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📖 Finance Glossary

Mortgage & Finance Glossary

Your guide to key mortgage, property and finance terms every Australian homebuyer should know. From offset accounts to SMSF loans, we’ve broken down the jargon into simple, easy-to-understand definitions.

A

Additional Repayments

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Extra repayments made on top of your minimum required home loan repayments.

🇦🇺 Australian context: Most Australian variable-rate home loans allow borrowers to make unlimited additional repayments without penalty. While fixed-rate loans often limit how much extra can be repaid during the fixed term, with fees or break costs potentially applying if those limits are exceeded.
Example: On a $500,000 loan at 6% over 30 years, adding just $200 per month in extra repayments can save over $80,000 in interest and save you five years off the loan.

See also: Offset Account

Amortisation

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The process of gradually repaying a loan through regular repayments that cover both interest and principal. Over time, a larger portion of each repayment goes toward reducing your loan balance.

🇦🇺 Australian context: Australian home loans are amortised over 25 to 30 years. During the early years of the loan, a larger portion of each repayment is applied to interest, while principal reduction increases progressively as the loan balance decreases.
Example: On a $600,000 loan at 6%, your first repayment of $3,597 might include $3,000 in interest and only $597 in principal reduction.

Appraisal (Bank Valuation)

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A formal assessment of a property’s market value conducted on behalf of a lender. It helps the lender determine whether the property provides sufficient security for the proposed loan.

🇦🇺 Australian context: Lenders may use desktop valuations, kerbside assessments or full property inspection depending on the property’s location, value and risk profile. A lender’s valuation may differ from the agreed purchase price.
Example: If a property is purchased for $800,000 but valued by the lender at $770,000, the lender will generally calculate the loan-to-value ratio using the lower valuation.

See also: LVR

APRA (Australian Prudential Regulation Authority)

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The Australian Prudential Regulation Authority (APRA) is the federal regulator responsible for supervising banks, credit unions, building societies, insurers and most superannuation funds.

🇦🇺 Australian context: APRA sets prudential standards designed to maintain the stability of Australia’s financial system. It also provides guidance to lenders regarding lending practices, including serviceability assessments for home loans.

ASIC (Australian Securities & Investments Commission)

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The ASIC regulates Australia’s financial services and consumer credit industries. It oversees credit licensing requirements, responsible lending obligations and consumer protection standards.

🇦🇺 Australian context: All Australian mortgage brokers and lenders must comply with ASIC regulations and licensing requirements.

Asset Finance

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Asset finance is lending used to purchase business or personal assets such as vehicles, machinery, equipment or technology.

🇦🇺 Australian context: Common asset finance products include chattel mortgages, finance leases, novated leases and commercial hire purchase arrangements. Depending on the borrower's circumstances, tax and GST benefits may be available.
Example: If a home loan interest rate falls from 6.25% to 6.00%, it has decreased by 25 basis points.

B

Basis Point

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A basis point is one-hundredth of one per cent (0.01%). Financial institutions commonly use basis points when discussing interest rate movements.

Example: When the RBA cuts the cash rate by 25 basis points, a $500,000 variable loan saves approximately $78 per month.

See also: RBA Cash Rate

Bridging Loan

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A short-term lending solution that allows a borrower to purchase a new property before selling their existing one.

🇦🇺 Australian context: Bridging finance is commonly used when settlement dates do not align between the purchase of a new home and the sale of an existing property. Bridging loan terms generally range from six to twelve months.
Example: A homeowner may use a bridging loan to secure their next property before receiving the sale proceeds from their current home.

See also: Bridging Loans

Break Cost (Fixed Rate)

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Break costs are fees that may apply when a fixed-rate home loan is repaid, refinanced or altered before the end of the fixed-rate period.

🇦🇺 Australian context: The amount payable depends on several factors, including the remaining fixed term, outstanding loan balance and changes in wholesale interest rates since the loan was established.
Example: Breaking a 3-year fixed loan after 1 year when rates have fallen significantly could result in a break cost of $8,000 to $15,000 on a $500,000 loan.

Borrowing Capacity

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Borrowing capacity refers to the maximum amount a lender may be willing to lend based on a borrower's financial situation.

