AAPR
This stands for "Average Annual Percentage Rate" - also known as the mortgage comparison rate or true rate.
The AAPR (Average Annual Percentage Rate) is also known as the mortgage comparison rate or true rate. It is a "fictional" figure, and is used to compare the actual rate of a loan, taking into account the nominal interest rate per annum, the compounding frequency and upfront and ongoing fees, as outlined in the Consumer Credit Code.
ABA
Australian Bankers' Association. The Australian Bankers’ Association (ABA) is the national organisation of licensed banks in Australia.
The ABA is funded by its 23 Member banks ranging from traditional retail, trading bank-style organisations to regional banks, foreign and wholesale banks and contributions to its operational expenditure are based on individual member bank liabilities in Australia.
ABIO
Australian Banking Industry Ombudsman. The ABIO exists as a means through which customers can make complaints about a bank, and have them dealt with independently of the particular bank.
The Banking Ombudsman, also known as the Banking and Financial Services Ombudsman (BFSO), is a free and independent dispute resolution service. The Banking Ombudsman considers complaints about banks and their affiliates operating in Australia.
The Banking Ombudsman is able to investigate disputes and make decisions that are binding on the financial services provider. As far as investigations are concerned, the Banking Ombudsman is bound by his terms of reference.
Accelerated approval
This is a means by which you can have your loan approved quickly and without some of the usual checks a more expensive option than standard.
Accelerated repayment
Allows the borrower pay off more of the loan than the minimum set out in the loan agreement.
Account fee
Fee charge by lenders for the cost of setting up and maintaining mortgages.
Accountant
The professional whose role it is to examine and record the income and expenditure of a business.
The accountant is the professional whose role it is to examine and record the income and expenditure of a business.
According the the Macquarie Dictionary, accounting is the theory and system of setting up and looking after the books of a business, so that its financial position can be examined and the owners can find out how well it is doing.
An accountant is like a doctor for the business. The accountant "keeps a finger on the pulse" of a business, and lets the business owner know what to do to maintain the health of the business. Anyone who is considering embarking on any type of business venture, or investment strategy, should consult an accountant before making any binding decisions.
Accrued interest
Interest earned, but yet to be paid or charged.
Additional Payments
Extra loan repayments made, above the minimum repayment amount, and paid during the loan term.
Adjustments
Apportionment of rates and charges, whereby the vendor pays the rates etc., and the purchaser bears the cost of them beyond the settlement date.
The Statement Of Adjustments is the document that sets out the rates and any other charges that have to be apportioned as between the vendor and the purchaser.
The Statement Of Adjustments will show the full purchase price, the amount of deposit deducted from the full purchase price, and then the balance owing. The amount due for the full year's council rates, and amounts due for water rates and body corporate fees, if applicable, are also stated. If penalty interest has been incurred, this too will be stated.
It is a standard contractual requirement that the vendor must pay the full year's rates, and then the purchaser is required to reimburse the vendor for the amount paid for the period from settlement to the end of the rating year.
Affordability
A measurement made on the basis of an index which is the ratio of average household disposable income to the income required to meet payments of a typical dwelling. The higher the figure, the more affordable property..
Agent
The law of agency is a branch of the law of Contract. Basically "agency" is a relationship whereby one person, known as the "principal", authorizes another person, called the "agent", to act on behalf of the principal. The agent is appointed by the principal for the purpose of bringing a third person into a contractual relationship with the principal.
All-in-one facility
Facility that allows the borrower to deposit all funds into the loan account, and then draw on those funds for smaller expenses.
In all in one facility allows you to combine your home loan with your normal personal accounts, such as savings account, cheque account, and credit card account.
An all in one facility provides one of the best mortgage strategies available, if managed properly.
Amortisation Period
Time over which the loan is to be repaid at the agreed rate.
Amortisation is the payment of debt in regular, periodic instalments of principal and interest, as opposed to interest only payments.
Amortisation can also be described as the process of reducing principal and interest, in equal instalment payments, at specific intervals over a set period of time.
Over time, the interest portion of the loan decreases as the loan balance decreases, in the amount applied to the principal increases, so that the loan is paid off in the specified term.
Annual percentage rate
The advertised rate of interest per annum.
The annual percentage rate is
a figure that states the total yearly cost of a mortgage,
as expressed by the actual rate of interest paid.
The annual percentage rate includes the base rate of
interest, and any other add-on loan fees, costs and
charges. Because it also incorporates other costs and
charges, the annual percentage rate will be higher than
the rate of interest quoted by the lender for the
mortgage product, to which it relates. However, it does
give a more accurate indication of the true cost of the
loan.
Borrowers should be in mind the fact that most home loans
do not run for their full term, as the majority of home
loans are paid out before they have run their full term.
This may result in the effective annual percentage rate
being higher than the quoted annual percentage rate,
because the loan fees and charges are spread out over
fewer years.
Application
fee
The fee a lender may charge for setting up a loan
approval for a home buyer. While some lenders do not
charge application fees, they usually charge higher
interest rates.
The application fee is a fee charged by the lender in
order to cover the initial costs of processing a home
loan application.
The application fee may include the cost of obtaining a
property valuation, a
credit report, and other costs associated with a home
loan application process. In some cases, these fees may
be charged separately, and the application fee charged as
a stand-alone fee.
Appraisal
"Appraisal" is just another term for valuation, but is
used instead of the word "valuation" because estate
agents are not permitted to provide true valuations on
real estate. Only an accredited valuer can provide a
genuine property "valuation".
Arrears
Amount overdue on an account.
