Home loan terms describe the people, costs and conditions involved in borrowing against a property. This Australian mortgage glossary gives brokers and credit assistants short explanations to use while reading a quote with a client. A familiar word can still have a specific meaning in the lender’s contract.
Common Mortgage Terms and Their Meanings
Find common mortgage terms alphabetically below. Select a term to jump to its definition.
Borrower
The person or entity that takes out the loan and must repay it under the credit contract. A loan can have more than one borrower.
Borrowing Capacity
An estimate of how much a lender would lend after assessing the applicant’s financial position and its lending rules. An online borrowing estimate is not an approval.
Break Cost
A charge that can apply when a borrower ends or changes a fixed-rate arrangement early, including making extra repayments beyond the permitted amount. The calculation depends on the loan and the lender’s rules. It is separate from an administration or discharge fee.
Comparison Rate
A percentage combining the interest rate with most loan fees under stated calculation assumptions. It helps compare costs but does not include every possible charge or value every feature. Read the assumptions beside it.
Conditional Approval
An approval subject to outstanding requirements, such as an acceptable property valuation or further documents. The approval letter identifies what remains to be satisfied.
Deposit
Money the buyer contributes towards the purchase price. The deposit paid under the sale contract is part of that contribution. Buying costs require funds too.
Discharge
Removal of a lender’s mortgage from the property title. This can happen after repayment, a sale or refinancing. Paying the loan balance down to zero does not by itself complete the discharge process, as NAB’s discharge explanation describes.
Equity
The property’s value less the debt secured against it. Equity is a value in the property. Accessing it through a larger loan requires lender approval.
Fees
Charges additional to interest. Examples include an establishment fee and ongoing account fees. The quote and fee schedule show which charges apply and when they are payable.
Fixed-Rate Period
The agreed period during which a fixed interest rate stays unchanged. The period can end well before the overall loan term ends.
Formal Approval
The lender’s confirmation that it has approved the particular loan application, also called final or unconditional approval. Acceptance of documents and settlement requirements still need to be completed before funds are advanced.
Interest
The charge for borrowing money. The interest rate is usually expressed as a percentage per annum, meaning per year. The contract explains how interest is calculated and charged.
Interest-Only Repayments
Repayments that cover interest without reducing the principal during an agreed period. When that period ends, repayments usually rise because principal must also be repaid over the remaining term. Fees can still be payable.
Lender
The organisation providing the loan under the credit contract. A mortgage broker helps arrange a loan, while the lender provides the credit.
LMI
Lenders mortgage insurance (LMI) protects the lender against loss if the borrower defaults. The borrower commonly pays the premium. LMI does not insure the borrower’s ability to make repayments.
Loan Term
The contractual period for repaying the loan. It is distinct from the period for which an interest rate is fixed.
LVR
Loan-to-value ratio (LVR) is the loan amount divided by the property’s value accepted by the lender, expressed as a percentage. A $480,000 loan against a $600,000 property value has an LVR of 80%.
Mortgage
The lender’s security interest over a property supporting repayment of the debt. People also use “mortgage” to mean the home loan itself. In documents, distinguish the debt from the security supporting it.
Offset
A separate account linked to the home loan whose eligible balance reduces the loan balance used to calculate interest. With a 100% offset, the full eligible account balance counts. The money remains in the separate account.
Pre-Approval
An early indication of what a lender might lend, usually before a property is chosen. The extent of assessment differs between lenders. It does not guarantee funding for a particular purchase.
Principal
The amount borrowed or the outstanding loan balance being repaid, depending on the context. Interest is the borrowing charge. A document’s “original principal” and “principal outstanding” can therefore show different amounts.
Principal-and-Interest Repayments
Repayments covering interest and reducing the amount borrowed over the loan term. Principal and interest are often shortened to P&I. The share going to each changes as the loan is repaid.
Redraw
A facility allowing access to eligible extra repayments already paid into the loan. Access depends on the lender’s redraw rules. The money has reduced the loan balance before it is redrawn.
Refinance
Replacing an existing loan with a new loan, with the same lender or another lender. Changing the interest rate on the existing loan alone is a rate change, not necessarily a refinance.
Security
An asset supporting the loan, commonly the property being bought. The mortgage gives the lender rights over that security if the borrower defaults, subject to the contract and law.
Serviceability
The lender’s assessment of whether the borrower can afford the repayments, considering income, expenses and existing financial commitments. Serviceability helps determine borrowing capacity.
Settlement
Completion of the purchase or refinance transaction, including the movement of funds and the required title dealings. Approval and settlement are separate stages.
Split Loan
A loan divided into separate portions, commonly one with a fixed rate and another with a variable rate. Each portion has its own rate and applicable conditions.
Valuation
An assessment of the property value used by the lender when considering its security. The accepted value can differ from the purchase price. It affects the LVR calculation.
Variable Rate
An interest rate the lender can change under the contract. A variable rate is not a promise that the lender’s rate moves by the same amount as the Reserve Bank’s cash rate.
These definitions use Australian mortgage vocabulary. An overseas glossary can describe different products or rules. For example, an Australian fixed-rate period can be shorter than the loan’s full repayment term.
