Finance Glossary: Key Terms Explained

A

Amortisation — The process of gradually paying off a loan through regular repayments over time.

Annual Percentage Rate (APR) — The total cost of a loan per year, including interest and fees, expressed as a percentage.

Assessment rate — The interest rate lenders use to test if you can afford repayments, typically 3% above the actual rate (APRA's serviceability buffer).

Arrears — When you've fallen behind on your loan repayments.

B

Break cost — A fee charged by lenders when you exit a fixed-rate loan before the term ends.

Bridging loan — A short-term loan used to bridge the gap between buying a new property and selling your existing one.

Building and pest inspection — Professional checks of a property's structure and pest activity, usually done before purchase.

C

Caveat — A legal notice registered on a property title, typically indicating someone has an interest in the property.

Comparison rate — A rate that combines the interest rate and most fees, making it easier to compare loan products.

Conveyancer / Solicitor — The legal professional who handles the property transfer process.

Credit history — A record of your past borrowing and repayment behaviour.

Credit score — A numerical score (300–850 in Australia) reflecting your creditworthiness.

D

Default — Failure to meet your loan obligations (usually missing multiple repayments).

Deposit — The upfront cash contribution you make when buying a property, typically 5–20% of the purchase price.

Discharge fee — A fee charged when you fully repay or refinance your home loan.

Draw-down — When a lender releases loan funds to you at settlement.

E

Equity — The difference between your property's value and the amount you owe on your mortgage. E.g. $700k property with $400k loan = $300k equity.

Extra repayments — Additional payments above your minimum repayment. Reduces principal faster and saves interest.

F

Fixed rate — An interest rate locked in for a set period (1–5 years).

Freehold — Full ownership of a property and the land it sits on.

G

Guarantor — A person (often a parent) who uses their own property as additional security for your loan.

Genuine savings — Funds you've accumulated over at least 3 months, required by most lenders as part of your deposit.

I

Interest — The cost charged by the lender for providing the loan, calculated as a percentage of the outstanding balance.

Interest-only loan — A loan where you only pay interest for an initial period, not reducing the principal.

L

LMI (Lenders Mortgage Insurance) — Insurance paid by the borrower (not the lender) when the deposit is below 20%. Can be capitalised into the loan.

LVR (Loan-to-Value Ratio) — Your loan amount divided by the property value, expressed as a percentage. E.g. $600k loan on $800k property = 75% LVR.

O

Offset account — A transaction account linked to your mortgage. The balance offsets your loan principal, reducing the interest charged daily.

P

P&I (Principal and Interest) — The most common repayment type — each payment covers both reducing the loan balance and paying interest.

Pre-approval — Conditional approval from a lender indicating how much they're willing to lend you, before you find a property.

R

Redraw facility — Allows you to access extra repayments you've made into your loan.

Refinance — Switching your home loan to a new lender or product, usually to get a better rate or features.

S

Settlement — The legal completion of a property purchase, when ownership transfers to you.

Stamp duty — A government tax on property purchases, calculated on the purchase price.

Strata title — A title type for apartments/units, where you own the interior and share ownership of common areas.

V

Variable rate — An interest rate that can change over time, following the RBA cash rate and lender decisions.

Valuation — An independent assessment of a property's market value, conducted by the lender before approving your loan.