Glossary of common home loan terms

100% offset

This option is available on certain home loans. An offset account is a transaction account linked to your home loan. Money that’s available in your offset account acts the same way as if it was in your mortgage account. It offsets the balance of your loan on which interest is calculated to help reduce your interest repayments, which could help you pay off your loan sooner. At Westpac, we offer a 100% offset, which means all the money in your offset account is counted against your mortgage. Some other lenders may offer a partial offset, which means only a percentage of your offset balance helps to reduce interest charges on your home loan.

Appraised value

This is the estimate of the value of a property which is being used as security for a loan.

Body corporate

This is the corporation controlled by the owners of units within a multiple occupancy building, (like an apartment block). Together they manage and oversee the building and common areas.

Break costs

You will incur break costs  if you repay a fixed rate interest loan before the end of the fixed interest period or if you make extra repayments that exceed the maximum allowed on your loan. If you do want to repay your loan in full, you can ask your lender for a quote on current break costs to see how much extra you might be charged.

Bridging finance/bridging loan

This is a short-term home loan that’s additional to your existing home loan. Bridging finance allows you to finance your next home purchase, while waiting for your current house to sell. There are two types of bridging loan – closed bridging loans are used when you have a contract of sale on your current property and know the date when it’ll be sold and you’ll receive the funds. If you haven’t sold your home yet, an open bridging loan can be arranged for up to 12 months. Read more about bridging loans.

Cash back/rebate

Lenders often use rebates or cash back as an incentive to refinance with them. Cash back gives you a refund once you’ve taken out your loan, while a rebate is a reduction in the balance of the loan. It’s wise to compare all other interest charges, comparison rates and fees to make sure it’s a good deal.

Certificate of Title

This is a legal document that outlines the title or ownership details of a property, as well as key facts about the property, such as the land area, legal description and any restrictions.

Comparison rate

A comparison rate factors in all costs associated with a loan, including the interest rate, fees and charges. It helps you understand the true cost of a loan and more easily compare with loans from different lenders, so you can estimate how much you might pay over the life of the loan. It is represented by a single percentage rate which factors-in the interest rate, fees and charges relating to the loan. (Government charges or early pay out fees are excluded).

Contract of sale/Contract for sale

This legal document is the written agreement outlining terms and conditions for the sale of a property between a buyer and the seller. Your solicitor/conveyancer should review this before purchasing.

Conveyancing

This is the legal process for the transfer of ownership of real estate.

Cooling off period

This clause enables you to discontinue a contract that you’ve signed, as long as you do so within the time stated. Depending on the type of contract, the cooling off period can vary between 24 hours and 14 days from the time the contract is signed. (Cooling off periods vary in each state of Australia).

Direct debit

This is an automatic funds transfer from one account to another. You can set up a direct debit to make your home loan repayments.

Disbursements

These are the incidental costs incurred by a solicitor when acting for a client, e.g. searches, certificates, past records, etc.

Discharge fee

When a loan is paid out in full, your lender may charge you a discharge fee. This is in addition to any break costs (if applicable). When you refinance, you are paying your lender out in full, so this fee type may apply.

Draw down

This refers to the transfer of money from a lending institution to the borrower before or after the loan has settled.

Extra repayments

If this feature is available on your home loan, you can make extra repayments that will reduce your interest.

Equity

Equity indicates your financial interest in a property or business enterprise, e.g. your equity in your house is the difference between its market value and the amount you owe on the house. Calculate the equity you have in your house.

Establishment fee

This is a fee that is charged when applying for a new home loan, and is payable on drawdown of funds.

Fixed interest rate

With a fixed rate home loan your home loan’s interest rate will not change for a set time. You can choose the period that you want to fix for. (Often this is between 1 to 5 years). This option may suit borrowers who want greater certainty with their regular repayments throughout the fixed term.

Fixtures

In real estate terms, fixtures are items that are permanently attached to a property such as lights, ceiling fans and landscaping. If removed they would cause damage to a property. If a seller wishes to remove fixtures, this must be stated in the contract of sale and damage made good, by the seller.

Guarantor

This is someone who agrees to be responsible for the payment of the loan if the borrower defaults or is unable to pay.

