The Home Buyer's Glossary

What is conditional approval? And what does mortgage offset involve? If you're newly in the market for a home loan, these are just a couple of the questions that may have left you scratching your head. Home loan terminology can take a little while to wrap your head around, but a little bit of insight can make all the difference. 

We've assembled a helpful list of terms and phrases below that you may come across during the home lending process. Some of this home loan terminology may not apply immediately, but referencing this list may be useful later down the track. Who knows — soon you could be the one cluing in your friends when they ask you: "what does conditionally approved mean?"

Capital Gains Tax, n.

noun,ˌ[kap-i-tal geyns taks] 

In the event you sell a capital asset, like a house for example, you will make either a capital loss or a capital gain when you sell it. The difference is calculated by what you paid, subtracted from what you sold it for.

You are required to pay tax on the gain that you make for the financial year the asset is sold.

Comparison Rate, n.

noun, [kuh m-par-uh-suh n reyt]

Lenders are obliged by law to include this comparison rate when advertising a loan interest rate. It is a tool to help consumers identify the true cost of a loan. Given as a percentage, it factors (but not limited to) the interest rate, fees and charges and can be used to compare loans offered by different lenders.

Conditional Approval, n.

adjectival noun, [kuh n-dish-uh-nal uh-proov-al]

So, what does conditionally approved mean? Essentially, a conditional approval home loan represents a stage in the lending process. This is when a lender has reviewed the paperwork you've provided and your lodged application has been approved (subject to outstanding items and conditions). For example, your lender could be happy with the documentation you've provided, but they may still want to do a valuation on the property.

Once the terms and conditions have been met, and a satisfactory to the bank, your conditional approval will be updated to an unconditional approval.

Construction Loan, n.

noun, [kuh n-struhk-shuh n lohn]

A construction loan is a type of loan designed for consumers wanting to construct a property, or in some instances undertake substantial home renovations.

This kind of loan will require additional documents in relation to the construction and completion of the property.  

Equity, n.

plural noun, [ek-wi-tee]

Equity is the difference between the value of an asset, such as your home, and the amount owing against it. If your house is valued at $500,000 and you owe $400,000 on it, you have $100,000 of equity. How much equity you can use to borrow, will depend on the lenders policies. 

First Home Owners Grant, n.

proper noun, [furst hohm oh-ners grahnt]

The First Home Owners Grant was introduced in 2000 to offset the effect of paying GST when purchasing a home. Since its inception, the rules have changed greatly from state to state and the funds given to buyers differs significantly. Read more here to find out what you're entitled to.

Fixed Interest Rate, n.

proper noun, [fikst in-ter-ist rayt]

A fixed interest rate, is fixed for a set period of time, so repayments remain constant for that period providing security to the borrower. 

Interest-Only, n.

proper noun, [in-ter-ist ohn-lee]

As the name suggests, interest-only repayments means you’ll repay the interest charges but you are not required to repay the principal during the interest-only period.

Since repayments to reduce the principal are not being made during the interest-only period, the full loan amount will still be due at the end of the interest-only period.

LMI

acronym, [el em ahy]

In the event you are borrowing more than 80% of the value of a property from a bank, you will more than likely have to pay what’s called Lenders Mortgage Insurance (LMI). Lenders Mortgage Insurance protects the bank against loss of a forced sale of a mortgage property. It does not insure you but may make it possible for you to buy a home with a smaller deposit

LVR;n.

acronym, [el vee ahr]

Your Loan to Value Ratio (LVR) measures the amount of the loan, compared to the value of the property. Say you want to buy a house for $500,000 and you have saved up $50,000 as a deposit. Your initial LVR would be 90%: (450,000 / 500,000 = 90%).

Offset, n. / adj.

noun, adjective [awf-set]

Some home loan products allow a mortgage offset. A Mortgage offset is a feature which allows a transaction/deposit account to be linked to the loan.

The account balance in the transaction/deposit account will ‘offset’ daily against your loan balance, meaning you will only be charged interest on any difference.

For example, if you have a mortgage of $500,000 and have $50,000 sitting in your offset account, you will only be charge interest for a loan of $450,000.

Pre-Approval, n.

noun, [pree uh-proo-vuh l]

Getting pre-approval is an important step in your home buying journey. A loan pre-approval means that a lender has agreed, in principle, to lend you an amount of money towards the purchase of your home but hasn't proceeded to a full or final approval.

The lender will require certain documentation from you, and may lodge a pre-approval application. How much information is required may differ between lenders. Once the terms and conditions have been met, and are satisfactory to the bank, your approval will be updated to be unconditionally approved.

An example of this, is where you have a property price in mind but haven’t yet found the property, so no contract can be provided.

Read more about Pre-Approval here.

Principal, adj.

adjective [prin-suh-puh l]

The principal of a loan is the amount that is borrowed. The borrower will usually be charged interest on this amount.

Redraw / Cashback, v. / n.

noun, adjective [ree-draw] / [Kash-bak]

Some home loan products allow a mortgage offset. A Mortgage offset is a feature which allows a transaction/deposit account to be linked to the loan.

The account balance in the transaction/deposit account will ‘offset’ daily against your loan balance, meaning you will only be charged interest on any difference.

Refinance, v.

verb, [ree-fi-nans]

This is the process of replacing one loan with another, under different terms. People can refinance their loan for a number of reasons.

Settlement, n.

noun, [set-l-muh nt]

Settlement is where the loan is drawn down and the exchange of monies and land title occurs, completing the sale or purchase of the property.

Read more about the Settlement of a Loan process here.

Stamp Duty;n.

proper noun, [stamp dyoo-ty]

Stamp Duty is a tax levied by all Australian states and territories, the amount will differ depending on the different initiatives and concessions offered.

Some states offer free Stamp Duty or a reduced amount for first home buyers.

Read more here to find out what you could be entitled to.

Variable Interest Rate, n.

proper noun, [fikst in-ter-ist rayt]

Variable Interest Rate changes from time to time based on underlying rules, regulations or financial indexes. This may mean that the minimum repayments for a home loan, for example, could increase or decrease during the duration of your loan.

The cash rate offered by the Reserve Bank of Australia is usually a major influencer of interest rates across Australia. 

Published 15 September 2022