Glossary of Terms

Financial Terminology

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 a 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.

Asset Lender - Lending institution that lends finance based on the value of the asset, which will be held as security.

Assignment - Legal transference of a right or a title to a property, to another party.

Banker's Lien - The right of a Bank to retain a customer's securities until a liability to the Bank is discharged. (See also 'General Lien').

Bankruptcy - The legal financial state and individual is in, when unable to meet debts (for Companies it's known as being 'wound up'). 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.

BayCorp Ltd - The company which records and holds credit information on everyone, such as loan applications, credit defaults, and so on. Was originally known as CRAA, and may often be referred to as the 'CRAA Check'.

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

Buyer's Agent - Person to act on behalf of the buyer to find and negotiate on properties the buyer wishes to buy.

Capital - The current value of your assets, including car, property, business, or money etc.

Capital Gain - The financial gain you get when you sell something for more than you bought it. Maybe subject to the capital gains tax, which is paid on the gained amount.

Caveat - A notice of warning given to a public authority, e.g. Titles Office, claiming entitlement to an interest in certain land. The caveat is registered and remains on the books as a warning to anyone who contemplates dealing with the property. It therefore prevents any action being taken without the previous notice of the person entering the caveat (the caveator).

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 - See CRS

Compulsory Comparison Rate - Or CCR, is the figure expressed an interest rate, that takes into account some of the extra costs of a loan product. The formula used to calculate the CCR is regulated by the Uniform Consumer Credit Code and all Australian lenders are required to use the same formula.

Consumer Credit Code - Legislation designed to protect the rights of the individual (personal consumer) 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 Uniform Consumer Credit Code or UCCC.

Contract of Sale - A written agreement outlining the terms and conditions for the purchase or sale of property.

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

COSL - Credit Ombudsman Service Limited. Formerly known as MIOS (Mortgage Industry Ombudsman Service).

CRAA - (Credit Reference Association of Australia) the company which used to record and hold credit information on everyone. Changed it's name to 'Credit Advantage Limited' and more recently BayCorp Ltd.

Credit Advantage Limited - See CRAA.

CRS - Comparison Rate Schedule. The schedule displayed by a lender that give the annual percentage rate and the respective Comparison Rate, for the lender's loan products for specific amounts over specific terms.

Daily Interest - 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 the 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 the asset. Depreciation is a non-cash expense which allows the 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 client's bank, credit union or building society account.

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

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

DSR - Debt Service 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 house is the difference between its value and the amount still owed to a Lender. A person's overall equity refers to his net financial worth, or the difference between what he owns and what he 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.

Fee Simple - The estate in fee simple is the highest estate in the land, and it is the closest the law comes to recognising absolute ownership for all practical purposes. However, while we refer to a proprietor of an estate in fee simple (who is the owner for all practical purposes), their ownership is not legally absolute, for absolute legal ownership of all and rest with the Crown.

Fittings - Items that can be removed from a property without causing damage to it eg, carpet and curtains.

Fixed Interest (Fixed Rate) - An interest rate set for an agreed term.

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

Garnishee Order - A court order taken out by a creditor on a person's employer or banker for the deduction of funds from his wages or bank account to repay a debt.

General Law System - System whereby all dealings on a property are made in the form of conveyances, whether the transaction is a sale, a mortgage, a reconveyance, etc. Under this system the mortgage is in fact a transfer of ownership. When a conveyance is prepared it forms part of the chain of title and must be carefully preserved in order to prove the "root? to title.

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/s who agree to be responsible for the payment of another person's debts.

Holding Deposit - A refundable deposit based on the goodwill of the buyer to go ahead with the purchase.

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

Instrument - Formal legal document in writing, e.g. a deed of conveyance.

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 liable, (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 can sue them jointly or severally until he has 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 interest passes to the survivor(s). They are known as 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 Valuation Ratio) the ratio of the amount lent, to the valuation of the property.

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

MIOS - Mortgage Industry Ombudsman Service. Now COSL - see COSL.

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 it (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 security property without needing to repay the loan, reapply, or restructure.

Power of Attorney - A written authorisation to 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 & Interst 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 is 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 offered to secure the loan.

Serviceability - Ability of 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!

Surety - Person who makes themself responsible for another's payment of debt; also knows as the guarantor.

Tenants in Common - Property in the names of two or more persons and in which each has a separate and distinct share. When one person dies his 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 actual borrowers) who is legally different from the borrower or debtor.

Title Deed - Registration showing the ownership of property.

Title Search - Process to ensure that the vendor has the right to sell and transfer ownership.

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

Vendor - Person selling a property who is the current owner.