🇦🇺 Australian context: Lenders assess borrowing capacity using factors such as income, living expenses, existing debts, credit history, employment type and lending policy requirements.

See also: Borrowing Capacity Calculator

C

Cash Rate

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The interest rate set by the Reserve Bank of Australia (RBA) for overnight lending between financial institutions.

🇦🇺 Australian context: One of the key tools used by the RBA to manage inflation and economic activity. Changes to the cash rate often influence variable home loan interest rates across the market.

Caveat

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A legal notice recorded on a property’s title indicating that a third party claims an interest in the property. It’s a Latin word which literally means ‘beware’.

🇦🇺 Australian context: A caveat can prevent the sale, transfer or refinancing of a property until the claim is resolved or removed. Conveyancers and solicitors typically identify caveats during title searches.

Comparison Rate

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A standardised rate that combines a loan’s interest rate with most fees and charges to help borrowers compare loan products.

🇦🇺 Australian context: Australian lenders are generally required to disclose a comparison rate for regulated consumer home loans. However, comparison rates are based on a standard loan scenario and may not reflect the true cost of every borrower’s situation.
Example: A loan advertised at 5.89% with high annual fees might have a comparison rate of 6.14%, while a fee-free loan at 6.09% may have a comparison rate of 6.09%; the first is actually more expensive.

Construction Loan

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A construction loan is a home loan designed to fund the construction of a new property rather than the purchase of an existing home.

🇦🇺 Australian context: Funds are released progressively throughout the building process through a series of progress payments linked to construction milestones. Interest is generally charged only on funds that have been drawn.

Conveyancing

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Conveyancing is the legal process of transferring property ownership from one party to another.

🇦🇺 Australian context: The process includes reviewing contracts, conducting title searches, coordinating settlement, and ensuring legal ownership is correctly transferred. Most property transactions in Australia are now completed electronically through PEXA.

Credit Score

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A numerical representation of an individual’s credit history and borrowing behaviour. Credit scores are influenced by repayment history, credit enquiries, defaults and other credit-related transactions.

🇦🇺 Australian context: Australian lenders may consider information from credit reporting agencies such as Equifax, Experian and Illion when assessing your loan application.
Example: A strong credit profile may improve access to a wider range of lenders and loan products.

D

Debt-to-Income Ratio (DTI)

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Debt-to-Income Ratio (DTI) measures your total debt compared to your gross annual income. Lenders use this metric to assess how much debt you already carry relative to your earnings.

🇦🇺 Australian context: DTI is one of several factors lenders consider when assessing a home loan application in Australia. Higher DTI ratios may indicate increased lending risk and can affect borrowing capacity depending on the lender’s policy.

See also: Understanding DTI · DTI Calculator

Deposit

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The upfront contribution a buyer makes towards the purchase price of a property.

🇦🇺 Australian context: Many lenders prefer a deposit of at least 20% of a property’s value to avoid Lenders Mortgage Insurance (LMI). However, some buyers may be eligible to purchase with a smaller deposit through lender policies or government support schemes.
Example: On a $700,000 home, a 20% deposit is $140,000. A 10% deposit ($70,000) would trigger LMI, adding $15,000 to $25,000 to loan costs.

See also: LMI Calculator · First Home Buyer

Depreciation (Investment Property)

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A non-cash tax deduction available to investment property owners for the wear and tear of the building structure and fixtures or fittings.

🇦🇺 Australian context: A quantity surveyor prepares a depreciation schedule for the ATO. New builds generally offer the most depreciation.
Example: A new $650,000 investment property might yield $12,000-$18,000 in depreciation deductions in year one, significantly reducing taxable income.

See also: Investment Loans

Discharge Fee

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A fee that may apply when a home loan is fully repaid, refinanced or closed.

🇦🇺 Australian context: The fee covers the administrative process of removing the lender’s mortgage from the property’s title. Fees vary between lenders.

E

Easement

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A registered right for a third party to use a portion of privately owned land for a specific purpose, such as drainage, access or utilities.

🇦🇺 Australian context: Easements are recorded on the Certificate of Title and cannot be removed without legal process. They can affect how you use part of your land and should always be reviewed before purchasing. Common types include drainage easements and rights of carriageway.

Equity

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Equity is the difference between a property’s current market value and the amount still owed on the mortgage.