Arrears is the term used to describe money which has not
been paid on time. For example, if a borrower has not
made the last two mortgage payments, then that borrower
is said to be “in arrears” with the mortgage payments.
Similarly, where money is payable at the end of the year,
rather than at the beginning, it is referred to as being
money “due in arrears”, rather than money due in
advance”.
Assets
The items a person or company owns and which are worth
money in the open market. Assets include real estate and
other items that can be sold anything from which a person
may derive a benefit.
Assets are any
property or resources which have a monetary value. Assets
include cash on hand in cheque accounts and savings
accounts, stock, bonds and other securities, real estate,
income producing property, and business equipment.
Intangible assets include goodwill (the value of the
company's name in the market), patents and other
intellectual property that are owned by a company and
given financial value in the company's balance sheet.
At
call
An account from which money can be withdrawn immediately.
ATM
Automatic Teller Machine. Most bank customers are
familiar with electronic banking through the use of
automatic teller machines. Automatic teller machines are
accessed with a plastic card that automatically debits or
credits a nominated account whenever cash is withdrawn or
deposited.
Auction
An auction is a form of sale where potential purchasers
make competing offers or "bids", with the person offering
the highest bid being declared as the purchaser.
Unfortunately, the auction concept is falling into
disrepute with regard to the sale of real estate. This is
because many of those who promote real estate auctions
tend to resort to tricks and deceptions in order to make
the concept work.
Balance
Sheet
Statement of assets, liabilities and net worth for an
individual or a business.
The balance sheet is a financial statement that lists the
company's assets and liabilities as at a specified date.
The balance sheet presents a company's financial position
by listing what the company owns (including cash,
infantry, planned, equipment, and accounts receivable),
and what the company owes (liabilities such as short-term
and long-term debt, and the accounts payable).
The difference between assets and liabilities is known as
equity or book value.
Balloon
payment
Large loan repayment to clear a debt.
A balloon payment is where a lump sum, usually
representing the balance of the loan principal, is paid
before the end of the term.
Similarly, a balloon mortgage is where the balance of the
loan principal is paid as a lump sum at the end of the
term.
Bank
cheque
Cheque purchased from a bank, usually on a cash basis,
and regarded as being almost as acceptable as cash in a
sale transaction.
Bankruptcy
Situation where a debtor is unable to repay debts, and
his/her estate placed into the hands of a receiver who
has the responsibility for its distribution.
Basic/Standard
variable
Variable home loan at an attractive rate, but without all
of the features of a loan at the standard variable
rate.
Bearer
A person who holds a document. In the case of a cheque,
it is the person presenting the cheque (may or may not be
the owner of the cheque).
Body
Corporate
A body corporate comes into existence when a plan of
subdivision, allowing the creation of a body corporate,
is registered at the Land Titles Office. Owners of the
Lots specified on the plant of subdivision become members
of the body corporate.
Bond
Money paid by the tenant and held by the Residential Bond
Authority as security against damage or rent default by
the tenant.
Breach of
contract
This occurs where a party fails comply with the
terms/conditions of a contract.
Break
Costs
Costs payable by a borrower where a loan is paid in full
before the end of the term of the loan. Generally applies
to fixed loans.
Bridging
Finance
Finance used to "bridge" the gap between the purchase of
a new property, and receipt of funds from the sale of
purchaser's existing property.
Building
inspection
Inspection carried out by a purchaser (usually by
engaging a professional building inspection service) to
discover any defects in a building which may affect the
preparedness of the purchaser to buy the property at the
asking price.
Building
society
An institution which takes deposits and provides loans
just like a bank, but without the Reserve Bank oversight
given to banks.
Buyer's
Agents
The buyer's agent is simply an estate agent who "spots"
properties for people who cannot afford the time to seek
out a suitable property in person. Unfortunately, the
term is also used to describe estate agents who falsely
pretend to provide a service in terms of "negotiating" on
behalf of inexperienced purchasers.
Capitalising
interest
When interest that has accrued is added to the total debt
rather than being paid when due.
Capital
gain
Profit realised from the sale of an asset, when it is
sold for a higher market price than the owner initially
paid for it. (See Capital gains tax below).
Capital
gains tax
Liability to pay tax on the Capital gain (See Capital
gain above) made on the sale of an asset. Usually a
taxpayer's principal place of residence is exempt from
capital gains tax.
Capital
growth
The difference between the value of an asset when
purchased, and its current value.
Capped
Loan
A loan where there is a ceiling on the interest
rate.
Caveat
A caveat prevents the Registrar Of Titles from
registering another interest against the title without
first giving notice to the person who lodged the caveat.
Generally speaking, once a caveat has been lodged against
a property, nothing else can be lodged against the
property without the consent of the person who lodged the
caveat.
Caveat
emptor
'Let the buyer beware' - the principle that puts the onus
on buyers to be satisfied with any item before
buying.
Certificate
of Occupancy
As the name implies, the Certificate of Occupancy
certifies that a home can be lived in. It is a
requirement of most local government or shire councils
that an occupancy certificate be issued prior to the
purchaser of a home taking occupation.
Certificate
of Title
A simple explanation: Imagine a huge book kept at the
Land Titles Office, in which every block of land in the
State of Victoria has its own page. Of course, such a
book would have many volumes and many pages (folios). If
you wanted to identify a particular block of land, you
would find out its volume and folio number, and use these
numbers to look up the relevant page. To find out who
owns the land, you would simply turn over the page, and
see whose name was last added to the page. This person is
the owner.
Certification
The planning authority "certifies" a plan of subdivision
when it is satisfied that the plan is in compliance with
the all requirements. Upon certification the plan of
subdivision is lodged at the Land Titles Office.
