Key terms and definitions
Additional home loan repayment
A feature that allows you to make extra repayments on your home loan so you may pay it off sooner.
A fee you pay when you set up your loan.
One basis point equals 0.01% interest. So 25 basis points equals 0.25%.
BICOE (Construction loan) or Suitable for building
A home loan that lets you draw down your funds as the building project progresses—and you need money to pay the builders. This option is available on selected variable rate loans.
A loan to cover you after you buy a new home and before you sell your old home (generally temporary and short-term).
Approval in principle is a useful pre-purchase exercise that gives you an indication of how much you can borrow (based on the information you've given us).
A conveyancer is an expert who represents you during the home transfer (conveyancing) process.
Includes both the interest rate and most of the fees and charges that are payable over the life of your loan. It's especially useful to compare the comparison rate between different lenders (note: redraw and early repayment fees, or fee waivers are not included and may affect the cost of your loan).
The legal process of transferring ownership of real property from the seller to the buyer.
Credit limit (or facility limit)
The maximum amount you can borrow under your home loan contract.
Credit reference or credit report
A report from an authorised credit reporting agency which shows your credit history (note: we need your permission to obtain this).
A cash deposit substitute.
When you actually use your loan funds for the first time.
Economic costs (or break costs)
Economic costs is a fee which may be payable if you switch your loan from a fixed to a variable rate (during the fixed rate period). Or if pay out some or all of your loan before the fixed rate period ends.
The part of your property that belongs to you and not the bank, i.e. the value of your property minus the outstanding loan amount.
First Home Owner Grant (FHOG)
First Home Owner Grant (FHOG) is a national grant (funded by the states and territories) that's given to first home buyers.
Fixed interest rate
An interest rate that stays the same for a set period. Accordingly, your repayments also remain the same.
Charges levied by the government (including stamp duty, mortgage registration fees etc.).
An undertaking by a third party (friends or family) to pay your loan if you’re unable to.
The third party (usually friends or family) who provide your guarantee.
A lower interest rate offered at the start of your loan (ie. the 'honeymoon period') which reverts to a standard variable rate after the honeymoon period ends.
Interest in advance
Interest charged on a loan at the beginning of a set time. For instance, charging the first year’s interest at the first month of a loan (available for fixed rate loans for investment purposes).
Interest in arrears
Interest charged on a loan at the end of a set time.
Interest only repayments
Interest only repayments are where you defer the repayment of your loan principal for an agreed period of time and only make interest payments. Once the agreed interest only period ends, you will begin to repay your principal.
Australian Securities and Investments Commission has some useful information for customers interested in using an interest only repayment period as part of their loan term. Check out their MoneySmart, opens in new window guidance for some easy to follow infographics highlighting the pitfalls and benefits of this type of lending structure. You can also find examples of how much you may expect to pay for this type of loan structure.
Like a 'honeymoon rate', a lower interest rate offered at the start of your loan (which converts to a standard variable rate once this period ends).
Loans used for investment purposes (such as the purchase of an investment property).
Lender's mortgage insurance
Lender's Mortgage Insurance (LMI) is a one-off insurance payment which covers your lender in case you can’t make your repayments. It's required for home loans with a loan-to-value ratio (LVR) over 80%.
Line of credit
Line of credit is a transaction account with a credit limit. While there’s no fixed repayment, you need to make payments to cover the interest and fees on the loan.
Loan agreement (or facility agreement)
The contract between you and us which sets out the terms and conditions of your loan.
The loan-to-value ratio (LVR) is your loan amount divided by the appraised value of the property. For example, if your property valuation is $300,000 and your loan is $240,000, then the LVR is 80%.
Lump sum payment
An unscheduled extra repayment made to your loan.
Monthly service fee
A fee you pay each month on your loan account.
Your home loan. A document we use as security for your loan.
That’s us—we're the ones who make the loan (and hold a mortgage as security).
That’s you—you are repaying the loan (and you give us a mortgage as security).
A transaction account linked to your home loan that offsets your principal loan and lowers the interest accruing on your home loan. The more money in the offset account, the less interest you pay on your home loan.
The ability to ‘move’ a loan from one security (property, term deposit, etc.) to another. For instance, you can use your current loan to buy a new home, then swap the security from your current loan to your new home.
Any extra loan payments you make on top of your scheduled repayments.
You may pay this if you pay out your loan in full during a fixed interest rate period, or if you make extra payments. Only applies to fixed rate loans.
The amount still owing on your loan (note: interest is calculated on the principal).
Principal and interest repayments
A repayment structure where you repay not only the interest, but start chipping away at the principal.
Your property value as determined by us. We could use your property's purchase price, get an external valuer in, or else do our own valuation.
Let’s you lock in a fixed interest rate quote for three months when your loan's approved. If interest rates go up before the loan drawdown date, you’re guaranteed the original rate.
A loan feature that lets you withdraw any extra repayments you may have made to your home loan.
Where you pay off an existing loan—and set up a new one.
The amount your loan contract says you must pay at an agreed time (like fortnightly or monthly).
If you’re ahead in your repayments, you can apply for a break—a 'holiday'—on your repayments.
An asset (eg. property, term deposit etc.) that's used to secure your loan.
Splitting your loan into more than one loan account—one could be fixed rate, the other, variable.
Stamp duty is a tax you pay to the state or territory government when a property is sold.
The length of your loan—usually 15, 20 or 30 years.
The value of your property as determined by a bank, real estate agent, or independent valuer.
Variable interest rate
Where your loan's interest rate can move up or down. Your minimum repayments might increase if this happens.
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The information contained in this article is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, NAB recommends that you consider whether it is appropriate for your circumstances. NAB recommends that you seek independent legal, financial and taxation advice before acting on any information in this article.