Loan Glossary
Plain-English definitions for common home loan, personal loan, and finance terms used across Australia.
62 terms defined · Updated 2026-05-20
All Loan & Finance Terms
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A
- Amortisation
- The process of gradually paying off a loan through regular scheduled repayments that cover both principal and interest. Over time, a larger portion of each repayment goes toward reducing the principal balance.
- APRA
- The Australian Prudential Regulation Authority. APRA is the government body that regulates banks, credit unions, and insurance companies in Australia to ensure they remain financially sound and can meet their obligations to customers.
- Application Fee
- A one-off fee charged by a lender when you apply for a loan. It covers the cost of processing your application and may also be called an establishment fee or upfront fee. Not all lenders charge one.
- Arrears
- When a borrower has missed one or more scheduled loan repayments. Being in arrears can negatively affect your credit score and may lead to default if not resolved promptly.
B
- Basis Points
- A unit of measurement used in finance equal to one-hundredth of a percentage point (0.01%). For example, a rate change of 25 basis points means the interest rate moved by 0.25%.
- Body Corporate
- The legal entity responsible for managing common property in a strata-titled building such as an apartment complex. Owners pay regular levies to the body corporate to cover shared maintenance and insurance costs.
- Break Costs
- A fee charged by a lender if you pay off a fixed-rate loan early, make extra repayments beyond the allowed limit, or switch to a different product before the fixed term ends. Also called an early repayment cost or economic cost.
- Bridging Loan
- A short-term loan that helps you finance the purchase of a new property before you have sold your existing one. Bridging loans typically have higher interest rates and are designed to be repaid quickly once the original property is sold.
C
- Capitalisation
- Adding unpaid interest or fees to the outstanding loan balance. When interest is capitalised, you effectively pay interest on interest, which increases the total cost of the loan over time.
- Comparison Rate
- A rate that combines the interest rate with most fees and charges associated with a loan, expressed as a single percentage. Comparison rates help you compare the true cost of loans from different lenders. They are calculated on a $150,000 loan over 25 years by law.
- Conditional Approval
- An indication from a lender that your loan application is likely to be approved, subject to certain conditions being met - such as a satisfactory property valuation or providing additional documentation. Also known as pre-approval.
- Credit Score
- A numerical rating that represents your creditworthiness based on your borrowing and repayment history. In Australia, credit scores are maintained by agencies like Equifax, Experian, and illion. A higher score improves your chances of loan approval and may help you secure better rates.
- Cross-Collateralisation
- Using more than one property as security for a single loan or linking multiple loans under the same security. While it can help you borrow more, it also means the lender has a claim over all linked properties if you default.
D
- Deposit
- The upfront amount you contribute toward the purchase price of a property. In Australia, most lenders require at least a 5-20% deposit. A larger deposit may help you avoid paying Lenders Mortgage Insurance (LMI) and can result in a lower interest rate.
- Discharge Fee
- A fee charged by a lender when you pay off your loan in full and the mortgage is removed (discharged) from the property title. This covers the administrative and legal costs of releasing the security.
- Draw Down
- The process of accessing or withdrawing funds from an approved loan. For a home loan, drawdown typically occurs at settlement when the lender transfers the loan amount to the seller.
- DTI (Debt-to-Income Ratio)
- A measure of your total debt obligations compared to your gross income. Lenders use your DTI ratio to assess whether you can comfortably manage additional loan repayments. A lower DTI generally means a stronger borrowing position.
E
- Equity
- The difference between the current market value of your property and the amount you still owe on your mortgage. For example, if your home is worth $800,000 and you owe $500,000, your equity is $300,000. Equity can be used as security for additional borrowing.
- Establishment Fee
- A fee charged by a lender to set up a new loan. It covers the administrative costs of processing the application and creating the loan account. Similar to an application fee or upfront fee.
- Exit Fee
- A fee previously charged by some lenders when you paid off your loan or switched to another lender. Exit fees on new home loans were banned in Australia from 1 July 2011, but may still apply to loans taken out before that date.