Mortgage Terms That Are Easy to Confuse
Similar terms can describe different parts of the same loan. Keep the duration, access to money and approval stage separate when explaining a quote.
Loan Term, Fixed Period and Contract Conditions
A hypothetical loan can have a 30-year loan term and a two-year fixed-rate period. The debt continues after the fixed period ends. The terms and conditions are the contractual rules governing the loan.
Incorrect reading: “Two years fixed means the whole loan must be repaid in two years.”
Correct reading: “The interest rate is fixed for two years. The loan’s repayment term is 30 years.”
The separate guide to home loan terms in Australia covers choosing a repayment duration.
Offset and Redraw
An offset holds money in a separate account. Extra repayments go into the loan, and redraw gives access to eligible amounts under the contract. Moneysmart’s offset and redraw explanation describes this difference.
A similar interest saving does not make the access rules identical. Ask which accounts qualify for offset and how redraw availability changes over time.
Deposit and Equity
A deposit is contributed towards a purchase. Equity is the property’s value less the secured debt at a point in time. An increase in property value can increase equity without adding cash to the borrower’s bank account.
Pre-Approval and Final Approval
Pre-approval helps with planning a purchase. Final approval concerns a particular application after the lender completes its assessment. Read the remaining conditions in the letter before treating the finance as ready for settlement.
Lenders use approval labels differently. Bankwest’s glossary distinguishes its pre-approval from conditional approval by whether it has validated and assessed the applicant’s information. Follow the lender’s written approval, not the label alone.
The mortgage application process in Australia explains the wider sequence from preparing evidence to settlement.
Principal, Interest and the Scheduled Repayment
A scheduled repayment is the amount the contract requires at an agreed interval. Within a principal-and-interest repayment, a lower interest charge can leave more money to reduce principal.
For a simplified hypothetical payment of $3,000, $2,000 might cover interest and $1,000 reduce principal. If interest later falls to $1,900, the same $3,000 payment reduces principal by $1,100. The example excludes fees and holds the scheduled repayment constant.
Incorrect reading: “Less interest automatically means my required payment falls.”
Correct reading: “More of the same payment can reduce principal. A lower required repayment needs to follow the lender’s repayment rules.”
The loan amortisation guide explains how the allocation changes over time.
Read the Terms on a Loan Quote
Read a loan quote by matching each figure to its label and then reading the conditions attached to it. The following extract is entirely hypothetical. Its figures illustrate vocabulary and are not a lender’s offer.
Hypothetical Quote Extract
| Wording in the example | What the wording tells you |
|---|---|
| Loan amount: $480,000 | The proposed amount borrowed. Establish whether any financed fees are included. |
| Interest rate: 6.00% p.a., fixed for two years | The annual interest rate for the initial fixed period. |
| Comparison rate: 6.25% p.a. | A separate comparison figure. The calculation assumptions and exclusions must accompany it. |
| Loan term: 30 years | The overall contractual repayment duration. |
| Repayment type: principal and interest, monthly | Repayments cover interest and principal. Obtain the actual scheduled payment amount. |
| Establishment fee: $400. Account fee: $10 per month | One example upfront fee and one recurring fee. Neither figure is a universal charge. |
| Reverts to the lender’s applicable variable rate after the fixed period | The later rate follows the contract’s revert-rate provision. The initial rate does not last 30 years. |
| Extra repayments subject to a fixed-period limit | A restriction applies. Obtain the limit and the consequence of exceeding it. |
| Funding subject to satisfaction of conditions precedent | Listed requirements must be met before the lender advances funds. Obtain the exact list and required evidence. |
| Early-exit charges may apply | Identify whether this means a fixed-rate break cost, a discharge fee or another specified charge. |
The glossary explains what each label means. The lender’s quote, offer and incorporated conditions establish the figures and obligations for that particular loan. A dictionary cannot tell you which fees were included in a comparison rate or whether a condition has been satisfied.
Moneysmart’s guidance on choosing a home loan sets out cost comparisons and questions about restrictions and fees. The comparison rate guide explains why a comparison figure alone cannot establish the cost for every borrower.
When Definitions Need More Context
Record an unclear clause and obtain a written answer tied to the client’s actual offer. For a broker or credit assistant, the useful question identifies the clause and the action the client is considering.
- Copy the clause exactly into the file note. Record the document name, version and clause number.
- Describe the proposed action. For example, the client wants to make a $25,000 extra repayment during the fixed period.
- Request a written answer: “Please confirm whether this payment exceeds the allowance and provide the charge and its calculation if it does.”
- Save the lender’s written clarification with the offer. Resolve any mismatch with the contract before the client accepts it.
A broker can explain credit-product vocabulary and the loan features they are authorised to advise on. A question about a clause’s legal effect belongs with the client’s solicitor or appropriately qualified conveyancer. Questions about deductibility or the tax effect of using redraw belong with a qualified tax adviser.
If an answer still leaves the client’s obligation unclear, obtain the relevant adviser’s explanation before the client relies on it to accept the loan.
