Mortgage & Finance Broker Glossary: A–Z of Home Loan and Lending Terms
A
ACL (Australian Credit Licence) – An Australian Credit Licence (ACL) is required to legally provide credit advice or arrange loans in Australia. It ensures that credit providers and brokers meet strict regulatory, compliance, and consumer protection standards.
Aggregator – An aggregator is a platform that connects mortgage brokers to a wide range of lenders and loan products. Using an aggregator allows brokers to compare options from multiple lenders rather than being limited to just one bank.
Annual Package Fee – An annual package fee is a yearly charge for a bundled loan product. This fee often covers access to features such as offset accounts, discounted interest rates, fee waivers, and redraw facilities.
Application Fee – An application fee may be charged when applying for a loan. It helps cover the lender’s costs for assessing, processing, and approving the loan application.
Approval in Principle –Approval in Principle is an initial, conditional assessment indicating how much you may be able to borrow. It is not a formal loan approval but can help guide property searches and budgeting.
Arrears – A loan is in arrears when repayments are missed or overdue. Being in arrears can negatively affect your credit history and may result in fees, penalty interest, or further action from the lender.
Asset Finance –Asset finance is a type of loan used to purchase business assets such as vehicles, equipment, or machinery. The asset itself is often used as security for the loan.
B
Best Interests Duty (BID) – Best Interests Duty is a legal obligation requiring mortgage brokers to prioritise the client’s interests above all else. Brokers must recommend loan options that are suitable, affordable, and aligned with the client’s financial goals.
Borrower – A borrower is an individual or business that takes out a loan and agrees to repay the borrowed amount plus interest under agreed terms.
Borrowing Capacity – Borrowing capacity is the maximum amount a lender may allow you to borrow, based on factors such as income, expenses, existing debts, interest rates, and loan type.
Break Costs –Break costs are fees charged if a fixed-rate loan is repaid, refinanced, or exited before the fixed period ends. These costs compensate the lender for interest lost due to early repayment.
Bridging Loan – A bridging loan is a short-term loan that helps fund the purchase of a new property before the sale of an existing one. It covers the financial gap between buying and selling.
Broker Commission – Broker commission is paid by the lender to the broker for arranging the loan. This payment is typically built into the loan product and does not usually increase the borrower’s loan costs.
C
Cash Flow Lending – Cash flow lending focuses on a borrower’s income and ability to service repayments rather than relying primarily on asset security. It is commonly used for business lending.
Cashback Offer –A cashback offer is an incentive provided by a lender, often when refinancing, where the borrower receives a cash payment after settlement.
Clawback – Clawback occurs when a lender reclaims previously paid commission from a broker if a loan is repaid or refinanced within a set period, usually 12 to 24 months.
Co-Borrower – A co-borrower is an additional person on a loan who shares legal responsibility for the debt and repayments.
Commercial Loan – A commercial loan is used to purchase or refinance business or commercial property, such as offices, warehouses, or retail spaces.
Comparison Rate – The comparison rate combines the interest rate with most fees and charges into a single figure, helping borrowers compare the true cost of different loans.
Construction Loan –A construction loan provides funds in stages as building progresses. Payments are released after each construction milestone is completed.
Contract of Sale –A Contract of Sale is a legally binding agreement outlining the terms and conditions of a property transaction between the buyer and seller.
Cooling-Off Period – The cooling-off period is a short timeframe after signing a contract during which a buyer can cancel the purchase, subject to state laws and conditions.
Credit Assistance – Credit assistance refers to services provided to help borrowers apply for, obtain, or manage credit products.
Credit History – Credit history is a record of your past borrowing behaviour, including repayments, defaults, and credit applications.
Credit Proposal Disclosure (CPD) – A CPD is a document that explains why a particular loan has been recommended and confirms it meets the borrower’s needs and objectives.
Credit Score – A credit score is a numerical rating that reflects how likely you are to repay borrowed money, based on your credit history.
D
Debt Consolidation – Debt consolidation involves combining multiple debts into one loan, often to simplify repayments or reduce overall interest costs.
Debt-to-Income Ratio (DTI) – DTI compares your total debts to your income and helps lenders assess whether you can comfortably manage additional borrowing.
Default –A default occurs when a borrower fails to meet loan obligations, such as missing repayments for an extended period.
Deposit –A deposit is the upfront contribution made toward a property purchase, usually expressed as a percentage of the purchase price.
Discharge Fee – A discharge fee is charged by a lender when a loan is fully repaid and closed.
Documentation Requirements – Documentation requirements are the financial and personal records lenders need to assess a loan application, such as income, assets, and identification.
E
Equipment Finance – Equipment finance allows businesses to purchase vehicles, machinery, or tools with flexible repayment options.
