If you're starting out on your home loan journey, you may find a lot of the financial terminology difficult to understand. We get it. That's why we've put together a Pepper Money jargon glossary to help you get up to speed and set you up with the knowledge to make informed decisions along the way.
|Application fee||A fee charged by a lender to cover the cost of setting up a new home loan. To learn more about fees related to Pepper home loans click here.|
|Appraisal||The value of a property as determined by professional appraiser (usually real estate agents) at a given time. The real estate agent may charge a fee to complete an Appraisal. Unlike formal valuations, Appraisals are used to get an estimated price based on the local area and recent sales prices. Lenders generally require a formal valuation to assist with the assessment of a loan application and do not accept Appraisals.|
|Alternative Documentation (Alt Doc) Loan||A loan application which is supported by using alternative income documents to those generally required for a standard home loan. These are often used by self-employed borrowers who may find it difficult to provide conventional proof of income. Read more about Alt Doc loans here.|
|Arrears||Any sum of money that is outstanding and remains to be paid after an agreed date. For example, a loan will be in arrears if the regular monthly repayment has not been made on the due date.|
|Break cost||Fees that may be charged when you end a fixed rate loan prior to the end of the fixed rate term. Break costs are often called different names by different lenders, so it's worth finding out if they apply to your loan.|
|Bankruptcy||Bankruptcy is a legal process whereby a person is declared unable to pay their debts. Bankruptcy is a major financial event, so you may want to contact a financial counselling association if you are considering bankruptcy so that you can understand short and long term consequences.|
|Comparison rate||A single figure of the cost of a loan which includes the interest rate and most fees. Comparison rates can assist with comparing loans.|
|Conditional approval||A pre-approval from a lender indicating how much you may be able to borrow up to a certain limit and subject to conditions such as valuation or documents to substantiate information provided as part of the application.|
|Conveyancing||The preparation of documents to enable the transferring of the legal ownership of a property from one person to another or the granting of an encumbrance such as a mortgage. Using a conveyancer can assist with ensuring the transaction is completed correctly.|
|Chattel mortgage||A loan to purchase an asset for business use. The lender advances the customer the funds to buy the asset (the chattel), and the lender registers their interest over the asset on the Personal Properties Security Register (this is the 'mortgage').|
|Cooling off||A period of time after a loan contract is executed (but loan has not yet settled) where the customer can cancel the contract with no penalty. Cooling off periods vary between states, so be sure to read the fine print in your contract.|
Credit reporting bureaus (well-known ones in Australia include Illion, Experian and Equifax) use credit reporting data to calculate an individual’s credit score. A credit score considers the following:
|Current rate||The interest rate of a loan product as at today’s date. Interest rates can be subject to change depending on a number of external factors such as Reserve Bank rates.|
|Home Loan Equity||The difference between the current market value of your property and the limit on your home loan.|
|Exit fee||Exit fees, sometimes called ‘early termination’ fees, may be charged when you repay your home loan in full prior to the end of the loan term. Many lenders have now removed these fees, including Pepper. However, these may still be charged on loans settled prior to 1 July 2011.|
|A fee charged by a lender when you apply for a new loan, apply for additional funds or make changes to your loan.|
|Fixed interest rate||A fixed interest rate is a rate that does not change (is fixed) for the fixed time period. Home loans with fixed interest rates also have fixed repayments (as the interest rate is the same each month) during the fixed time period.