Home loan deposit

A home loan deposit is the amount of money put into a bank account, or left with a person or company, to secure the purchase of a home. It’s sometimes expressed in the form of a percentage when you apply for a home loan – for example a 20% deposit is a common requirement when you apply for a home loan. If you have less than 20% of the purchase price ready as a deposit, you may still be eligible for a home loan with lenders mortgage insurance or a family guarantor.

Honeymoon period

This refers to the initial period of a loan when the home loan interest rate is reduced. The honeymoon period is generally for a fixed time – usually 1 to 2 years. Westpac doesn’t currently offer a honeymoon interest rate.

Interest only loan

If you choose interest only repayments, it means that for a set period no principal will be paid off your loan – just interest charges. Interest only repayment terms range between 1 and 5 years. At the end of this term, the loan will automatically switch to principal and interest repayments for the remainder of the loan. Your repayments will be higher from this point on.

Interest rate

Any time you borrow from a lender you will be charged interest. The interest rate is the percentage that a lender uses to calculate interest charges on your home loan balance (what you still owe). 

Line of credit

This is a flexible loan provided by a lender that consists of a set amount of money that you can access when you need it (up to your credit limit). Note that Westpac no longer offers this product, as of October 2021.

Lenders Mortgage Insurance (LMI)

Most lenders will charge you Lenders Mortgage Insurance if your home loan deposit is less than 20%. This protects the lender if you can’t repay the loan. It can either be added to your loan or paid upfront.

Loan term

Simply put, the loan term is how long the loan will last, unless you pay it off earlier. The length of the loan term can change if you refinance. For example, the term of your new loan could be longer, possibly making your monthly repayments lower (if the loan amount remains the same).

Loan to value ratio (LVR)

This is the amount of your loan compared to the value of your property or asset purchased with the loan funds, and is expressed as a percentage. For example, a loan of $400,000 to buy a property worth $500,000 results in a loan to value ratio of 80%. Banks place a limit on the loan to value ratio depending on things such as the type of property, the location and the financial situation of the borrower. The larger your deposit, or the more equity you have in the property, the lower the LVR will be. See how this is calculated on home loans.

Mortgage

This legal document is drawn up between a borrower and lender. The mortgage gives the lender a conditional right to the property held as security for the repayment of the money lent.

Mortgage insurance

Also known as Lenders Mortgage Insurance, this insures your lender against non-payment or default on a residential property loan. With Lenders Mortgage insurance, buyers may be able to borrow more than 80% of a property’s value.

Mortgagee

This is the person or organisation who lends the money to purchase property or goods.

Mortgagor

This is the person or organisation who borrows the money to purchase property or goods.

Offset account

This is a transaction account linked to your home loan. Any money that you have in an offset account helps to reduce the interest charge on your home loan account. You only pay interest on the difference between these account balances. It could potentially save thousands on interest payments and cut years off the life of your home loan.

Other products or services

In terms of home loan offers, you may see a lender providing discounts on additional services and products like credit cards or insurance. It’s good to weigh these up and decide if they are relevant and helpful to your circumstances. When choosing between lenders or switching home loans, make sure you compare all the options, including interest, fees and charges, along with any incentives.

Parental leave

If parental leave is available on your home loan, you can choose to reduce your repayments by up to 50% for as long as 6 months when you have a child. Conditions apply.

Pre-approval

This is the home loan amount that a lender agrees in principle to offer you, subject to certain conditions. Pre-approval helps you learn what you can afford before you go house hunting.

Portability

Loan portability means transferring the mortgage on the home you sell, to your next home. Choosing this option could save you time, prevents refinancing hassles and further stress.

Principal

This is the amount of the loan upon which interest is calculated and charged.

Progress redraws

If this feature is available on your home loan, you can make progress payments to builders as construction work is completed. We offer this on our construction home loan option.

Redraw facility

A redraw facility  is available on most home loan types and can help you repay your home loan sooner. If you make extra repayments on your home loan, redraw allows you to access these funds for other things if you need to.

Note that you may need to activate a redraw facility before you can withdraw any extra repayments you’ve made, so it’s best to check whether this happens automatically or manually when you apply for a home loan.

