We have prepared this Glossary to help you to fully appreciate the value of our services and to learn more about finance.

Terms included in this list are the common terms you will come across in the finance industry.

Adjustable mortgage – where the interest rate is adjusted periodically by the lender. Some people prefer a fixed rate as the maximum amount payable can be budgeted for. Also known as a variable mortgage.

Amortisation – where the loan is paid off in equal periodic payments, calculated to pay off the debt (principal and interest as well) at the end of a pre-determined period.

Application fee – a fee charged by a lender in the process of applying for a mortgage.

Balloon payment – a final payment (usually a lump sum) due once a loan has been paid as part of the loan agreement. Balloon payment loans tend to have lower regular repayments over the course of the loan term.

Bankruptcy – the process when a person or business is legally declared bankrupt. An appointed trustee then oversees their assets and financial affairs.

Collateral security – an additional asset such as property, shares, or guarantees offered as security for a loan.

Credit rating – The assessment of the person or businesses ability to pay back the debt and the likelihood of defaulting on the loan.

Default – the failure to pay back a loan.

Discharge fee – a one-time payment charged on the final payout of a loan.

Equity – This is calculated by the market value of your home minus the amount of money you have remaining to pay on your loan. For example, if your home is valued at $400,000 and you have $100,000 left to pay, you have $300,000 in equity. This money can be used to invest in other properties or home renovations.

Establishment fee – covers the basic costs in setting up a loan from initial interview to loan drawdown.

Exit fee – imposed by some lenders when the borrower refinances with another lender in the first few years of the loan. Some exit fees can be high so it is a good idea check whether there is an exit fee for your chosen home loan.

Fixed interest rate – when the interest rate of a loan permanently remains the same for the duration of the loan or an agreed time frame.

Guarantor – a person who agrees to cover the loan repayment in the event the borrower cannot meet the repayments. They are then legally responsible for the debt.

Interest only loan – Repayments cover only the interest charged on the loan, until the expiry of the interest only period.

Interest rate – a percentage used to calculate the cost of borrowing money. Rates vary from lender to lender. Generally the higher the Loan-to-value ratio (see LVR), the higher the interest rate. See fixed interest rate and variable interest rate.

Line of credit – this loan allows you to borrow money up to a specified limit, repay that amount and then borrow up to the limit again numerous times.

Loan-to-Value Ratio (LVR) – calculated on the basis of the percentage of the loan over the value of the property. For example, your home is valued at $200,000 with a mortgage of $150,000. The LVR is 75% (debt/loan of 75%, equity of 25%).

Mortgagee – the person receiving the mortgage (usually the lender).

Mortgagor – the person giving the mortgage (usually the purchaser or guarantor).

Off the Plan – refers to buying a property based on the plan of the building before development is completed.

Principal – the original or remaining amount borrowed on a loan that is still owing (minus the interest part of the total amount).

Refinance – When a business or person revises a payment schedule for repaying debt. This can be done by  extending the original loan over a longer period of time, reducing fees or interest rates, switch banks, or move from a fixed to variable loan.

Variable interest rate – when the interest rate of a loan changes with market conditions for the duration of the loan. Interest rates are generally reviewed by lenders every month.