Breakcosts may apply if a fixed interest rate is paid our prior to the end of the fixed time period.
|First Home Owners Grant (FHOG)||The First Home Owners Grant (FHOG) is a one-off government grant designed to help first home buyers purchase a residential property. Legislation and eligibility for a FHOG varies from state to state. Check your local government website for more details.|
|Gifted deposits||The sum of money that has been given to you to be used for a home deposit. To be considered a gifted deposit, the funds must be non-repayable. These are also classified as non-genuine savings. Some lenders do not accept gifted deposits.|
|Guarantor||A person guarantees a loan for a friend or family member. Under the terms of the guarantee, the guarantor is responsible for paying back the loan if the borrower cannot make the repayments.|
|Hardship||Hardship is when a borrower is unable to make their payments under a credit contract or lease (such as a home loan, personal loan or credit card). This could be due to illness, natural disaster, unemployment or a loss of income.|
|Income Verification||All lenders must verify that you can service a loan without experiencing hardship. Lenders verify your income to find out if you can afford the loan or not. This is usually done through providing pay slips and bank statements (for PAYG borrowers) or, if you’re self employed, through tax returns and/or a letter from your accountant.
If you’re a borrower with irregular income, such as a contractor or self-employed, and you don’t have up-to-date tax returns, you may not be able to verify your income according to the criteria of some lenders. In some cases, your income may require a different income verification process than a fully employed PAYG borrower.
|Impaired credit||Impaired credit or adverse credit is when you have a history of not keeping up with payments on your loans or credit cards. You may have continually missed payment, or be a discharged bankrupt and are rebuilding your credit score after a series of severe defaults.
Your credit rating might be adversely impacted if you continually make late repayments or have defaulted on small loan amounts (such as your mobile phone bill). Your credit rating may then be severely impaired if you default on larger loans, which will impact your ability to get credit or a loan in the future.
|Interest only home loan||A loan where only the interest on the loan balance is repaid for an agreed term (usually 1 to 5 years for a home or investment loan). Once the interest only term expires, interest and principal repayments are required to be made over the remainder of the loan terms.|
|Lenders Mortgage Insurance (LMI)||Lenders Mortgage Insurance is paid by the borrower and insures the lender for any shortfall. If a borrower defaults on their loan and the proceeds from the property sale are not enough to payout the loan in full.
The borrower (and any guarantors) are still liable to pay the shortfall (for example, to the mortgage insurer) if the lender claims on the Lenders Mortgage Insurance.
Lenders Mortgage Insurance is not mortgage protection insurance which is an insurance option to cover the borrower’s mortgage and/or mortgage repayments in the event of death, disability, unemployment or reduced income.
Lenders Mortgage Insurance is usually required if the borrower’s deposit is less than 20%.
|Lender Protection Fee (LPF)||Similar to a Mortgage Risk Fee (MRF), this is a one-off fee charged by Pepper to protect Pepper if a borrower defaults on their loan and the proceeds from the property sale are not enough to payout the loan in full.|
|Loan to Value Ratio (LVR)||The Loan to Value Ratio (LVR) is the percentage of the loan amount compared to the value of the property. Generally, an application with an LVR of 80% or more may be considered higher risk by a lender and you may be required to pay Lenders Mortgage Insurance or a Lender Protection Fee or Mortgage Fee.|
|Low-doc loan||A Low Documentation home loan (a low-doc loan) is a home loan for people with little (low) conventional income documentation. Pepper doesn’t offer low-doc loans; however, we do provide an alt-doc home loan for self-employed or small business owners who have alternative documentation to a standard borrower.|
|Mortgage||A contractual agreement to purchase a property using the funds provided by the lender. Lender retains the title of the property until the loan has been repaid in full. Mortgage is also known as a home loan.|
|Mortgage Risk Fee (MRF)||Similar to a Lender Protection Fee (LPF), this is a one-off fee charged by Pepper to protect Pepper if a borrower defaults on their loan and the proceeds from the property sale are not enough to payout the loan in full.|
|Non-conforming loans||A loan that is given to borrowers who don’t fit standard loan criteria of a traditional lender. For example, self-employed applicants with inconsistent income, people who are credit-impaired or discharged bankrupts may be considered non-conforming borrowers.|