Chattels
Fixtures & Chattels:
Fixtures are things that are permanently attached to the
land so as to become part of the land. Chattels are
things that are not part of the land. When land is sold,
all fixtures (the house, and things permanently attached
to the house) will pass to the Purchaser as part of the
land.
Collateral
An asset (such as a car or a home) which the borrower
must give to the lender if the loan is not repaid. In a
home loan, the home itself is usually the main
collateral.
Combination
loans
Also known as "cocktail loans or "split" loans. Different
types of loans combined to form one loan product. For
example, the loan may have a portion variable, fixed or
even a portion as a line of credit.
Commission
Commission is the way in which estate agents are paid for
their services, and is probably the most unfair and
unethical form of payment imaginable. Real estate
commissions have been described as a form of "wealth tax"
levied by estate agents.
Common
property
This is the land on a plan of subdivision that does not
form any of the lots, but is the subject of shared
ownership by the Lot owners as members of the body
corporate. Common property may take the form of land, air
space, space below the ground or buildings.
Company
Share Scheme
This was the first type of "unit" development. While it
appears to be similar to a strata unit development, is
really quite different.
Comparison
rate
The comparison rate is a standard to be used in
advertising material. It is used to compare the actual
rate of a loan, taking into account nominal interest rate
per annum, the compounding frequency and upfront and
ongoing fees.
Compound
interest
This is interest that is paid on the accumulated interest
as well as the principal amount of a loan.
Conditioning
Conditioning the vendor is the term used to describe the
process where an estate agent strives to convince the
vendor to lower the asking price on a property so that
the estate agent can secure a sale.
Conditions
Conditions are the "rules" of the contract. They tell the
parties who is responsible for what, the dates by which
things must be done, and what will happen if things are
not done as agreed.
Conflict of
Interests
A conflict of interests occurs when a person who has a
duty to act in the interests of a client also has a duty
to act against the interests of that same client. A
conflict of interests also occurs when a person who has a
duty to act in the interests of a client is in a position
where he/she may be tempted by money or some other motive
to act against the interests of that same client.
Construction
loan
This is a loan for the purpose of building a dwelling.
Funds are usually drawn down on a staged basis, upon
completion of each building stage.
Consumer
Credit Code
The Uniform Consumer Credit Code (UCCC) was passed by the
Commonwealth government, with identical legislation
passed by most states, to provide uniform consumer credit
law throughout Australia. The Code governs the
relationship between borrowers and lenders.
Contract of
Sale
The Contract of Sale is the term used to describe the
document prepared by a lawyer, and used to formalise the
sale of real estate. However, the word "Contract" has
more than one meaning: 1. Contract can mean an agreement;
or 2. Contract can mean the document that sets out the
agreement.
Contract
Note
This is another nasty device used by estate agents (see
also the "Exclusive Sale Authority"). The name of the
document is the first trick - Contract Note. To most
people the term "Contract Note" suggests that the
document is something less than a Contract, and that a
real Contract will be drawn up later. In fact a "Contract
Note" is a full contract, but the terms and conditions
are hidden.
Conveyancer
The Legal Practice Act 1996 states, at Section 326:
"conveyancer" means a person, other than a current
(legal) practitioner or registered (legal) practitioner,
who carries on a business in the course of which
conveyancing work is carried out directly or indirectly
for fee or reward;". Conveyancers attend to the clerical
work associated with conveyancing matters, but are
prohibited from performing legal work or giving legal
advice.
Conveyancing
Work
The Legal Practice Act 1996 states, at Section 326:
"conveyancing work" means work, other than legal work,
carried out in connection with the
transfer...of...interest in land. In effect,
"conveyancing work" is confined to the clerical tasks
associated with arranging for the transfer of ownership
from one person to another.
Conveyancing
Kits
In their promotional material, conveyancing kit-writers
don't emphasise that those who use the kit will still
have to pay for rate and planning certificates, title
searches, postage, transport to settlement, etc. There is
also an assumption that kit-users have plenty of spare
time, and that their time is of no value. Otherwise, the
amount of time needed for reading and learning about
conveyancing has to be taken into account.
Cooling
Off
In certain circumstances, the Purchaser of real estate is
permitted to cancel the Contract and walk away from it
all together, within 3 days of having signed it.
Covenant
A covenant is a way in which the use of one person's land
can be controlled by another, and is commonly to protect
the "amenity" or value of an area. A developer, for
example, could prevent the building of front fences, the
parking of heavy vehicles or the building of low-quality
homes in a new estate by placing a special condition in
the Contract of Sale, requiring the Purchaser to register
a restrictive covenant on the Purchaser's new
title.
Cover
note
A temporary insurance policy, designed to be issued at
short notice to provide cover between the time the cover
note is issued, and the issue of a full insurance
policy.
Credit
Limit
This is the maximum amount a borrower can use on a credit
facility. For example, the maximum amount that can be
used on a credit card.
Credit
unions
Also known as credit co-operatives, these are finance
groups owned and controlled by the people who use it.
Usually based on common employment e.g. VTU Credit Union
or Victoria Police Credit Co-Operative.
Creditor
The party to whom the debtor owes money.
Crossed
cheque
A bank cheque or personal cheque with two parallel
vertical lines across it to specify that the cheque must
be paid into an account and cannot be cashed. Usually
includes the words "Not Negotiable" written or printed
between the two parallel lines.
Current
Market Value
The current market value of a property is determined
according the following standard: The price at which a
willing but not anxious vendor would sell, and at which a
willing but now anxious purchaser would buy.