🇦🇺 Australian context: As property values rise and loan balances decrease, equity generally increases. Many borrowers use available equity to fund renovations, investments or future property purchases.
Example: If a property is worth $900,000 and the mortgage balance is $450,000, the owner has $450,000 in equity.

Exit Fee

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An exit fee is a charge that may apply when a loan is closed or repaid before its agreed term.

🇦🇺 Australian context: Most residential home loans established after July 2011 do not include traditional exit fees. However, other costs such as discharge fees or fixed rate break costs may still apply.

F

First Home Guarantee (FHBG)

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An Australian Government initiative that helps eligible first-home buyers purchase a property with a smaller deposit without paying Lenders Mortgage Insurance (LMI). Those eligible can purchase a home with as little as a 5% deposit.

🇦🇺 Australian context: The scheme is administered through participating lenders, and eligibility requirements may change over time. Buyers should review the current criteria through Housing Australia or a mortgage professional before applying.

See also: First Home Buyer Guide

First Home Owner Grant (FHOG)

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A fixed-rate loan has an interest rate that remains unchanged for a set period, providing certainty around repayments.

🇦🇺 Australian context: Fixed-rate periods commonly range from one to five years. During the fixed term, borrowers are generally protected from rate increases but may have reduced flexibility regarding extra repayments and refinancing.

See also: First Home Buyer Grants QLD · FHOG Calculator

Fixed Rate Loan

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A home loan where the interest rate is locked in for a set period (typically 1 to 5 years), providing certainty of repayments regardless of market rate movements.

🇦🇺 Australian context: When the fixed term ends, the loan automatically transfers to the lender's standard variable rate unless you refix. Break costs apply if you exit early. Most fixed loans restrict additional repayments.
Example: Fixing at 5.99% for 3 years on a $550,000 loan gives monthly repayments of $3,296, unchanged even if the RBA raises rates multiple times during that period.

See also: Break Cost

Franking Credits

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Tax credits attached to dividends paid by Australian companies that have already paid company tax on their profits.

🇦🇺 Australian context: Franking credits can help reduce the amount of tax payable on dividend income and may be particularly relevant for investors and self-managed super funds. An investor who’s receiving fully franked dividends may receive a tax credit reflecting tax already paid by the company.

See also: SMSF Loans

G

Guarantor Loan

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A guarantor loan allows a family member or other eligible person to provide additional security for a borrower’s home loan.

🇦🇺 Australian context: Guarantor arrangements are often used to help buyers purchase a property sooner, reduce deposit requirements, or avoid Lenders Mortgage Insurance. Independent legal advice is necessary.

See also: Guarantor Loans · Guarantor Calculator

Genuine Savings

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Funds accumulated by the borrower over a period of time that demonstrate a borrower’s ability to save consistently.

🇦🇺 Australian context: Some lenders require evidence of genuine savings when borrowers have a smaller deposit or are borrowing at higher loan-to-value ratios.

H

HECS / HELP Debt

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HECS-HELP is a government student loan program that assists eligible Australians with tertiary education costs. It must be disclosed on home loan applications since it reduces assessable income and can affect borrowing capacity.

🇦🇺 Australian context: A borrower with a HECS-HELP debt may qualify for a smaller loan than someone with the same income but no student debt.

Home Equity Line of Credit (HELOC)

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A Home Equity Line of Credit is a revolving credit facility secured against the equity in a property.

🇦🇺 Australian context: In Australia, these products are commonly referred to as line of credit facilities. Here, borrowers can access funds up to an approved limit and repay or redraw funds as needed.

Honeymoon Rate (Introductory Rate)

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A honeymoon rate is a discounted introductory interest rate offered for a limited period at the start of a home loan, hence the name.

🇦🇺 Australian context: Once the promotional period ends, the loan typically reverts to the lender’s standard variable rate. Therefore, borrowers need to compare the long-term costs of the loan, not just the introductory rate.

I

Interest-Only Loan

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An interest-only loan requires borrowers to pay only the interest charges for a specified period, without reducing the principal balance.

🇦🇺 Australian context: Interest-only lending is commonly used by property investors seeking lower short-term repayments. Once the interest-only period ends, repayments generally increase because principal repayments need to be made.
Example: A borrower may choose an interest-only period of five years before transitioning to principal and interest repayments.

