Home loan words in plain English

Principal

The amount still owed on the loan. Interest is calculated on principal (and on any amount not offset). Paying principal down is what eventually clears the debt.

Interest

The cost of borrowing the principal. On a variable rate it can change. On a fixed rate it is set for an agreed period. A repayment calculator uses the rate you type in, not a live market rate.

Comparison rate

A rate that includes certain fees and charges so advertised home loans can be compared more evenly. It is not the same as the interest rate in a simple repayment estimate. ASIC MoneySmart explains how comparison rates are published.

LVR

Loan-to-value ratio: the loan as a percentage of the lender’s valuation of the security. The valuation can differ from the purchase price. Higher LVRs generally mean the lender is funding more of the property.

LMI

Lenders mortgage insurance. It protects the lender if the borrower defaults and the security is not enough. It does not protect the borrower. It often applies at high LVRs and is not a government charge.

Offset account

A deposit account linked to the loan so that the saved balance reduces the amount interest is calculated on. Money in offset can usually still be spent, which is why it is not the same as redraw.

Redraw

Access to extra repayments already made on the loan. Redrawing increases the loan balance again. Availability, minimums and fees are product rules.

Fixed rate

An interest rate that stays the same for an agreed period. Leaving a fixed rate early can trigger break costs calculated by the lender.

Variable rate

An interest rate that can move during the loan. Repayments can change when the rate changes. Discount or packaged variable rates are still variable.

Split loan

One loan split into portions, commonly part fixed and part variable. Each portion follows its own rate rules.

Pre-approval

A lender’s indication that it may lend up to a figure based on information then provided, subject to conditions such as valuation and verification. It is not a promise to settle a particular property.

Unconditional approval

Approval after the lender is satisfied with the conditions it set. Until then, finance can still fall over.

Serviceability

A lender’s assessment of whether income can support the proposed repayments after expenses and other debts. Each lender uses its own benchmarks. This site does not calculate serviceability.

Security

The property the lender takes a mortgage over. If there are several securities, the lender’s cross-collateral rules apply.

Mortgage

The registered security interest that ties the loan to the land. The loan is the debt. The mortgage is how the lender records its interest on the title.

Mortgage registration

Mortgage registration is the government lodgement that records the lender’s mortgage on the property title. It is separate from stamp duty or land transfer duty. The Broker Room asks about it because the government registration fee normally applies when a mortgage is registered.

Settlement

The day the balance of the price is paid and the transfer is completed. Loan funds, if used, are usually provided at settlement. Government charges and private costs also fall due around this date.

For the wider explanation, start at home loans explained. For purchase costs, use the property-cost calculators.