Theoretically, if someone bought the property at current
market value as an investment, then decided to sell it
again, they should be able to find someone else who is
prepared to pay the same price in the same market, and so
on.
Daily
interest
Interest that is calculated on a daily basis, varying in
accordance with the account balance as at the end of each
day.
Debtor
The borrower the party who owes money to the
creditor.
Default
Occurs where the borrower fails to meet payments by the
agreed due date.
Default
rate
This is the rate to which a loan reverts or automatically
adjusts to at the end of any fixed period.
Deposit
A deposit is an amount of money, usually 10%, paid by the
purchaser to secure the contract of sale. Generally, if
the purchaser repudiates the contract, the deposit will
be forfeited.
Deposit
bond
A deposit bond is a form of guarantee, usually provided
by an insurance company, that a purchaser will pay the
full deposit when it becomes due (i.e. at settlement, or
upon rescission of the contract).
Disbursements
Disbursements are the out-of-pocket costs associated with
a matter, as opposed to the legal costs charged for the
service being provided. For example, in a conveyancing
matter the legal costs include checking of the contract
and preparation of documents. Disbursements include the
amount paid to the Land Titles Office for the title
search, and amounts paid to rating authorities for
certificates.
Discharge
fee
See 'mortgage discharge fee' below.
Disposable
income
This is the part of a person's income that is not
committed to on-going living expenses, and is available
spending on non-essentials or for saving.
Down
payment
Similar to a deposit. Usually paid when the sale
agreement is made, with the balance due at a later
dated.
Draw
down
The term used to describe the issuing of funds from the
lender for the purposes for which they have been
borrowed. Also used to describe access to loan funds,
e.g. in a line of credit where the funds are available as
needed.
DSR
Debt Service Ratio. This is the amount of a borrower's
income which will support loan repayments It is usually
expressed as a percentage, with the majority of lenders
setting a maximum DSR of between 30% to 33%.
Early
termination charges
These are costs a borrower may be required to pay upon
the early repayment of the loan.
Easement
An easement is a right that allows one person's land to
dominate another person's land by exercising some right
of the dominated land. The land that benefits from the
easement is called the dominant land, while the land
affected by the easement is called the servient
land.
EFTPOS
Electronic Funds Transfer Point of Sale. A facility that
allows cardholders to access funds held in an account at
the point of sale (i.e. shop or supermarket checkout) to
pay for goods or to withdraw cash.
Encumbrances
This is the term used to describe a claim that one person
has against another person's land. It is important to
remember that an encumbrance is against the land and NOT
the owner of the land. This means that if the land
changes hands, the new owner takes both the land AND
encumbrances attached to it.
Equity
This is the term used to describe that part of the
property that can be identified as belonging to the
borrower. Equity represents the value of the property
after debts secured by the property are paid.
Equity
loan
This is a loan secured by the borrower's equity in the
asset offered as security.
Establishment
fees
Term used to describe the fees charged by lenders to
cover the costs associated with the arranging of a new
mortgages and the preparation of loan documents.
Estate
Agent
See Agent above.
Exclusive
Sale Authority
This is the document by which an estate agent is able to
exclusively secure the Vendor, the property being sold,
and all persons who enquire about the property for a set
period of time, and then indefinitely until the Vendor
cancels in writing. Devised by estate agents, and
distributed through the Real Estate Institute of
Victoria, it is one of the most complex and deceptive
documents a consumer will ever encounter.
Exit
fees
See 'break costs' above.
FID
Financial Institutions Duty. This is a government tax
levied on the receipts of financial institutions.
Fidelity
Insurance
Fidelity insurance protects the clients of professionals
against theft or misappropriation of funds by the
professional person or an employee while the client's
funds are under the control of the professional person.
Simply put, if your lawyer had a secret gambling problem
and took the proceeds of your property sale to a casino
and lost it, there would be little point in trying to sue
the now bankrupt lawyer.
Fiduciary
Relationship
A fiduciary relationship is one where a professional
representative owes the highest duty to the client, and
must always act in the utmost good faith. The law
requires that the professional representative must never
allow his/her own interests conflict with those of the
client.
Finance -
"Subject To Finance"
Signing "subject to finance" simply means that the
Purchaser is not yet sure as to whether their home loan
has been approved by the bank, and wants to be able to
cancel the Contract if the bank fails to approve their
loan application.
Financial
planner
Also known as "Financial Advisers", financial planners
find out about a client's needs and circumstances, and
provide plans and recommendations to assist and benefit
the client.
First Home
Owner's Grant
This is a government grant $7000 payable to purchasers
who are buying their first home. Conditions and
qualifications apply.
Fixed
interest
This is where the interest rate on a loan is fixed for an
agreed period of time.
Fixtures
& Chattels
Fixtures are things that are permanently attached to the
land so as to become part of the land. Chattels are
things that are not part of the land. When land is sold,
all fixtures (the house, and things permanently attached
to the house) will pass to the Purchaser as part of the
land. If a chattel is to be included in the sale, it must
be specifically listed in the Contract. If a fixture is
to be removed from the property by the Vendor and
therefore not included in the sale, then this must be
specifically mentioned in the Contract.
Flat
interest rate
Interest calculated on the original amount of the loan
for the full term of the loan.
Fraud
Fraud is the gaining of an advantage by improper or
unfair means. At present, fraud is a major problem in the
real estate industry.
Frozen
account
This is where an account is rendered inoperative, and no
activity permitted. Accounts are often frozen a short
time prior to settlement of a borrower's sale if the
borrower has a redraw facility. This allows the lender to
determine a "payout figure", which will not change
through activity on the loan account. (See also "payout
figure" below).