It’s also worth knowing that, although they work in similar ways, a redraw facility is different to an offset account.

Reduced repayment

If this feature is available on your home loan, you can reduce your repayments by up to 50% for as long as 6 months. This can apply during periods of large expenses or reduced income, such as extended holidays or renovations.

Repayments

This is the amount you regularly pay on your loan. The amounts are calculated based on what’s owing on your loan, your loan term and current interest rate. Most borrowers choose principal and interest repayments or there is also the option of interest only repayments.

Repayment holiday

This features allows you to pause your home loan repayments for a set period of time. Any extra funds that you have built up within your redraw facility can also be used to make repayments. You won’t save interest or reduce the amount of your loan but it will help with cashflow. This can be useful if circumstances arise that affect your finances. If you don’t have enough funds to redraw during this time to cover the approved pause period, you will need to make them up once the holiday is over.

A parental leave mortgage reduction is also an option that can help if you’re expecting a baby.

Security

‘Security’ refers to the property – usually the one the borrower is buying – that a lender uses to secure the home loan against. Depending on the situation, the borrower may be able to nominate several securities for a single home loan, or potentially secure several home loans against the one property.

Serviceability

This refers to your capacity to make and meet repayments on a loan, based on your expenses and income.

Service and admin fees

When considering a home loan, make sure you are aware of all the fees. You can expect certain ongoing fees and service and administration fees. You should consider these when comparing different offers.

SmartPay

This feature enables you to deposit all your income into your loan account (only available on certain home loans). You can then arrange automatic transfers to pay your bills and access regular cash deposits. Your interest payments are reduced while funds remain in your loan account. To activate SmartPay fill out the SmartPay Authority form (PDF 719KB)

Please note - SmartPay is only available on loans when the application form for the loan was received before 8 December, 2018.

Split loans

This refers to the option of splitting your home loan balance into two loan accounts – one with a variable interest rate and one with a fixed interest rate. See how splitting your home loan provides both flexibility and certainty.

Stamp duty

This is a state and territory government tax paid for 'stamping' of legal documents. The amount varies according to the amount borrowed and the purchase price. Stamp duty is a significant cost so it’s a good idea to budget for it. Already know the price of the house you want to buy? Calculate what your stamp duty will cost.

Strata title

This is a title which identifies the owner of a 'unit' of a larger building which they can sell, lease or transfer at their discretion. The Strata title also entitles the owner to be a member of the body corporate.

Strata Report

This is generally a summary of the Strata records for a property which is also a Strata titled property (such as an apartment, villa or townhouse). This is an important report to become familiar with as it could highlight some issues that may exist with the property.

Sum Insured

When applying for home and contents or building insurance  you’ll be asked to nominate a ‘sum insured’. For building insurance, this sum will be shown on your policy schedule and should be able to cover the reasonable costs to rebuild your home. For home and contents insurance, the sum insured should be able to cover the costs of replacing your home and contents, along with your valuable items.

Title Deed

This is a registration document showing who owns a property.

Title search

This is a search of records registered at the land titles office to confirm interests in a particular property. A title search shows interests such as: proprietor, mortgagees and charges. The search also reveals any restrictive covenants and easements which affect the estate or interest.

Top up

This is a feature available on some home loans which lets you increase the limit on your existing loan.

Valuation fee

If your lender needs to verify the value of the property you want to buy, they will arrange for a property valuation to be done by an independent valuer. The first valuation usually is covered by your lender when you apply for a home loan, but you may need to pay for any further valuations. The resulting valuation may affect the amount you will be able to borrow to purchase or refinance the property.

Variable interest rate

An interest rate is a percentage that your lender will use to calculate interest charges on money that you borrow. A variable interest rate is one that a lender can change in response to the market developments, such as a shift in the cash rate set by the Reserve Bank of Australia. This means the interest rate the lender uses to calculate your interest charges could change at different times over the life of the loan, which would affect the size of your repayments. If the rate goes up, so do your interest charges and repayments. If the rate goes down, so do your mandatory repayments and interest charges. Take a look at our variable interest rate home loans.

Vendor

In real estate, a vendor is the person who is selling a property.