See also: Investment Loans

Investment Property Loan

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A home loan used to purchase a property intended to generate rental income or long-term capital growth.

🇦🇺 Australian context: Investment loans have different pricing, lending policies, and serviceability requirements compared to owner-occupier loans.

See also: Investment Loans

J

Joint Tenants

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Joint tenancy is a form of property ownership where all owners hold equal interests in the property.

🇦🇺 Australian context: If one owner passes away, their share automatically transfers to the surviving owner or owners through the right of survivorship, regardless of any will.

See also: Tenants in Common

Joint Application

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A joint application is a home loan application submitted by two or more borrowers together. The partners that do, commonly apply for a joint home loan.

🇦🇺 Australian context: Joint borrowers combine their income and financial commitments during the assessment process. However, each borrower is equally responsible for the entire loan, not just a portion of it.

L

Lenders Mortgage Insurance (LMI)

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Insurance that protects the lender when a borrower has less than a 20% deposit. While the borrower pays the premium, the cover benefits the lender.

🇦🇺 Australian context: LMI is generally required when borrowing more than 80% of a property’s value. The premium is usually charged as a one-off cost and can often be added to the loan. The higher your loan-to-value ratio, the higher your LMI premiums will likely be.
Example: If you buy a property worth $800,000 with a 12% deposit, which results in an 88% LVR, LMI will typically apply.

See also: LMI Explained · LMI Calculator

Loan-to-Value Ratio (LVR)

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The loan-to-value ratio is the percentage of a property’s value funded by borrowed money. LVR is calculated with the formula: Loan Amount ÷ Property Value x 100

🇦🇺 Australian context: An LVR of 80% or less generally helps avoid LMI. It is one of the major factors lenders use when determining loan eligibility, interest rates and whether LMI is required.
Example: If you borrow $560,000 to purchase a property worth $700,000, the property results in an 80% LVR. Which means, no LMI.

See also: LVR Explained · LMI Calculator

Low-Doc Loan

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A home loan designed for borrowers who cannot provide standard income verification documents, most commonly self-employed borrowers.

🇦🇺 Australian context: Low doc loans typically require alternative evidence of income, such as BAS statements, business bank statements or an accountant’s declaration. These loans often have stricter lending criteria, higher interest rates and lower maximum LVRs.

See also: Low-Doc Home Loans · Self-Employed Loans

M

Mortgage Broker

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A licensed professional who helps borrowers compare, select and apply for home loans from a range of lenders. Mortgage brokers act as an intermediary between borrowers and lenders.

🇦🇺 Australian context: Mortgage brokers are legally required to act in their clients' best interests and must disclose how they are paid. In most cases, brokers are compensated by the lender rather than the borrower.

See also: About Nice Loans · Talk to a Broker

Mortgage Offset Account

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A transaction account linked to a home loan that reduces the balance on which interest is calculated.

🇦🇺 Australian context: A 100% offset account works to reduce your loan balance dollar for dollar for interest calculations while still keeping your funds fully accessible. Offset accounts are a popular feature on Australian variable-rate home loans.
Example: If you have a $500,000 loan and $80,000 in your offset account, interest is charged only on $420,000, which saves you around $4,800 every year.

See also: Offset Accounts Explained

N

Negative Gearing

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Negative gearing occurs when the cost of owning an investment property exceeds the rental income it generates, resulting in a financial loss.

🇦🇺 Australian context: Subject to current tax laws, this loss may generally be used to offset other taxable income. Investors should seek professional tax advice regarding their individual circumstances.
Example: Let's assume a property generates $26,000 in rent but costs $38,000 to hold each year, then the $12,000 loss that occurs may be tax-deductible.

See also: Negative vs Positive Gearing · Investment Loans

Non-Bank Lender

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A lender that provides home loans without holding a banking license is a non-bank lender.

🇦🇺 Australian context: Non-bank lenders source funding through wholesale markets rather than customer deposits. They often offer flexible lending solutions for borrowers with non-standard income or credit profiles.

O

Offset Account

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See Mortgage Offset Account above.

See also: Offset Accounts Explained

Owner-Occupier Loan

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A home loan used to purchase a property that will be your primary place of residence.