Garnishee
The legal process by which a creditor is able to arrange
for the diversion of funds. Often used where a debtor's
employer can be required to pay part of the debtor's
salary to the creditor.
Gearing
This is the term used to describe the ratio of a
borrower's contribution to an investment purchase, and
borrowed funds for investment purposes. Where a property
is 'highly geared' it has a high ratio of borrowed funds
compared to ownership. (See also "negative gearing"
below.)
General Law
Land
This is land that is not under the operation of the
Transfer of Land Act. Ownership of general law land is
determined by examination of the "chain of title", a
collection of documents showing that the land has been
transferred from one person to another over many years. A
chain of title must show every dealing associated with
the land for the past 30 years, if good title is to be
established. These days, the purchase of any general law
land must be converted so that the land is brought under
the operation of the Transfer of Land Act.
GiroPost
Australia Post banking facility.
GST
A Federal Government tax on sales of all goods and
services, set at 10 per cent. The tax is levied against
the supplier of the goods or service, but is paid by
consumers in the form of higher prices. A purchase
contract may contain a condition that requires a
purchaser to add an amount equal to the GST to the
purchase price.
Guarantee
In the context of a home loan, a guarantee is the promise
made by a person who will guarantee the lender that the
home loan will be repaid. The person giving the guarantee
(known as the "guarantor") is legally responsible for the
repayment of the loan. If required by the lender to do
so, the guarantor must honour the guarantee by repaying
the loan in full on behalf of the borrower.
Guarantor
The person who provides a formal guarantee to a lender,
that the guarantor will repay the borrower's debt if the
lender cannot secure payment from the borrower. If
required to repay the loan on the borrower's behalf, the
guarantor may stand in the shoes of the lender in order
to sue the borrower and recover the funds paid on the
borrower's behalf.
Home equity
loan
A loan account that gives the borrower access to a
revolving line of credit.
Henderson
Poverty Line
The Henderson Poverty Line (HPL) was developed by
Professor Ronald F. Henderson as an attempt to estimate
poverty in Melbourne on the basis of a two adult, two
child family set at an income equal to the value of the
basic wage plus child endowment (family allowance)
payments.
Honeymoon
rate
This is a reduced loan rate, usually offered for period
of 12 months before reverting to the standard rate.
House &
Land Packages
A house and land package is where a home is sold together
with the land on which it is to be built. Usually, the
process of purchasing a house and land package involves
the selection of a display home, and matching it with a
block of land from an estate being developed by the
vendor.
Housing
Affordability Index
Ratio of average disposable income to income needed to
make payments on a typical residential property.
Independent
Legal Advice
When a person needs legal advice it is important that the
person providing that advice not only knows the law and
how to apply it, but is also in a position to provide
that advice without bias. The lawyer must always be
totally "independent" of the matter. In other words, the
lawyer should never be personally involved in the matter,
and should not be acting for, or advising anyone else who
is involved in the matter or who stands to gain anything
from it. See "Legal advice" below.
Instructions
This is the term used by lawyers to describe what the
client wants done. However, it goes beyond this. Taking
instructions is not just a matter of doing as the client
directs. The proper taking of instructions requires the
lawyer to use his or her legal knowledge and skills to
ensure that the client is in a position to make the best
decision. This is part of the lawyer's fiduciary duty.
After finding out what the client wishes to do, the
lawyer will advise the client as to the legalities
involved, and the options available to the client as the
client pursues his/her goal.
A client is entitled, not only to make the final
decision, but also to be in a position to make the best
possible decision, based on the best possible advice.
Only after the lawyer has listened, considered, advised,
and then been told which direction the client wishes to
take, can the lawyer regard him/herself as having been
properly instructed.
Interest
This is the cost of the home loan. Interest is the charge
the lender makes in return for allowing the borrower to
have the use of the borrower's funds for the period of
the loan.
Interest
only loan
A short-term loan, often used by investors. Allows for
payment of the interest payable on the loan, without the
loan itself being repaid. The borrower pays the full
amount of the loan principal at the end of the agreed
term.
Introductory
loan
Similar to "honeymoon rate' above.
Investment
loan
Loan used to purchase an investment property. Often in
the form of an "interest only" loan (see above).
Legal
Advice
The giving of good legal advice involves the obtaining of
an understanding of what the client wants to achieve, the
checking of relevant documents, having a sound
understanding of relevant principles of law or
researching finer points of law, and then explaining to
the client what options are available.
Lender
Term used to describe a bank, building society, credit
union, or other lending institution which derives loan
moneys deposits. May also be used to refer to a
specialised home lender which provides borrowers with
access to funds raised on the professional money markets.
Lender's
mortgage insurance - LMI
Insurance premium charged to the borrower, but by way of
a one off payment for the protection of the lender,
allowing the lender to recover any unpaid loan principal
in the event of the borrower's default. The borrower's
debt is transferred to the Mortgage Insurer.
Letter of
offer
Insurance premium charged to the borrower, but by way of
a one off payment for the protection of the lender,
allowing the lender to recover any unpaid loan principal
in the event of the borrower's default. The borrower's
debt is transferred to the Mortgage Insurer.
Licence
Agreement
Sometimes a purchaser may wish to occupy the property
before settlement; or a vendor may wish to continue to
occupy the property beyond settlement. A Licence
Agreement is a simple contract whereby one party grants
another party the right to occupy the property. The
difference between a licence and a lease is that the
lease is a form of "ownership" of the property for a
period of time, and the lessee is entitled to remain in
occupation for the period of the lease. The licence, on
the other hand, can be revoked at any time. If the
licence is revoked, the occupier must leave the property
and rely on whatever remedies are provided for in the
licence.
