Home Loan Jargon Glossary

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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.
Appraised value The value of a property as determined by professional appraiser (usually real estate agents) at a given time. This generally occurs as a loan application is being completed and assists in determining how much money could potentially be borrowed. Unlike formal valuations, Appraisals are used to get an estimated price based on the local area and recent sales prices, they are not definitive, have no legal standing and generally not used by lenders.
Alternative Documentation (Alt Doc) A loan application which is supported by using alternative income documents to that required by 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.
Appraisal fee A fee charged by real estate professionals to estimate the current market value of a home. Appraisal is often done without fee. Check with your real estate agents for details.
Arrears Any sum of money that is outstanding and remains to be paid after an agreed date.
Break cost Fees 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 what your lender calls their break costs.
Bankruptcy Bankruptcy is a legal process whereby you are declared unable to pay your debts. Bankruptcy is a major financial event, and it's important to see independent financial counselling if you are considering bankruptcy so to understand its consequences.
Comparison rate The true cost of a loan, considering the interest rate plus some of the fees and charges relating to the loan. It is designed to make comparing loans across different lenders easier.
Conditional approval It is a type of 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 process of transferring the legal ownership of a property from one person to another. It is designed to protect you from fraud by ensuring you are purchasing the title of the land and all the rights that run with it.
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.
Current rate The interest rate of a loan product at this exact moment in time. The rate can be subject to change depending on the individual’s circumstances.
Equity The difference between the current market value of your property and the amount you owe on your home loan. This is the value of your home that you truly 'own' if you sold your house and repaid your loan today.
Exit fee Exit fees, sometimes called ‘early termination’ fees, may be charged when you repay your home loan in full within a specific period (for example in the first five years). Many lenders have now removed these fees, including Pepper. However, these may still be charged on loans settled prior to 1 July 2011.
Establishment fees A fee charged by a lender that covers the costs of setting up a new loan. At Pepper this is often called an Application Fee.
Fixed interest rate A fixed interest rate is a rate that does not change (is fixed) for a set period. Home loans with fixed interest rates also have fixed repayments (as the interest rate is the same each month).
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.
Guarantor A person who signs a loan guarantee to assist a friend or family member get a home loan. Under the terms of the guarantee, the guarantor is then responsible for paying back the loan if the other person cannot make the repayments.
Hardship A short-term situation when a person cannot make their payments on any bills or debts on time (such as a home loan, personal loan or credit card). This could be due to illness, unemployment or a loss of income.
Interest only home loan A type of loan where only the interest portion on the amount borrowed is repaid for an agreed term (usually 1 to 5 years). Once this term expires, interest and principal repayments are to be made.
Lenders Mortgage Insurance (LMI) A one-off insurance fee charged by lenders when you borrow more than 80% of the value of the property. It is designed to protect the lenders in circumstances where there is a potential loss for the lender such as a shortfall when the property is sold before the end of the term of the loan. Pepper does not charge LMI but do charge a risk fee based on your LVR – this fee is called the Lender Protection Fee (LPF).
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 as a result you may be required to pay Lenders Mortgage Insurance (LMI).
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 different documentation than 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), it is a one-off fee charged by Pepper to protect ourselves from a possible financial loss if you’re unable to meet your home loan repayments.
Non-conforming loans A loan that is given to borrowers who don’t fit the criteria of a traditional bank. Self-employed applicants with inconsistent income, people who are credit-impaired or previously declared bankrupts may be considered as non-conforming borrowers.
Offset account A savings or transaction account that's linked to your home loan which may help to reduce the amount of interest that you pay. It can either be a 100% offset account (where 100% of the amount in the account is used) or a partial offset account. Pepper offers a 100% interest offset sub-account on select home loan products.
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 are repaid in weekly, fortnightly or monthly instalments. By paying off both the principal and the interest, you gain equity in your property, and ultimately own the property outright when you pay off the loan.
Part 9 (IX) Debt Agreement It is a form of bankruptcy and is a legally binding agreement between an individual and their creditors to assist them in paying back their debts. It involves the individual paying a certain percentage of debt which is negotiated and agreed to by all parties. Agreements typically last between three and five years. Read more here.
Pre-approval A stage in the home loan application process where a lender agrees in principal to lend you a specific amount of money towards a property purchase. The loan however is not guaranteed to be 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 show that they are credit worthy to buy the property.
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 often reduces the interest on your repayments, money in the redraw facility reduces the amount of principal outstanding on your loan.
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 are often 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 replaced with a new loan, often with a different interest rate and terms. This often happens when home owners want to lower their repayments or eliminate fees from a current loan. Read more here.
Stamp duty A government tax that you will pay when you purchase a property. 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 finance industry term used to incorrectly describe any lending that is near-prime or non-prime in Australia. '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 are definitive and have legal standing, making them more powerful than an appraisal value. To see what valuers look for in a property click here.
Variable interest rate A rate that can change over the life of your loan. The rate can go up or down based on 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. Often, valuation fees are included as part of fees payable to the lender during the home loan process.
Vendor In property transactions, a vendor is the legal name for the person or party that is selling the property.

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