🇦🇺 Australian context: Owner-occupier loans generally attract lower interest rates than investment loans due to their lower risk profile. Rates for owner-occupier P&I loans can be 0.5-1% lower than equivalent investment interest-only loans.

See also: Owner-Occupier Home Loans

P

Principal & Interest (P&I)

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A repayment structure where each repayment reduces both the loan balance and the interest charged.

🇦🇺 Australian context: Principal and interest repayments are the standard loan structure for owner-occupier borrowers and often attract lower interest rates than interest-only loans.
Example: A $500,000 loan at 6% on P&I over 30 years has monthly repayments of $2,998 compared to $2,500 on interest-only loans.

Pre-Approval

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A lender’s conditional indication of how much you may be able to borrow before purchasing a property.

🇦🇺 Australian context: Pre-approvals are typically valid for around 90 days and remain subject to final assessment, property valuation and verification of financial information.

See also: How to Get Pre-Approved

Progress Payments

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Staged payments released throughout the construction of a property.

🇦🇺 Australian context: Lenders inspect each stage before releasing funds. Construction loans are generally funded in stages, such as slab, frame, lock-up and completion. Interest is charged only on funds that have been drawn.

Q

Quantity Surveyor

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A construction cost specialist who prepares depreciation schedules for investment properties.

🇦🇺 Australian context: Quantity surveyors are recognised by the ATO to estimate construction costs for depreciation purposes. This helps investors maximise available tax deductions.

See also: Depreciation · Investment Loans

Quitclaim / Transfer of Title

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The legal process of transferring property ownership from one party to another.

🇦🇺 Australian context: In Australia, Transfer of Land or Transfer of Title is typically prepared by a conveyancer or solicitor and lodged electronically through PEXA as part of settlement.

R

RBA (Reserve Bank of Australia)

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Australia’s central bank that is responsible for monetary policy and setting the official cash rate.

🇦🇺 Australian context: The RBA’s cash rate decisions directly influence borrowing costs and mortgage interest rates across the lending market.

See also: Cash Rate

Redraw Facility

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A loan feature that allows borrowers to access additional repayments made above the minimum required amount.

🇦🇺 Australian context: Unlike an offset account, redraw funds have already reduced the loan balance, and access conditions may vary between lenders.

See also: Offset vs Redraw

Refinancing

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Replacing an existing home loan, either with your current lender or a different one, with a new loan to secure a better rate, access equity, or improve loan features.

🇦🇺 Australian context: Australians refinanced at record rates in 2022-23 as rates rose. Borrowers are advised to consider any refinancing costs, including discharge fees, application fees and fixed rate break costs before proceeding.

See also: Refinancing · When to Refinance

Rental Yield

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The annual rental income generated by a property expressed as a percentage of its value. Investors commonly compare both gross and net rental yields when assessing investment performance.

Example: A property worth $650,000 generating $520 per week in rent has a gross rental yield of approximately 4.16%. After deducting $8,000 in annual costs, the net yield falls to about 2.92%.

See also: Rental Yield Explained · Rental Yield Calculator

S

Serviceability

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A lender’s assessment of a borrower’s ability to comfortably meet loan repayments.

🇦🇺 Australian context: APRA expects lenders to assess serviceability using income, expenses, debts and interest rate buffers. In recent years, this buffer has been 3 percentage points.

Settlement

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The final stage of a property transaction where ownership transfers from the seller to the buyer.

🇦🇺 Australian context: Settlement in Australia usually occurs 30-90 days after contracts are exchanged and is commonly completed electronically through PEXA.

SMSF (Self-Managed Super Fund)

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A private superannuation fund managed by its members that provides greater control over investment decisions, including the ability to borrow to purchase property through a Limited Recourse Borrowing Arrangement (LRBA).

🇦🇺 Australian context: SMSFs can invest in property through specialised borrowing structures, subject to strict compliance and regulatory requirements.

See also: SMSF Loans · SMSF Calculator

Split Loan

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A home loan divided into two or more portions, typically part fixed and part variable, allowing borrowers to enjoy rate certainty on one portion while retaining flexibility on the other.

Example: On a $600,000 loan, fixing $400,000 at 5.99% gives repayment certainty, while leaving $200,000 variable allows unlimited extra repayments and offset benefits.

