Excellence Finance

Glossary

Term	Definition
AAPR	Also known as the mortgage comparison rate or true rate. compare the actual rate of the loan, taking into account the nominal interest rate per annum, the compounding frequency and upfront and ongoing fees, as outlined in the Consumer Credit Code.
ABIO	The Australian Banking Industry Banking Ombudsman provides an avenue through which customers can make a complaint independently.
Acceptance	To agree to the terms of an offer or contract.
Accrued Interest	Interest that you have earned or incurred that is yet to be paid or charged.
Additional Repayments	Extra funds paid into the loan over and above the minimum prescribed repayments.These extra funds reduce the term of the loan.
All in One Loan	A loan, generally variable, that allows you to deposit all of your income into the loan account and then withdraw money from the loan account for all your day to day purchases and transactions. The longer the spare funds stay in the account, the greater the interest savings.
Amortisation period	Repayment of a mortgage loan through monthly instalments principal and interest. The monthly repayment amount is based on a schedule that will allow you to own your home at the end of a specific time period, (e.g. 15 or 30 years). Often referred to as the loan term.
Annual Percentage Rate	(APR) the advertised rate of interest per annum.
Application Fees	Fees charged to cover or partially cover the lender's internal costs of setting up a loan approval for a customer.
Appraised Value	Estimate of the value of a property being used as security for a loan
Arrears	An overdue account yet to be paid.
Break Costs	Penalties charged when a loan is paid off before the end of its term.
Bridging Finance	A short term loan that covers a financial gap between the purchase of a new property and the sale of an old property. Higher interest rates are usually charged for this form of finance.
Calculated	The frequency at which interest is determined. It is usually calculated on a daily, weekly or monthly basis.
Capital	The current value of your long term assets e.g. house, property business.
Capitalising Interest	When interest payable is accrued and added to the total debt payable rather than being paid as it is charged.
Capped Loan	A loan where the interest rate is not allowed to exceed a set level for a period of time, but unlike fixed rate loans, is allowed to drop.
Charged	The frequency at which interest is added to the loan balance. This can differ from the frequency at which it is calculated. On many loans interest is calculated daily but charged monthly. The term used to describe any right established over a borrower’s property to secure debt or performance of an obligation.
Combination Loans	Where various loans come under the same banner to form one loan. May have a portion variable, fixed or even a portion as a Line of Credit. Also known as Split Loans.
Comparison Rate	Also known as true rate. Used to compare the actual rate of the loan, taking into account nominal interest rate per annum, the compounding frequency and upfront and ongoing fees, as outlined in the Consumer Credit Code. Since July 2003, all lenders must disclose a benchmark comparison rate in their advertising of home loans and personal loans. This comparison rate is designed to reflect the total annual cost to a borrower of a loan. It wraps up interest payments and fees and expresses all these costs in one rate, or the average annual percentage rate (AAPR).
Compound Interest	Interest that is paid on both the accumulated interest as well as on the original Principal.
Construction Loans	A loan specifically granted for the purpose of funding the building of a new dwelling. You are generally able to draw money as required, so you can pay as necessary.
Consumer Credit Code	An Act of Parliament governing the relationship between borrowers and lenders. The legislation is designed to protect the rights of individual by ensuring finance institutions adhere to the same rules when providing personal, domestic or household credit. It should provide borrowers with complete and honest information.
CRAA	(Credit Reference Association of Australia) the body which holds credit details on all of us.
Credit	Borrowed money to be paid back under an arrangement with a lender. Also a sum of money paid into an account.
Credit Limit	The maximum overdraft a borrower may have on an account.
Daily Interest	Interest calculated on a daily basis therefore varies according to daily account balances.
Debit Default	An account entry to charge a specific withdrawal to an account. Failure to meet debt payment on a due date.
Default Rate	The rate a loan moves to automatically at the end of any fixed rate period.
Deferred Establishment Fee	Charged when you payout your loan within a short period of taking it out such as four years or less.
Deposit Bonds	Guarantees that the purchaser of a property will pay the full deposit by the due date. Institutions providing deposit bonds act as a guarantor that payment will be made. They are often used as surety when cash isn't readily available at short notice.
Draw Down	To access available loan funds, especially referring to Lines of Credit where the limit is set and you can use the funds as required.
Early Termination Charge	Any fees & Charges you may incur when paying your loan out early.
End Loan	Pertains to Bridging finance it is the loan amount you are left with after you have sold your existing home and paid the proceeds towards your bridging loan.
Equity	The percentage or amount of an asset actually owned–asset, house or company – which you own. You also have equity in that part of the value of your house above the amount borrowed from the lender that has the mortgage over your house. (Assets – Liabilities=Equity)
Equity Loan Mortgage	A loan secured by the part of the value of an asset (usually house) which you own.
ERIC	Effective Rate of Interest plus Costs.
Establishment Fees	Lending body Fees which mayor may or be charged to set up a loan.
ETIA	Early Termination Interest Adjustments.
Features Fixed Interest (loan)	Any attributes of the loan e.g. redraw facility, portability, offset account An interest rate set for an agreed term.
Fixed Rate Fully Amortising Loans	Loans and facilities which will be fully repaid over the term nominated and where the interest rate will not alter.
Gearing	The ratio of your own money and borrowed funds in an investment. If a property is ""highly geared"" then it has a high ration of borrowed funds compared to ownership.
