Home Loan Glossary

APR stands for annual percentage rate and simply refers to the interest rate you’re charged for borrowing money. An APR doesn’t include home loan fees and charges, unlike a comparison rate. 

Still interested? Here’s how home loan interest works.

Arrears refers to repayments that have not been made by a due date. If you miss a repayment, you are considered to be ‘in arrears’. If you are in arrears for long enough, it will count as a mortgage default. See also: default.

Break costs are a fee you pay when you exit a fixed-rate home loan before the fixed period ends. It can be expensive to break a fixed-rate home loan early, depending on your lender, your remaining fixed term length, and how much interest rates have changed since your rate was fixed.

Bridging loans are a short-term financing option for existing property owners that enables them to purchase a new property before selling their current one.

A comparison rate represents the ‘true’ cost of a home loan by wrapping the interest rate, fees, and charges of a particular loan into a simplified percentage figure. This makes it easier to compare home loan costs from different lenders.

Learn more about how comparison rates are calculated.

Conditional approval is a non-binding agreement that states a lender’s willingness to approve your home loan application, provided you supply them with further information and meet certain conditions before final (unconditional) approval. See also: pre-approval.

Construction loans can help you finance the building of a new property or the renovation of an existing property. These loans are designed to help you fund each stage of construction, from laying the slab to the final coat of paint, in the form of progress payments. 

Build on your knowledge by learning how construction loans work.

Conveyancing is a legal process involving the transfer of property ownership from one party to another. Conveyancers are licensed professionals who provide information and guidance during a property transaction. Solicitors are able to help with conveyancing. 

Learn more about the costs and process of conveyancing.

A credit score is a numerical rating that expresses your creditworthiness, usually between 0 to 1,000, or 0 to 1,200, depending on which credit reporting company issues your credit report. A higher credit score is considered better and can improve your chances of successfully applying for a home loan.

But what credit score do I need to get a home loan?

A default, or mortgage default, occurs when you miss a mortgage repayment and fail to remedy the issue in an appropriate timeframe (usually 30 to 90 days). Mortgage defaults are recorded on your credit report for up to 5 years and can directly impact your ability to borrow money in the future. See also: arrears.

Learn about how to avoid mortgage default.

Discharge fees cover a lender’s legal and admin costs when a home loan is fully paid off or is otherwise closed (e.g. when refinancing). 

Learn more about discharging your mortgage, including how much you can expect to pay.

A drawdown is when a lender releases the home loan funds to pay the property seller on settlement day.

Learn more about loan drawdowns.

Establishment fees, also known as application fees, are paid by a borrower upon a successful loan application. This fee covers the legal and admin costs of the lender.

Equity is the difference between your home’s valuation and the outstanding balance of your home loan. In other words, your equity is the portion of your home loan that you’ve paid off. Your home equity relates to your loan-to-value ratio (LVR). 

Learn about how home equity is calculated and how you can use your home equity to buy an investment property, refinance, and more. 

Extra repayments on a home loan are lump-sum contributions made in addition to your regular mortgage payments. Making extra repayments can help you pay off your home loan faster. Use an extra repayment calculator to see how. 

A fixed rate is a type of interest rate that will not change for a predetermined period of time, known as a term. Fixed rate terms typically last 1 to 5 years and allow for consistent repayments during the fixed period. 

You can compare fixed-rate home loans on Mozo.

Genuine savings are funds that you have accumulated or held for a certain period of time before applying for a home loan. Lenders want to see genuine savings, as opposed to inherited money or cash gifts, as it can indicate a borrower is financially stable. 

But what counts as genuine savings? 

Guarantors use their home equity to provide additional security for borrowers without a full home deposit, becoming partly accountable for the loan themselves. For this reason, lenders usually prefer guarantors to be a close relative – parents, grandparents, or siblings.

If you’ve been asked to go guarantor on your child’s mortgage, here’s a guide on what guarantor parents need to know.  

An interest-only (IO) home loan is an arrangement where the borrower only repays the interest they accumulate on their loan balance for an agreed period of time, as opposed to a principal and interest loan. 

Read more about interest-only vs principal and interest home loans.

Land loans are used to purchase a vacant block of land to build a property on, or simply to keep as an investment. Land loans are often paired with construction loans. 

Lenders mortgage insurance (LMI) protects lenders financially, in case a borrower defaults on their home loan. Lenders often make it a requirement for borrowers to pay for LMI if they don’t have a 20% deposit, due to the perceived risk a loan-to-value ratio (LVR) below 80% can present. 

Find out more about LMI and how it’s calculated.

A line of credit allows you to draw cash from your home equity on demand, without having to apply each time you want to withdraw more. The trade-off is that using a line of credit decreases your equity and needs to be paid back over time. 

