37 ‘must know’ terms for the home loan application process

Finally ready to pop over to your favourite lender and get a home loan? Well, there’s a bit of a process, and often, if you’re unsuspecting, it can leave you feeling disenchanted and frustrated with all the documents you’re expected to have and terminology you’re expected to know. Here’s a list of all the essential terms you’ll need to know to better understand your home loan application documents. 

37 ‘must know’ terms for your home loan application

1. Application fees

This is the fee that lenders charge to set up your home loan. 

2. Pre-approval

This is a written statement from the lender saying they’re willing to give you a specified amount of money toward the purchase of your home. This isn’t final approval, though it’s a great way to get certainty and confidence in your budget.

3. Capital gains

This is the tax that you pay on the profit from your sale. It’s the difference between what you bought your house for, and what you sold it for (considering you sold your house for a profit).

Pro-tip: It’s important to know that your state can change their policies around first home buyers grants and stamp duty at any time. Check-in with a lender to confirm what grants you’re eligible for. 

4. Cash Rate

The interest rate charged to banks on their loans by the Reserve Bank of Australia, which then impacts mortgage rates for variable homes loans. 

5. Certificate of Title

This is the official legal document which shows who owns the land, along with a description of the land and any building restrictions. It will also list any mortgages or other interests that are on the land. 

6. Contract of Sale

The written confirmation of the sale between the seller and the buyer. 

7. Conveyancer

The person looking after the legal side of the home loan process. They will facilitate the transfer of the property from one party to the other. 

8. Cooling off period

This is a predefined period where you can change your mind and back out of the sale. 

9. Comparison rate

A comparison rate is a rate that includes all the fees and charges into the interest rate. It lets you accurately compare the value of home loan offerings between different lenders. 

10. Default

When you fail to timely loan repayments. This can result in your loan being sent to a debt collection agency. 

11. Deposit

The amount of cash required to secure your home loan. This is usually non-refundable, however, it’s deducted from the gross cost of your property. 

12. Detailed Area Plan (DAP)

These are plans that show the overall look and feel of urban designs.  

13. Easement

This grants someone else the right to use part of your land for a specific purpose. It’s important to know that easements don’t become null and void when a property is transferred. Common easements include pathways or walkways. Speak to your conveyancer to see if your property has easements. 

14. Equity

Basically, equity is the difference between the market value of your house versus what you currently owe on it. If your property is worth more than the mortgage; you have positive equity.

15. Fixed

A home loan with a fixed rate is locked in for a defined amount of time. It allows the buyer to make consistent repayments and be protected by a fluctuating market. 

16. Grants

Each state has grants available to help certain home buyers get into the housing market. Typically each state has a first home buyer’s grant. 

• NSW: $10,000 grant with no stamp duty fee for new homes under $650,000
• VIC: $10,000 grant with no stamp duty fee for new homes under $600,000
• QLD: $10,000 grant with no stamp duty fee for new homes under $650,000
• ACT: $7,000 for new or substantially renovated homes
• WA: $10,000 for new homes with no stamp duty for homes under $530,000

17. Headworks

Infrastructure installed on a vacant block for facilities like: water, sewage, power, and gas. 

18. Interest-only loan repayments

When you only pay the interest on your home loan and not the principal. 

19. Loan agreement

The contractual agreements from your lender that specifies the terms and conditions. 

20. Loan to value ratio (LVR)

The amount that can be borrowed compared to the value of the house. For example: If your home is worth $500,000, and your LVR is 80%; you can only borrow up to 80% of your home’s value, equalling $400,000. 

21. Mortgage

A mortgage is a security over the property, that is given to the lender in the form of a Certificate of Title. The lender keeps the Certificate of Title until the borrower repays the loan. 

22. Off the Plan

Buying property ahead of construction, based on the images and blueprints you see. 

23. Offset Account

An offset account helps reduce the interest costs on your loan. It’s linked to your transaction account and any balance in your transaction account offsets the principal on the loan, bringing your interest down as a result. 

24. Practical Completion

This occurs when the construction on your new house is done and the contract is fulfilled. You can now have a practical completion inspection to make sure that you’re happy with your new home. 

25. Principal

Your home loan, minus the interest repayments. This is the ‘real’ home loan, and until to chip away at the principal, you’re not paying off your home loan. 

26. Principal place of residence (PPOR)

This has to do with whether you’re buying your property to live or rent in. 

27. Progress payments

These are payments made to the builder at different stages of the construction process. It’s based on agreed instalments, instead of a lump sum payment. 

28. Public open space

The variety of spaces within a community which everyone is entitled to enjoy. This includes:  parks, playgrounds, ovals, piazzas and squares. 

29. Rear loaded 

This applies if you have a garage that’s accessible by a rear laneway. 

30. Refinance 

Refinancing is when you take out a new loan to pay back your current loan in full. This is usually done a better rate is found than the one you currently have. 

31. Repayment Holiday

Not all lenders offer this option. At Mortgage House, we let you take a repayment holiday when you’re ahead on your repayments, so you can use your money to enjoy a real one. 

32. Settlement

This is the final exchange, involving either your lawyer or conveyancer. You’ll receive your certificate of title, all the updated changes, along with the keys to the property.  

33. Stamp duty

This is a tax charged by the government when purchasing the property. This is an additional cost on top of the mortgage. Every state has different rates and different thresholds for receiving the first home buyer’s grant. Be sure to check with your lender on the specifics. 

34. Strata title

Common and shared areas like: lifts gardens, carparks, swimming pools and more. These facilities are jointly owned by everyone in the residence. An annual strata fee is paid to cover the maintenance and management of all shared areas. 

35. Switching fee

Your lender will charge you a switching fee if you decide to switch from one type of loan to another. So, if you wanted to change from a fixed rate to a variable rate, you’d be charged a fee by your lender to switch.

36. Variable-rate

A variable-rate fluctuates and changes based on the market. This means that some months you’ll repayments will be less than in others. A variable-rate can save you a lot of money if you get the timing right. 

37. Zoning

Zoning is the restriction of the land by demarcating what is available to be used. Each state has its own zoning rules under six basic categories: 

1. Commercial
2. Industrial
3. Mixed-use
4. Residential
5. Public use
6. Agricultural

Get more insights with a lending specialist

At Mortgage House, we’re no strangers to the homeowner’s journey. It’s a long (but rewarding) one.

But don’t worry, we can help with that.

If you’re thinking of investing in property, you can contact us for advice about the best options for you when it comes to your mortgage. The cost of your mortgage can drastically affect your financial planning, so it pays to speak to the experts about it.

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