Glossary Of Mortgage Terms

Terms and expressions common to the mortgage industry

Amortization Period.

The number of years it takes to repay a mortgage in full.

Registered Value.

An estimate of the market value of the property used as security for the mortgage. Usually an independent Registered Valuer using a variety of methods determines an estimated value of the property. A valuation is normally required by a lender if you borrow over 80% of the purchase price or it is a private sale. The fee for the valuation is normally paid by the buyer.

Principal & Interest Payments.

The mortgage payment consisting of both principal and interest in which part is applied toward the accumulated interest and the remainder is applied toward the principal.

Bridging Financing.

A loan required to provide the funds needed for the settlement of the property you have purchased until the time of the later settlement of the property you have sold.

Fixed Rate Mortgage

Mortgages that are locked in for a specific period at a specific interest rate. Repaying or making additional payments during this period usually incurs a penalty charge by the lender. The amount of the penalty varies between lenders.

Settlement Date.

The date the purchase of the property becomes final and you, the new owner, obtain title and possession.

Conveyance.

The transfer of the property title from the vendor (seller) to the purchaser on the records at the Land Transfer Office.

Deed.

A legal document that transfers ownership of the property to the buyer .

Deposit.

The amount of money deposited with the Real Estate company as good faith to carry through with the offer to purchase, this money forms part of the total purchase price.

Discharge.

The removal of the mortgage from the title. The house is then free of that mortgage debt.

Down payment.

The difference of money between the purchase price and the mortgage. Also known as the buyers deposit.

Equity.

The difference between the current value of a property and the outstanding mortgage amount at any time.

First Mortgage.

A mortgage which is registered first in priority against the property.

Fixed Rate.

The rate of interest that is fixed for a specified term (terms vary from 6 months to 5 years).

Debt Service Ratio.

The total amount of the mortgage payments (principal and interest), and all other financial outgoings (includes car payments, hire purchase, other loans and credit card commitments) divided by the total gross income.

Lending Value.

A percentage of the registered value of the property or the purchase price, whichever is the least.

Loan To Value Ratio (LVR).

The amount of the mortgage as compared to the registered value or purchase price.

Maturity Date.

The expiry date of the term of the mortgage.

Mortgage Payment.

The regular principal and interest payments made to repay the mortgage.

Mortgagee.

The lender.

Mortgagor.

The Borrower

Pre-Approval.

A mortgage approval for a pre-determined amount arranged prior to the borrower’s purchasing a property. A pre-approval will determine the borrower’s purchasing power and is valid for up to 120 days.

Principal.

The mortgage balance outstanding at any time.

Second Mortgage.

The mortgage next in line after the first mortgage. A second mortgage is usually offered at a higher interest rate than the first mortgage. The amount of the second mortgage is a portion of the difference between the first and the registered value of the property.

Security.

The property being purchased or refinanced forms the security for the mortgage.

Term.

The number of years it takes to repay a mortgage in full. Terms are available up to 25 and 30 years.

Variable Rate Mortgage.

The rate of interest will fluctuate in accordance with the market and is usually controlled by the Reserve Banks overnight cash rate (OCR). This is typically the bank prime rate. The rate will move up and down accordingly with the OCR.

Vendor.

The seller in a real estate transaction.

OCR.

Overnight Cash Rate set by the Reserve Bank. Lenders set their variable rates against this figure. This is the rate that the lender borrows money at, they add a margin and re lend the money on mortgages.