Learn more about line of credit loans. 

A loan term is the period of time in which you agree to pay off your home loan in full. Typical loan terms in Australia range from 20 to 30 years. 

A loan-to-value ratio (LVR) expresses the amount you’re borrowing for a home loan as a percentage of the value of your property. Your LVR will influence your interest rate, your eligibility to refinance, whether or not you need lenders mortgage insurance (LMI), and more. 

Learn how to work out your LVR. 

Low doc home loans require fewer documents to prove income, assets, and liabilities during the application process. Low documentation loans are typically suited to self-employed people (small business owners, contractors, freelancers). 

You can compare low doc home loans on Mozo. 

A mortgage is an agreement between a borrower and a lender that gives a lender the legal right to take the owner’s property if they fail to repay the loan or meet the conditions of the mortgage.

A mortgage broker’s job is to negotiate with banks or lenders on behalf of a buyer to arrange a home loan that fits their client’s needs, goals, budget, and situation.

Negative gearing is when the costs of owning an investment property outweigh the returns. If a property is negatively geared, the investor can claim the losses as a deduction on their annual tax return, making it a lucrative way to reduce your taxable income. 

If you’re interested in property investing, read our guide on how negative gearing works.

An offset account is an interest-saving home loan feature that acts as an everyday transaction account. The balance of an offset account ‘offsets’ a borrower’s outstanding loan amount when interest is calculated, leading to lower mortgage repayments. Some lenders offer 100% offset accounts and others only partial offset accounts.

Learn about the interest-saving power of offset accounts, or compare offset home loans on Mozo.

Portability, also known as a security swap, lets you transfer an existing home loan to a new property.

Pre-approval is something you can apply for with a lender if you’re ready to buy. When you get pre-approval, your desired lender gives you an indication of how much they may let you borrow. Importantly, pre-approval is not a guarantee. See also: conditional approval. 

Learn how to get pre-approval for your next home loan.

The ‘principal’ is the price of your property, minus your deposit. In other words, it is the total amount of money you borrowed from a lender. As you make home loan repayments, your principal will decrease until you’ve paid it off entirely. Interest is calculated daily, based on your principal balance.

A principal and interest home loan is one of the more common home loan types. On a principal and interest home loan, you repay part of the principal (your original loan amount) and any interest that has accrued over the repayment period. See also: principal. 

A rate lock allows you to ‘freeze’ the home loan interest rate you applied for during the settlement period, usually for a fee. This is particularly useful during times when interest rates rise frequently, as settlement can take 4 to 6 weeks, allowing plenty of time for interest rate changes. 

Learn more about mortgage rate locks.

A redraw facility is a feature that allows you to withdraw the extra repayments you’ve made towards your home loan. Redraw facilities have their pros and cons, so make sure you read about home loan redraws before deciding to use one. 

Refinancing involves replacing your existing home loan with a new one, usually from a different lender. There are different types of refinancing, depending on your goals. However, it is often used as a way to save money by switching to a lower interest rate. 

You can compare refinance rates on Mozo to see if switching can help you save. 

A repayment holiday is when your lender agrees to temporarily suspend your mortgage repayment obligations. While it can be a useful feature in certain situations, interest will continue to accrue on your loan, potentially leading to higher repayments or an extended loan term.

Learn more about repayment holidays, including some alternative options if you’re facing financial hardship.

Serviceability is an assessment of your ability to repay, or ‘service’ a home loan, considering factors like income and expenses. The better serviceability potential you have, the more likely your home loan will be approved. It is possible to increase your serviceability. 

Settlement is when the seller receives the money from a lender and the borrower’s home loan officially begins. The day that settlement begins is decided in advance, and known as ‘settlement day’. See also: drawdown. 

Learn more about settlement, and how to prepare for settlement day.

Stamp duty is a state and territory government tax, also referred to as transfer duty. Buyers pay stamp duty on land, new properties, and existing properties in Australia. It is calculated based on the value of the property in question. 

Use Mozo’s stamp duty calculator to get an estimate of how much stamp duty costs in your state or territory.  

A Target Market Determination (TMD) is a document that outlines who a product is suitable for, based on a consumer’s needs, financial situation, and objectives. 

A valuation is a professional estimate of the market value of a property (i.e. how much it could be sold for). Property valuations are calculated using a variety of a property’s physical features, and details about its location. A property is valued by a lender during the application process and helps to define your loan-to-value ratio (LVR).

Learn more about property valuations and how much they cost. 

Variable rates are a type of interest rate that moves up or down during the loan term, typically influenced by market forces or competition between lenders. 

Learn more about the differences between variable and fixed rate home loans.