Equity –Equity is the difference between a property’s market value and the remaining loan balance. It can be used as security for additional borrowing.
Establishment Fee – An establishment fee covers the cost of setting up a new loan.
Exit Fee – An exit fee may apply when leaving a loan early, depending on the lender and loan type.
F
Finance Broker – A finance broker helps borrowers compare loan options, understand lending criteria, and arrange suitable finance solutions.
First Home Buyer (FHB) – A first home buyer is someone purchasing their first residential property.
First Home Guarantee (FHBG) – The First Home Guarantee is a government scheme that allows eligible buyers to purchase a home with a low deposit without paying Lenders Mortgage Insurance.
Fixed Rate Loan – A fixed rate loan locks in an interest rate for a set period, providing certainty around repayments during that time.
Full Doc Loan – A full documentation loan requires standard income evidence such as payslips, tax returns, or business financial statements.
G
Genuine Savings – Genuine savings refer to money you have saved gradually over time, usually held for a minimum of three months. This can include funds accumulated through regular deposits into a savings account or term deposit. Lenders view genuine savings positively because they demonstrate your ability to manage money and maintain regular repayments.
Guarantor – A guarantor is a person, typically an immediate family member, who offers their property or savings as additional security for your loan. This can help you borrow a higher amount or avoid paying Lenders Mortgage Insurance. If you are unable to meet your loan obligations, the guarantor may be legally responsible for part or all of the debt.
H
Hardship Application – A hardship application is a formal request made to your lender for temporary financial assistance if you are experiencing difficulty meeting repayments due to circumstances such as illness, job loss, or reduced income. Assistance may include reduced repayments, a repayment pause, or loan term extensions.
Home Equity – Home equity is the portion of your property that you own outright. It is calculated by subtracting the remaining loan balance from the property’s current market value. Equity can increase over time as property values rise and loan balances reduce.
Home Equity Loan – A home equity loan allows you to borrow money using the equity in your property as security. These funds can be used for purposes such as renovations, investments, or debt consolidation. Because the loan is secured against property, interest rates are generally lower than unsecured loans.
Home Loan – A home loan is a long-term loan used to purchase, build, or refinance residential property. The loan is secured against the property and is repaid over an agreed term, usually 25 to 30 years, with interest.
Home Loan Package –A home loan package combines a loan with additional features such as offset accounts, redraw facilities, and discounted interest rates. In exchange, borrowers usually pay an annual package fee.
I
Income Verification – Income verification involves providing documents that confirm your earnings. This may include payslips, employment contracts, tax returns, or business financial statements. Lenders use this information to assess whether you can afford loan repayments.
Interest –Interest is the cost charged by a lender for borrowing money. It is calculated based on the outstanding loan balance and is added to your repayments over time.
Interest Only (IO) – With interest-only repayments, you pay only the interest portion of the loan for a set period. During this time, the loan balance does not reduce. Interest-only loans are often used by investors but may result in higher repayments once the interest-only period ends.
Interest Rate – The interest rate is the percentage used to calculate how much interest you pay on your loan. Even small changes in interest rates can significantly affect total loan costs over time.
Introductory Rate –An introductory rate is a discounted interest rate offered for an initial period, usually at the start of a loan. Once the introductory period ends, the rate reverts to the lender’s standard rate.
Investment Loan – An investment loan is used to purchase property intended to generate rental income. These loans often have different interest rates and lending criteria compared to owner-occupied loans.
Invoice Finance –Invoice finance allows businesses to borrow money against unpaid customer invoices. This helps improve cash flow while waiting for invoices to be paid.
J
Joint Loan – A joint loan is taken out by two or more borrowers who share equal responsibility for repayments. All borrowers are jointly and individually liable for the full loan amount.
L
Lender – A lender is a financial institution, such as a bank or non-bank lender, that provides funds to borrowers under agreed terms.
Lender Panel –A lender panel is the range of lenders available to a broker through their aggregator. Access to a broad panel allows for better loan comparisons.
Line of Credit –A line of credit is a flexible loan facility that allows you to borrow up to an approved limit and access funds as needed. Interest is charged only on the amount used.
Loan Portability – Loan portability allows you to transfer your existing loan to a new property without refinancing, subject to lender approval.
Loan Purpose –Loan purpose explains why funds are being borrowed, such as purchasing a home, refinancing, or investing. Lenders use this to determine loan suitability and conditions.
Loan Term – The loan term is the length of time over which the loan must be repaid. Longer terms reduce repayments but increase total interest paid.
Loan to Value Ratio (LVR) – LVR compares the loan amount to the value of the property used as security. Higher LVRs generally carry higher risk and may require Lenders Mortgage Insurance.