Line of
credit
Borrowing arrangement by which the borrower may access
any amount up to a specified limit, with the value of the
borrower's property as security for the loan.
Listing
This is the term used to describe the arrangement between
a Vendor and an estate agent, whereby the agent is
appointed to act on behalf of the Vendor to sell real
estate. Estate agents rely on a contract called the
Exclusive Sale Authority to bind the vendor, the property
and all enquirers, to the agent. This document is so
heavily biased in favour of the estate agent that
obtaining a listing with it is almost as good as "money
in the bank" for the agent. (See also "Exclusive Sale
Authority")
Loan-to-value
ratio
Often referred to simply as the LVR, this is the ratio
derived from the amount being borrowed, as against the
valuation of the security (usually the property being
purchased).
Lot
A lot is simply a separately identifiable piece of land,
part of a building, or air space, that is created when a
plan of subdivision is registered.
Low docs
loans
Low document loans do not require the support of pay
slips, tax returns, etc. and are often used by
self-employed borrowers. These loans are well suited to
borrowers who have substantial equity and serviceability
capacity, but are unable to provide traditional forms of
income verification. Because proof of income is not
requied, the amount of paperwork is significantly
reduced.
Margin
Term used to describe the difference between the lender's
interest indicator rate and the rate actually charged to
borrowers.
Maturity
This is the date a debt or investment matures, and is to
be paid in full.
Mortgage
A mortgage is basically a scheme or an arrangement
whereby one person borrows money from another, and
promises to pay the money back in return for offering
land as security for the loan. The offer of land as
security becomes an interest in the land for the lender.
The land itself becomes encumbered by the mortgage.
Mortgage
broker
An individual or an organisation, such as Oasis Home
Loans, who provides consumers with access to a variety of
loan products offered by a panel of lenders. The role of
the mortgage broker is to assist the customer to select
the most appropriate loan for the borrower's purpose, and
to assist the borrower in his/her dealings with the
lender.
Mortgage
comparison rate
See "comparison rate" above.
Mortgage
discharge fee
Fee charged by a lender for the administrative services
associated with the finalization of a loan.
Mortgage
document
The mortgage document is the means by which the lender’s
rights or “interest” in the property is registered on
title.
Mortgage
insurance
Insurance premium charged to the borrower, by way of a
one off payment, for the protection of the lender. It
allows the lender to recover any unpaid loan principal in
the event of the borrower's default. The borrower's debt
is transferred to the mortgage insurer.
Mortgage
intermediaries
Term used to describe mortgage managers who are
positioned between the lenders and the mortgage
originators.
Mortgage
manager
Term used to describe the company responsible for
managing a loan. The mortgage manager liaises with the
panel lenders, and co-ordinates the mortgage
originators.
Mortgage
offset account
This is a savings account associated with a home loan,
the contents of which are paid into the borrower's home
loan, thereby reducing the amount to be repaid. A 100%
offset is achieved where the interest rates earned and
paid are the same. A partial offset occurs where the
interest rate earned on the offset account is only a
portion of the rate paid on the home loan.
Mortgage
originator
This is the term used to describe a wholesale lender
whose role it is to source securitised funds that are
then provided to consumers through loan brokers in the
form of loan products.
Mortgage
protection insurance
Unlike "mortgage insurance" (see above), mortgage
protection insurance is cover that protects the borrower
by meeting repayments in the event of the borrower's
death, illness or loss of employment.
Mortgage
registration fee
This is a fee paid to the Land Titles Office for
registration of the mortgage. The mortgage is usually
registered by the lender or the lender's solicitors
together with the Transfer of Land after
settlement.
Mortgage
stamp duty
This is a state government tax, determined by reference
to the amount of the mortgage. It is usually paid on the
borrower's behalf to the State Revenue Office by the
lender, and deducted from the loan funds.
Mortgagee
The mortgagee is the person to whom a mortgage is given
the lender.
Mortgagor
The mortgagor is the person who gives a mortgage over
their property as security for a loan the borrower.
Negative
gearing
The term used to describe the situation where an investor
buys the right property in the right location, and then
has the tenant and the taxman partially fund the
repayments. The investor sits back and counts the profit
from the appreciating property value. The property is
purchased using borrowed funds, and the interest payable
on the borrowings exceeds the income produced by the
asset (after expenses), resulting in a negative cash
flow.
Negotiation
Negotiation involves conferring or discussing matters
with another person, with a view to reaching some form of
compromise or agreement. To be effective as a negotiator,
your representative must be well informed about the rules
and laws associated with the matter under negotiation,
and must have precise instructions as to their capacity
to negotiate on your behalf.
Non-conforming
loans
Term used to describe loan products designed for
borrowers who do not meet the criteria for regular
lending due to impaired credit history, insufficient
income or business start up finance.
Off The
Plan
This term describes the sale of land that does not yet
exist as a separate "Lot". The land is described as a
proposed Lot only. The Vendor of an "off the plan" lot is
obliged to complete the subdivision process or building
of units, and to have the Lots individually created
through registration of the plan of subdivision.
Offer
For the average consumer, the term offer has a simple and
straight-forward meaning. However, when applied to the
law of Contract, it has a very specific meaning. The
confusion between these two meanings is often
manipulated, and used against consumers.
Ombudsman
(Banking)
See ABIO (above)
Ongoing
fees
Any fees charged in association with the loan on a
regular basis over the life of the loan.