|Offset account||An account that's linked to your home loan account. It reduces the interest payable on the home loan as interest is only charged on the net balance i.e. your mortgage balance less the offset account balance. An offset account can either be a 100% offset account (where 100% of the mortgage balance is offset by the offset account balance) or a partial offset account.|
|Principal and Interest repayments (P&I)||A type of repayment where both the amount borrowed (the principal) and the interest charged on your home loan is repaid in weekly, fortnightly or monthly instalments over the loan term. By paying off both the principal and the interest, your loan balance will be paid out at the end of the loan term.|
|Part 9 (IX) Debt Agreement||A legally binding debt agreement between an individual and their creditors to assist in paying debts. A debt agreement can be a flexible way to come to an arrangement to settle debts without becoming bankrupt.|
|Pre-approval||A stage in the home loan application process where a lender agrees in principal to lend a borrower a specific amount of money. However, the loan is not formally approved by the lender until all conditions are met in the final or ‘unconditional approval’ step. Pre-approval is often used by home buyers when entering negotiations to assist with property purchases.|
|Redraw||The ability to withdraw money that you’ve already paid against your loan, over and above your required minimum repayments. Unlike an offset transaction account, which can reduce the interest payable on a loan, money in the redraw facility reduces the amount of principal outstanding on your loan as well as reducing the interest paid.|
|RBA cash rate||The cash rate is set by the Reserve Bank of Australia (RBA) and is the interest rate at which banks and other financial institutions can lend each other money. Changes with this rate may be passed on to customers on variable interest rate products to either recoup costs or lower repayments.|
|Refinance||Loan refinancing is when an existing loan is paid out and refinanced by a new loan either the same lender or a new lender. Learn more refinancing here.|
|Stamp duty||A government tax that may be payable when land is transferred. The amount of stamp duty you may pay varies depending on the state or territory the property purchased is in and whether you are a first home buyer or not. Try our stamp duty calculator to help you work out how much you have to pay.|
|Subprime mortgage||A sub-prime mortgage is one that is normally issued to a borrower who does not meet prime, conventional mortgage credit requirements. The term 'Subprime' originated in the USA and refers to the credit score of the borrower, who are deemed below (sub) the ideal credit score for a mortgage.|
|Valuation||The process of determining the actual value of a property from a certified professional valuer. Valuations have legal standing and are usually required by lenders as part of the application process. To see what valuers look for in a property click here.|
|Variable interest rate||An interest rate that can change over the life of the loan term. The rate can go up or down and can be impacted by the Reserve Bank of Australia's (RBA) cash rate or other activities in the market.|
|Valuation fee||A fee charged by a professional valuer to determine the value of your home. The lender may include the valuation fee in the application fee or it may be a separate fee that is payable as part of the loan application.|
|Vendor||In property transactions, a vendor is the legal name for the person or party that is selling the property.|
Have some questions you’d like answered? Give us a call on 137 377 or speak to your Pepper Money broker, we're here to help.
This article provides you with factual information only and is not intended to imply any recommendation about any financial product(s) or constitute tax advice. If you require financial or tax advice you should consult a licensed financial or tax adviser. Neither Pepper nor its related bodies, nor their directors, employees or agents accept any responsibility for loss or liability which may arise from accessing or reliance on any of the information contained in this article. For information about whether a Pepper loan may be suitable for you, call Pepper on 13 73 77 or speak to an accredited Pepper Money broker.
All applications are subject to the credit provider’s credit assessment and loan eligibility criteria. Terms, conditions, fees and charges apply. Information provided is factual information only and is not intended to imply any recommendation about any financial product(s) or constitute tax advice. If you require financial or tax advice you should consult a licensed financial or tax adviser.
©Pepper Money Limited ABN 55 094 317 665; AFSL 286655; Australian Credit Licence 286655 (“Pepper”). All rights reserved. Pepper is the servicer of home loans provided by Pepper Finance Corporation Limited ABN 51 094 317 647. Pepper Asset Finance Pty Limited ACN 165 183 317 Australian Credit Licence 458899 is the credit provider for asset finance loans.