- Extra Repayments
- Payments made on top of your minimum required repayments. Making extra repayments reduces your loan balance faster, saves you interest over the life of the loan, and can help you pay off your mortgage years earlier. Some fixed-rate loans limit the amount of extra repayments allowed.
F
- First Home Guarantee
- An Australian Government scheme that allows eligible first home buyers to purchase a home with as little as a 5% deposit without paying Lenders Mortgage Insurance (LMI). The government guarantees up to 15% of the property value to the lender.
- First Home Owner Grant (FHOG)
- A one-off government grant available to eligible first home buyers in Australia. The amount and eligibility criteria vary by state and territory but are generally aimed at buyers purchasing or building a new home.
- Fixed Rate
- An interest rate that stays the same for a set period, typically one to five years. A fixed rate gives you certainty over your repayments during the fixed term but may come with restrictions on extra repayments and may include break costs if you exit early.
- Full Doc Loan
- A standard home loan where you provide full documentation to verify your income, expenses, and financial position. This typically includes payslips, tax returns, and bank statements. Full doc loans generally attract lower interest rates compared to low doc alternatives.
G
- Genuine Savings
- Funds that you have accumulated over time through regular saving, as opposed to gifts, windfalls, or borrowed money. Most lenders require at least 5% of the purchase price as genuine savings held for a minimum of three months to demonstrate your ability to manage loan repayments.
- Green Loan
- A loan product that offers discounted rates or special terms for energy-efficient homes or properties with eligible sustainability features such as high-rated solar panels, battery systems, or a minimum NatHERS energy rating. Some lenders offer rate discounts of up to 0.50% for qualifying properties.
- Guarantor
- A person, usually a close family member, who agrees to use their own property or assets as additional security for your loan. Having a guarantor can help you borrow more, avoid LMI, or secure a loan with a smaller deposit. The guarantor is liable if you default on the loan.
H
- Home Equity
- The portion of your property that you truly own - calculated as the current market value minus any outstanding mortgage balance. Home equity grows as you pay down your loan and as property values increase.
- Honeymoon Rate
- A discounted interest rate offered by a lender for an introductory period, usually the first one to two years of a loan. After the honeymoon period ends, the rate reverts to the lender’s standard variable or a higher rate. Also called an introductory rate.
I
- Interest-Only
- A repayment type where you only pay the interest on the loan for a set period, typically one to five years. Your repayments are lower during this time because you are not reducing the principal. After the interest-only period ends, repayments switch to principal and interest and are higher than they would have been from the start.
- Introductory Rate
- A temporarily reduced interest rate offered to attract new borrowers. The rate applies for a set period before reverting to the lender’s standard variable rate. Also known as a honeymoon rate. Always check what the rate reverts to and what the comparison rate is.
L
- Line of Credit
- A flexible loan that gives you access to a pre-approved credit limit. You can draw down funds as needed and only pay interest on the amount you have used. Common for homeowners who want ongoing access to equity for renovations or investments.
- LMI (Lenders Mortgage Insurance)
- An insurance policy that protects the lender (not you) if you default on your loan. LMI is usually required when you borrow more than 80% of the property value (i.e. your deposit is less than 20%). It can add thousands of dollars to your upfront costs or be capitalised into the loan.
- Low Doc Loan
- A home loan designed for self-employed borrowers or those who cannot provide the standard income documentation. Instead of full payslips and tax returns, you may provide an accountant’s letter, BAS statements, or a self-declaration. Low doc loans typically have higher interest rates.
- Lump Sum Payment
- A single large payment made on top of your regular repayments to reduce your outstanding loan balance. Lump sum payments can significantly reduce the total interest paid and shorten your loan term. Check with your lender whether any limits or fees apply, especially on fixed-rate loans.
- LVR (Loan-to-Value Ratio)
- The amount you borrow expressed as a percentage of the property’s value. For example, borrowing $400,000 on a $500,000 property gives an LVR of 80%. A lower LVR generally means better rates and no requirement for LMI.