Low Doc Loan – A low documentation loan requires less income verification and is commonly used by self-employed orrowers. These loans often have stricter conditions or higher interest rates.
LMI (Lenders Mortgage Insurance) – LMI is an insurance premium paid by the borrower to protect the lender if the loan goes into default. It is usually required when borrowing more than 80% of the property value.
M
Mortgage –A mortgage is a legal agreement where a property is used as security for a loan. If the borrower fails to meet repayments, the lender has the right to recover the debt through the property.
Mortgage Broker – A mortgage broker assists borrowers by comparing loan products, explaining options, and arranging finance with lenders.
Mortgage Offset Account – A mortgage offset account is a savings or transaction account linked to a loan. The balance in the account reduces the interest charged on the loan without reducing access to funds.
Mortgage Registration – Mortgage registration is the legal process of recording the lender’s interest on the property title.
N
Negative Gearing –Negative gearing occurs when the costs of owning an investment property exceed the rental income it generates. The resulting loss may be used to reduce taxable income, subject to tax advice.
Non-Bank Lender –A non-bank lender provides loans outside the traditional banking system and may offer more flexible lending criteria.
O
Offset Account – An offset account is linked to a loan and reduces interest payable by offsetting the loan balance with available funds.
Ongoing Fees – Ongoing fees are regular charges, such as monthly or annual fees, for maintaining a loan or its features.
Overdraft – An overdraft allows an account to go into a negative balance up to an approved limit, offering short-term access to funds.
Owner-Occupied Loan – An owner-occupied loan is used to purchase or refinance the home you live in, typically at lower interest rates than investment loans.
P
Personal Loan – A personal loan is a loan used for personal expenses such as travel, education, or emergencies. It can be secured or unsecured.
Pre-Approval – Pre-approval is a conditional assessment indicating how much you may be able to borrow, helping you plan before purchasing property.
Principal –The principal is the original amount borrowed, excluding interest and fees.
Principal & Interest (P&I) – Principal and interest repayments reduce the loan balance while covering interest costs.
Private Lender – A private lender offers alternative finance solutions, often for borrowers who do not meet traditional lending criteria.
Portability – Portability allows an existing loan to be transferred to a new property without closing the loan.
R
Rate Lock – Rate lock allows borrowers to secure a fixed interest rate before settlement, protecting against rate increases during this period.
Redraw Facility – A redraw facility allows access to extra repayments made on a loan, providing flexibility if funds are needed later.
Refinancing –Refinancing involves replacing an existing loan with a new one, often to secure a better interest rate or loan features.
Repayment Holiday – A repayment holiday allows borrowers to temporarily pause repayments, usually during financial hardship.
Repayments – Repayments are the regular payments made to reduce your loan balance and interest.
Responsible Lending –Responsible lending laws require lenders and brokers to ensure loans are suitable and affordable for borrowers.
S
Secured Loan – A secured loan is backed by an asset, such as property, which reduces lender risk.
Self-Employed Loan – A self-employed loan is tailored for borrowers who run their own business and may have variable income.
Serviceability – Serviceability measures your ability to meet loan repayments based on income, expenses, and existing debts.
Servicing Calculator – A servicing calculator estimates how much you may be able to borrow based on your financial details.
Settlement – Settlement is the final stage of a property transaction where ownership is legally transferred and funds are exchanged.
Short-Term Loan – A short-term loan is designed for temporary funding needs and usually has a shorter repayment period.
Split Loan – A split loan divides a loan into fixed and variable portions, offering both stability and flexibility.
Stamp Duty – Stamp duty is a state government tax payable when purchasing property, varying by state and property value.
T
Term Deposit – A term deposit is a savings product where funds are invested for a fixed period at a guaranteed interest rate.
Top-Up Loan –A top-up loan increases your existing loan amount, often using available equity.
Trail Commission – Trail commission is an ongoing commission paid to a broker while the loan remains active.
U
Unsecured Loan – An unsecured loan does not require collateral and typically has higher interest rates due to increased risk.
Upfront Commission – Upfront commission is paid to a broker by the lender when a loan settles.
V
Valuation – A valuation is an independent assessment of a property’s value used by lenders to determine borrowing limits.
Variable Rate Loan –A variable rate loan has an interest rate that can change over time, affecting repayments.
Vacant Land Loan –A vacant land loan is used to purchase land without a dwelling, often with stricter lending conditions.
W
Waived Fees – Waived fees are charges that a lender agrees to reduce or remove as part of a loan offer.
Withdrawal of Equity –Withdrawal of equity allows borrowers to access usable equity from their property for approved purposes.
Working Capital – Working capital refers to funds used by a business to manage day-to-day operating expenses.
