income documentation, such as BAS statements and accountant declarations, for borrowers who cannot provide standard tax return documentation.

M

Mortgage The legal document that gives the lender a security interest over your property as collateral for the loan. Not the same as the loan itself, though the terms are commonly used interchangeably.

Mortgage Insurance See Lenders Mortgage Insurance. Note: distinct from mortgage protection insurance, which covers the borrower.

N

NatHERS Nationwide House Energy Rating Scheme. A star-based system for rating the energy efficiency of residential buildings. Used by lenders to determine eligibility for green home loan discounts.

Negative Gearing When the costs of holding an investment property exceed the rental income. The net loss is deductible against the investor's other income.

Non-Bank Lender A financial institution that provides home loans but does not hold a banking licence or retail deposits. Regulated by ASIC under the National Consumer Credit Protection Act.

O

Offset Account See above in the A section.

P

P&I (Principal and Interest) The standard repayment type where each payment covers both interest and a portion of the principal, gradually reducing the loan balance.

Portability A loan feature allowing a borrower to transfer their existing loan to a new property without refinancing.

Pre-Approval See Conditional Approval.

Principal The outstanding balance of a loan. The amount on which interest is calculated.

R

Redraw Facility A loan feature allowing borrowers to access extra repayments they have made above the minimum required amount.

Refinancing Replacing an existing home loan with a new one, either with the same or a different lender, typically to access a lower rate, different features or equity.

Repayment Holiday A temporary pause on loan repayments, typically available as a hardship measure or pre-agreed arrangement. Interest typically continues to accrue during the holiday period.

Revert Rate The interest rate that applies to a fixed rate loan after the fixed period ends, when it automatically switches to variable. Often the lender's standard variable rate, which may not be competitive.

S

Serviceability A lender's assessment of whether a borrower can afford to meet loan repayments from their income after accounting for living expenses and other commitments, assessed at the floor rate.

Settlement The date on which ownership of a property legally transfers from the vendor to the purchaser and the loan funds are disbursed.

Sinking Fund The reserve fund maintained by a strata scheme (body corporate) for future major capital works, such as roof replacement or lift maintenance.

Split Loan A home loan with both a fixed rate portion and a variable rate portion.

Stamp Duty A state government tax on property purchases. Also called transfer duty in some states. Varies by state, purchase price and buyer type (first home buyer concessions often apply).

T

Tenants in Common A form of co-ownership where each party holds a defined share of the property that can be willed, sold or mortgaged independently.

Top-Up An increase to an existing home loan balance, used to access equity for renovations, investment or debt consolidation.

V

Variable Rate An interest rate that can change over time in response to market conditions and lender decisions, typically following movements in the RBA cash rate.

Valuation An independent professional assessment of a property's market value, commissioned by the lender. The basis for LVR calculation.