Overcapitalising
Term used to describe the situation where a property
owner spends more money in improving a the property than
can be recovered upon sale.
Overdraft
Prearranged limit to which an account holder can access
funds in excess of the account balance.
Payout
figure
This is a figure provided by a borrower's lender to
confirm the amount of sale proceeds to be applied to
repayment of the borrower's mortgage upon the sale of the
security property. Usually, the lender will "freeze" the
borrower's loan account, to ensure that the payout figure
will not be changed through the use of any redraw
facility.
Penalty
Interest
Condition 4 of Table A, Schedule 7 of the Transfer of
Land Act provides for the payment of penalty interest if
either party delays the payment of money. The most common
form of delay is the postponement of settlement.
Plan of
Subdivision
Basically, the plan of subdivision is a map of a large
area of land that has been divided into small blocks of
land or "Lots". The plan shows the dimensions of each
Lot, and its location in relation to every other Lot in
the subdivision. Each Lot is separately numbered. When
the plan of subdivision is registered, each lot is
identified in terms of its Lot number and the number of
the plan of subdivision. Each Lot is registered by way of
a Certificate of Title bearing distinct Volume and Folio
numbers to identify the title, and the title itself
records the Lot and Plan Number of the Lot it
represents.
Portability
A loan facility that provides for the substitution of one
security property for another in relation to an existing
loan.
Payee
The person to whom payment is to be made. E.g. the person
to whom a cheque is payable.
Pre-Approval
If you’re thinking of buying a home, then obtaining
pre-approval for a mortgage is a good idea. This
determines the size of the mortgage you qualify for, and
therefore, decides the price range for the homes you can
look at.
Pre-Contract Legal
Advice
Advice provided by a qualified lawyer prior to the
signing of a Contract to buy or sell real estate. By
obtaining pre-contract legal advice a consumer is able to
consider what matters should be investigated before
deciding to buy, what responsibilities have to be
fulfilled before selling, and what special conditions may
have to be inserted into a Contract to protect his/her
interests. See also "Independent Legal Advice"
above.
Price
Ranges
Also called a "buyer enquiry range" this is a trick that
involves the invention of two figures: one much lower
that the vendor intends to accept, and the other much
higher than the vendor expects the property to make.
Purchasers are expected to make offers somewhere in
between the two false figures. Any form of marketing that
involves "invented" figures is fraudulent. The Northern
Territory government recently wrote to all estate agents
in that State, warning them that price ranges and buyer
enquiry ranges amount to misleading and deceptive
conduct.
Principal
Term used to describe the actual amount of money
borrowed. The term is used to distinguish this component
of a repayment from the "interest" component. (See
"interest" above).
Principal
and interest loan
The most common form of home loan, where both the
principal and the interest are repaid during the term of
the loan. (Compare with "interest only" loan
above.)
Professional Indemnity
Insurance
Professional indemnity insurance is held by a
professional person to ensure that any claims of
professional negligence made against the professional
person can be met. To put it another way, there is not
much point in suing a professional person if they do not
have enough money to pay for your loss - so professional
indemnity insurance comes in to cover the cost.
Rates
This is the term used to describe amounts payable to the
local council and the water authority for services
provided to a property. Rates are adjusted on a pro-rata
basis, together with any other outgoings that are payable
as a consequence of land ownership.
Real Estate
Institute Of Victoria
The Real Estate Institute of Victoria is the professional
body representing real estate agents in the State of
Victoria. Known as the R.E.I.V., it also acts as a lobby
group to protect and further the interests of real estate
agents.
Real
property
This is another term for real estate, or land. It is used
to distinguish land (which is permanent in nature) with
personal property (which is not permanent and can be
destroyed).
Rebate
Term used to describe a situation where money paid is
refunded as a form of incentive. E.g. where a vendor pays
a rebate of $3,000 if the purchaser can settle prior to a
specified date.
Redraw
facility
A facility which allows the borrower to make mortgage
repayments beyond those required in the loan agreement,
and "redraw" them as needed.
Refinancing
This is the term used to describe the situation where a
borrower decides to change lender or loan product by
repaying the existing loan and then obtaining
another.
Registrable
Documents
These are the documents, usually collected at settlement
in return for the payment of the balance of the purchaser
price, that are lodged at the Land Titles Office to
transfer ownership of the property to the purchaser. They
must be property signed or endorsed so as to allow
registration.
Requisitions On
Title
These are a series of questions formally served on the
Vendor of a property by the Purchaser, by which the
Purchaser discovers any issues relating to "title" (i.e.
the right or capacity of the Vendor to legally sell the
property). Requisitions often include a variety of other
questions that are not related to "title", and can run to
many pages. Many lawyers now replace the right to submit
requisitions on title with warranties in the Contract of
Sale.
Reserve
Bank
The Reserve Bank of Australia is responsible for
independently maintaining Australia's financial system,
and for setting the official short-term interest rates on
which many variable-rate home loans are based.
Residential
Investment Loan
A loan obtained for the purpose of purchasing real estate
for investment purposes (for example, to be rented out)
rather than for owner-occupier purposes.
Retirement
Villages
While most people understand the term "Retirement
Village" as meaning a form of unit accommodation, it
often comes as a surprise to find that there are
different ways of "owning" or "occupying" a retirement
unit.
Securitisation
This is the term used to describe the process of taking a
pool of various assets, such as different home loan
products, and converting them into a tradable security
such a bond which investors can then purchase and
trade.
Security
This is the term used to describe an asset that is put
forward by a borrower on the basis that the lender will
be able to sell the asset or convert it to the lender's
use in the event that the borrower fails to repay the
loan in full.