See also: Split Loan Calculator

Stamp Duty

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A state government tax payable on most property purchases, also known as transfer duty.

🇦🇺 Australian context: Rates, exemptions and concessions vary by state and territory, making stamp duty one of the largest upfront property purchase costs in Australia.

See also: Stamp Duty QLD Guide · Stamp Duty Calculator

T

Tenants in Common

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A form of property ownership where each owner holds a defined share in the property.

🇦🇺 Australian context: Ownership shares can be unequal, and each owner’s interest can be transferred or passed on through their estate. This structure is common for investment co-ownership where one partner has contributed more equity.

Title Search

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A search of a property’s registered title to confirm ownership and identify any restrictions affecting the property.

🇦🇺 Australian context: Conducted by your conveyancer or solicitor before settlement, title searches commonly reveal easements, caveats and other limitations that may impact ownership or future use.

Top-Up Loan

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An increase to an existing home loan that allows a borrower to access available equity.

🇦🇺 Australian context: Top-ups generally require a new credit assessment and may involve a property valuation. Lenders will typically allow a top-up to bring the total loan up to 80% LVR.

U

Unconditional Approval

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Formal confirmation from a lender that a loan has been fully approved and funds will be provided as soon as settlement conditions are met.

🇦🇺 Australian context: Unconditional approval is typically issued after all supporting documents, income verification, and property valuation requirements have been fulfilled.

See also: Conditional vs Unconditional Approval

Usable Equity

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The portion of a property’s equity that may be available to borrow against. Lenders commonly calculate usable equity as 80% of the property’s value minus the outstanding loan balance.

Example: A property worth $850,000 with a $430,000 mortgage may provide approximately $250,000 in usable equity.

V

Valuation

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Valuation is a professional assessment of a property’s market value.

🇦🇺 Australian context: Lenders use valuations to determine lending risk and calculate borrowing limits. Valuations may be desktop (automated, used for low-risk cases), kerbside (external only) or full inspections.

Variable Rate Loan

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A home loan where the interest rate can rise or fall over time, typically in response to RBA cash rate changes and lender decisions.

🇦🇺 Australian context: Variable rate loans are flexible, offering features such as offset accounts, redraw facilities and additional repayments without penalty.

Vendor Finance

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An arrangement where the property seller provides some or all of the finance required to complete the purchase.

🇦🇺 Australian context: Vendor finance arrangements must comply with Australian credit laws and should always be reviewed by a qualified solicitor.

W

Waived LMI

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A lender policy that allows eligible borrowers to avoid paying Lenders Mortgage Insurance despite borrowing above 80% LVR.

🇦🇺 Australian context: LMI waivers are commonly available to certain professional groups, subject to lender-specific eligibility criteria.

See also: LMI Explained

Y

Yield

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The annual income generated by an investment property expressed as a percentage of its value.

🇦🇺 Australian context: Yield is a key metric of cash flow performance used for comparing investment properties. In Australia, regional properties tend to yield more cash but often grow more slowly, metro properties sit at negative cashflow for years, the bet is on capital gain down the track.
Example: A property worth $500,000 generating $400 per week in rent has a gross yield of 4.16%.

See also: Rental Yield Calculator · Negative Gearing

Z

Zoning

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A planning classification that determines how land can legally be used and developed. Zoning is set by local councils and state planning authorities.

🇦🇺 Australian context: Zoning can affect a property’s value, development potential and lending sustainability.

Zero-Cost Refinance

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A refinance arrangement where some or all upfront switching costs are covered by the new lender or incorporated into the loan.

🇦🇺 Australian context: Some lenders offer cashback incentives or waive fees to attract borrowers switching from competitors. While appealing, borrowers should still compare long-term interest rates, fees and loan features before refinancing.

See also: Refinancing Guide · When to Refinance

General Information Only. The definitions and examples in this glossary are provided for educational purposes only and do not constitute financial, tax, or legal advice. Figures used in examples are illustrative and may not reflect current rates, fees, or government scheme details. Always consult a qualified mortgage broker, financial adviser, or solicitor before making financial decisions. Nice Loans Pty Ltd is a Credit Representative (CRN 499665) authorised under Australian Credit Licence 390261.