Glossary

Home Loan Glossary of Terms

Home loans come with a lot of jargon. This glossary explains the terms you're most likely to hear from lenders, brokers and conveyancers, in plain English.

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Loan types and rates

Basic variable rate: a lower variable rate with fewer features. Redraw may cost extra and an offset account is unlikely.
Standard variable rate: a lender's full-featured variable product, usually with redraw, portability and offset options. Most borrowers pay a discounted rate below it.
Variable rate: a rate that can change over the life of the loan, usually following the RBA cash rate, though lenders can move rates at their own discretion.
Fixed rate: a rate locked for a set period, usually one to five years. Repayments stay the same, but extra repayments are limited and break costs can apply if you exit early.
Honeymoon (introductory) rate: a discounted rate for an introductory period, usually 6 to 12 months, before the loan reverts to the standard variable rate.
Capped rate: a rate that can fall but won't rise above a set cap for a period.
Comparison rate: a single rate that combines the interest rate with most fees and charges, based on a standard example loan. It helps compare the true cost of loans, though costs for your loan may differ.
Home equity loan / line of credit: a revolving credit limit secured by your property that you can draw on and repay.
Low doc loan: a loan for self-employed borrowers who can't provide standard income documents, usually with a higher rate or bigger deposit.
Non-conforming loan: a loan for borrowers who don't meet standard lending criteria, for example because of past credit issues. Rates are usually higher.

Features

Offset account: a transaction account linked to your loan. The balance is offset against the loan, so you pay interest only on the difference. A partial offset reduces interest by less than 100% of the balance.
Redraw facility: lets you take back extra repayments you've made. Some lenders set minimums or charge a fee.
Portable loan: lets you move your loan to a new property when you sell and buy, without refinancing.
Security: the property (or other asset) that secures the loan. A loan can be secured by more than one property.

Fees and costs

Establishment (application) fee: a one-off fee to set up the loan. Some lenders don't charge it.
Service (admin) fee: a monthly or annual fee for running the loan account.
Valuation fee: a fee some lenders charge to value the property.
Legal or settlement fee: a fee for preparing loan documents and attending settlement. Some lenders absorb it.
Switching fee: a fee some lenders charge to change loan type, such as variable to fixed.
Break cost: a cost that can apply if you repay or change a fixed rate loan before the fixed period ends.
Discharge fee: a fee to close your loan when you repay it in full or refinance.
Exit fee: a fee for leaving a loan early. Exit fees were banned on new home loans from 1 July 2011.
Lenders mortgage insurance (LMI): a one-off premium most lenders charge when you borrow more than 80% of the property's value. It protects the lender, not you. Read our LMI guide.

Assessment and approval

Loan to value ratio (LVR): the loan amount as a percentage of the property's value. Many lenders prefer 80% or less.
Serviceability: a lender's assessment of whether you can afford the repayments. Policies differ a lot between lenders.
Debt service ratio (DSR): the share of your income needed to cover loan repayments.
Debt to income ratio (DTI): your total debt limits divided by your gross annual income. Read our DTI guide.
Credit report: a record of your credit history from a credit reporting body, including past applications and repayment history. Lenders check it when you apply.
Customer-ordered valuation: a valuation you order before applying, usually accepted only by the lender it's ordered through.

Regulation

ASIC: the Australian Securities and Investments Commission, which licenses credit providers and brokers and enforces the credit laws.
National Consumer Credit Protection Act (NCCP): the national law that regulates consumer lending and requires lenders and brokers to be licensed or authorised.
Anti-money laundering (AML/CTF) laws: rules that require lenders to verify your identity and report suspicious transactions.

Frequently asked questions

What's the difference between break costs and exit fees?

Break costs can apply when you leave a fixed rate early. Exit fees were charges for leaving any loan early and were banned on new home loans from July 2011. For more terms explained, see our home loan FAQs.

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