Serviceability
This is the term used to describe the borrower's ability
to make regular repayments of an agreed amount.
Settlement
Settlement is the term used to describe the moment when
all of the parties involved in a sale of real estate meet
together and exchange documents and cheques to complete
the matter. Often there are four parties at settlement:
the Vendor, the Vendor's Mortgagee, the Purchaser and the
Purchaser's Mortgagee. Usually each of these is
represented by a lawyer or other representative.
Signatory
Term used to describe a person who has authority to
operate an account.
Solicitor
The terms "solicitor" or "legal practitioner" or
"barrister" are just other terms used to describe a
lawyer. The term "barrister" is used to describe a lawyer
who appears in court on behalf of clients. Barristers
usually avoid accepting clients direct, and prefer to act
on behalf of lawyers in a form of "sub-contacting"
capacity. Many law firms described their lawyers as
"Barristers & Solicitors". In the State of Victoria,
all lawyers can describe themselves as "barrister and
solicitor", and all are equally entitled to represent
their clients in court. We prefer the term "lawyer"
because it is readily understood by everyone as meaning a
person whose role it is to advise and assist clients in
matters of law.
Solicitors
mortgages
These are mortgages offered through solicitors firms,
utilising funds offered by clients for this
purpose.
Solicitor
supervision
The Legal Practice Act prohibits unqualified
people from giving legal advice or performing legal work.
This means that conveyancers are not permitted to offer
any form of legal services to their clients, even though
conveyancing matters essentially involve legal
issues.
Because most consumers would be reluctant to use
conveyancers if they knew that their conveyancer could
not perform the legal work associated with a conveyancing
matter, the concept of "solicitor supervision" has been
developed to make conveyancers appear more
credible.
Split
loan
See "Combination loans" above
Stamp
duty
This is a government charge incurred by the Purchaser of
real estate, and payable to the State Revenue Office
prior to lodging of the Transfer of Land at the Land
Titles Office. It is usually paid by the Purchaser's
lender after settlement, with funds retained from the
loan moneys. If there is no lender involved, a cheque
will be obtained from the Purchaser and paid to the State
Revenue Office by the Purchaser's lawyer.
Stamping
and lodging
This is the term used to describe the process of taking
the registrable documents (obtained at settlement) to the
State Revenue Office, payable stamp duty and having the
Transfer of Land "stamped" to show that stamp duty has
been paid, and then lodging the documents at the Land
Titles Office for registration.
Standard
variable home loan
As compared with a "basic variable" loan (see above), a
standard variable home loan, usually includes a suite of
features, and is charged at the standard variable
rate.
Standard
variable rate
This is the rate a lender will apply to its 'premium'
home loan product.
Statement
of Adjustments
This document sets out the way in which rates and other
outgoings have been apportioned as at the day of
settlement. It shows the purchase price, the deposit
paid, the amount of rates paid for the rating period and
the proportion of those rates to be paid by the Purchaser
for the period beyond the settlement date.
Strata
Title
This is the term used to describe a title where there is
a building on land. The title covers not only depth and
width, but also the height between upper and lower
boundaries.
Stratum
Title
In a stratum subdivision the building is subdivided into
lots, with common land, i.e. driveways, stairwells,
gardens being owned by a service company and appearing on
the subdivision as an additional lot. Stratum units are
regarded as unattractive because of difficulties and
complexities involving the operation of the company,
Corporations Law obligations, and a reluctance on the
part of lenders to accept them as security.
Studio
Apartments
A studio apartment is the term used to describe a small
unit, usually comprising one open-plan room. Care should
be taken when considering the purchase of a studio
apartment!
Subject To
Finance
Where the purchaser had not yet received formal home loan
approval, and wants to be able to end the contract in the
event that the home loan is rejected, the contract can be
made "subject to finance". This means that a condition is
added to the contract that allows a fixed period of time,
by which the home loan must be approved. If the home loan
is not approved, then the purchase may elect to end the
contract. Purchasers should always ensure that the
finance condition is drafted by their lawyer, or at least
with advice from their lawyer. It is often the case that
estate agents draft finance conditions such that the
purchaser can't help but breach the terms, and risk
losing the deposit.
Term
The term of the loan is the period over which the loan is
to be repaid.
Transaction
fees
These are fees charged by the lender on particular
transactions, such as withdrawals, transfers, deposits
etc., usually on an item by item basis.
Transfer of
Land
This is the document by which the Vendor and the
Purchaser direct the Registrar of Titles to transfer
ownership of the property from the Vendor to the
Purchaser. It may also direct the Registrar to include a
covenant or other encumbrance on title.
UCCC
See "Consumer Credit Code" above.
Valuation
See "Valuer" below.
Valuer
A valuer is a professional person whose role it is to
determine the current market value of a property. Valuers
are tertiary trained, and accredited by the Australian
Property Institute (API).
Variable
interest rate
An interest rate that varies in accordance with the rates
in the marketplace.
Vendor
finance
Vendor finance (also known as a “wrap”) is where the
owner of a property offers to finance the purchase of
that property. The person who buys the property does not
gain legal ownership of the property until the final
installment on the property has been paid.
Vendor
terms
Vendor terms may be used to describe a terms contract,
but may also be used to describe vendor finance.
Vendor
terms contract
A vendor terms contract arises in two ways. The first is
where the contract provides for occupation or possession
of the property by the purchaser before settlement has
been effected (i.e. before the balance of the purchase
price has been paid).
Yield
Term used to describe the income derived from real
estate, ordinarily expressed as a percentage of the value
or cost of the investment.
END