Gross Annual Income	Yearly cash component of salary before tax, superannuation or payroll deduction
Gross Monthly Income	Yearly cash component of salary, before tax, divided by twelve.
Guarantee	A promise made as bound by the terms of a contract.
Guarantor	A party who aggress to be responsible for the payment of another party's debts should it default.
ILR	(Indicator Lending Rate) the base rate on which interest rates for Variable rate overdrafts & term loans are set.
Income Statement	A statement of income and expenditure for a period, usually a year.
Interest	The lending body's charge for the use of funds or the return on deposited funds.
Interest Only	Usually a short term arrangement whereby payments are made on interest only, not the principal.
Introductory Loan	A loan is offered at a reduced rate for an introductory period to new borrowers.
Investment Loan	A loan used for the purchase of an investment property.
Liabilities	Someone's debts or obligations.
Line of Credit	A flexible loan arrangement with a specified ceiling to be used at a customer's discretion.
Living Allowance	The amount of income allocated for general living expenses, excluding rent / board and debt repayment.
Loan Maintenance Fee	A loan management fee charged over the life of the loan. Often referred to as an ongoing fee
Loan to Valuation Ratio	(LVR) the ratio of the amount lent to the valuation of the security (usually the house).
Married Applicant	An applicant who is married or in a defacto relationship
Maturity	The date a debt or investment must be paid in full.
Mortgage	A form of security for a loan usually taken over real estate. The lender, the mortgagee, has the right to take the real estate if the mortgagor fails to repay the loan.
Mortgage Brokers	A person or organization marketing numerous loans from a panel of lenders. They offer a service where they will select suitable loan or loans for borrowers from this selection.
Mortgage Comparison Rate	Also known as the true rate. Used to compare the actual rate of a loan, taking into account the nominal interest rate per annum, the compounding frequency and upfront and ongoing fees, as outlined in the Consumer Credit Code.
Mortgage Discharge Fee	An administration fee to cover the costs incurred with winding up a loan.
Lenders Mortgage Insurance	A form of Insurance taken out by the Lender to cover themselves in the event that the Borrower defaults on their loan and the sale of the property is unable to cover the outstanding amount. Mortgage Insurance premiums are usually payable by the borrower when the amount borrowed is over 80% of the property value and sometimes at lower loan to valuation ratios.
Mortgage Intermediaries	Institutions such as Mortgage Managers who are responsible for marketing and selling loans provided by Mortgage Originators.
Mortgage Manager	Lending specialists who arrange funding for home and investment loans. Unlike bank, building societies and credit unions, mortgage managers do not have a base of customer’s deposits with which to fund their loans. Instead they source their funds via a process known as securitisation.
Mortgage Offset Account	A savings account runs in conjunction with a home loan. The interest earned on the account is applied to the interest payable on your mortgage. A 100% offset is where the interest rates earned and paid are the same. A partial offset account is only a portion of the rate paid on the home loan.
Mortgage Originator	Originators initiate or generate mortgage applications for the mortgage trust. Put simply, they ‘pool’ a group of mortgages which can then be sold on to investors as an income – producing asset. Originators are responsible for receiving applications for finance, assessing credit and monitoring the transaction through to settlement. They may then appoint a mortgage manager or take on the management role themselves.
Mortgage Stamp Duty	A state Government tax assessed on the dollar value of a mortgage
Mortgagee	The creditor lender in a mortgage agreement.
Mortgagor	The person borrowing in terms of a mortgage.
NDI	Net Disposable Income
Negative Gearing	Where the return on an investment is insufficient to meet the interest costs of the loan used to fund the investment. This amount can usually be clamed as a tax deduction.
Net Income	Gross income less expenses, including taxes and insurance, but before depreciation, or distribution of earnings.
Non Fully Amortising Loans	Loans and facilities which will not be fully repaid over the term nominated.
Ombudsman	The Australian Banking Ombudsman (ABIO) provides an avenue through which customers can make complaints about their bank and have them dealt with independently.
Ongoing Fee	Any loan maintenance fee charged regularly over the life of the loan.
Phone Banking	Banking transactions such as transfers, payments and deposits made over the phone, often by an automated phone system.
Portability or Portable Loan	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 insist that the loan amount is the same or less. It is important to know the term of your loan.
Principal	A capital sum borrowed from a lender on which interest is paid (doesn’t include the interest or additional fees).
Principal and Interest (P & I)	A loan in which both the Principal & Interest are repaid during the term of the loan.
Rebate	A refund, cash back or monetary incentive e.g. First Home Buyers Rebate or tax rebate.
Redraw Facility	A loan facility whereby you can make additional repayments on your loan and then access these extra funds when necessary. They will often have limitations such as minimum redraw amount and a fee for each withdrawal.
Refinancing	To replace or extend an existing loan with funds from the same institution or another lender.
Residential Investment Loan	A loan granted to purchase a property intended for investment purposes as opposed to Owner-Occupied purposes.
Securitisation	The process of taking a pool of diverse assets such as different home loans and converting them into a tradable security such as a bond which investors can then purchase and trade.
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.
Single Applicant	An applicant who is not married or in a defacto relationship.
Standard Variable	A variable home loan, usually with comprehensive features (as opposed to a basic variable). This is often the variable rate fixed rates roll into at the end of their fixed term.

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