M
- Mortgage
- A loan used to purchase property where the property itself serves as security for the loan. If you fail to meet your repayment obligations, the lender has the legal right to sell the property to recover the debt.
- Mortgage Broker
- A licensed professional who compares home loan products from multiple lenders to find options suited to your situation. Brokers are typically paid a commission by the lender when your loan settles, so their service is usually free to you.
- Mortgage Offset Account
- A transaction or savings account linked to your mortgage. The balance in the offset account is deducted from your outstanding loan balance when calculating interest, effectively reducing the interest you pay. For example, a $500,000 loan with $50,000 in the offset means you only pay interest on $450,000.
O
- Offset Account
- A bank account linked to your home loan where the balance reduces the amount of interest charged on your mortgage. A 100% offset means every dollar in the account directly offsets your loan balance. It works the same as a mortgage offset account.
- Owner-Occupier
- A borrower who lives in the property they have purchased with their home loan, as opposed to an investor who rents the property out. Owner-occupier loans typically attract lower interest rates than investment loans.
P
- P&I (Principal and Interest)
- A repayment type where each payment covers both the interest charged and a portion of the loan balance (principal). Over time, the interest portion decreases and the principal portion increases. This is the standard repayment type for most home loans.
- Portability
- A loan feature that allows you to transfer your existing mortgage to a new property when you move, without having to discharge and re-establish the loan. This can save you discharge and application fees, but not all loans offer portability.
- Pre-Approval
- A conditional commitment from a lender indicating how much you may be able to borrow, based on a preliminary assessment of your finances. Pre-approval gives you a clearer budget when house hunting and shows sellers you are a serious buyer. It is not a guarantee of final approval.
- Property Valuation
- An independent assessment of a property’s market value carried out by a qualified valuer. Lenders require a valuation before approving a loan to ensure the property provides adequate security. Valuation costs are typically passed on to the borrower.
R
- Rate Lock
- A feature that allows you to lock in an interest rate for a set period (usually 60-90 days) between loan approval and settlement. This protects you from rate increases during that window. Rate lock fees may apply.
- Redraw Facility
- A loan feature that lets you withdraw extra repayments you have made on your home loan. It gives you access to funds when you need them while still benefiting from reduced interest charges. Minimum redraw amounts and processing times may apply.
- Refinancing
- The process of replacing your current home loan with a new one, either with the same lender or a different one. People refinance to secure a lower interest rate, access equity, consolidate debt, or change loan features.
- Repayment Holiday
- A period during which your lender allows you to pause or reduce your loan repayments, usually due to financial hardship or if you have made significant extra repayments in advance. Interest typically continues to accrue during the holiday.
- Reverse Mortgage
- A loan that allows homeowners aged 60 and over to borrow against the equity in their home without making regular repayments. The loan, plus accumulated interest, is repaid when the property is sold, the borrower moves into aged care, or passes away.
S
- Secured Loan
- A loan backed by an asset (such as property or a vehicle) that the lender can claim if you fail to repay. Home loans are secured against the property being purchased. Secured loans typically have lower interest rates than unsecured loans because they carry less risk for the lender.
- Serviceability
- A lender’s assessment of your ability to meet loan repayments based on your income, expenses, existing debts, and the loan you are applying for. APRA requires lenders to test serviceability using a buffer rate (currently 3% above the loan rate) to ensure you can still afford repayments if rates rise.
- Settlement
- The final stage of a property purchase where legal ownership is officially transferred from the seller to the buyer. At settlement, the lender advances the loan funds, the balance of the purchase price is paid, and the keys are handed over. Settlement typically occurs four to six weeks after contracts are exchanged.
- Split Loan
- A home loan that is divided into two or more portions with different rate types - for example, part fixed and part variable. This gives you some repayment certainty from the fixed portion while retaining flexibility and potential savings from the variable portion.
- Stamp Duty
- A state or territory government tax charged on property purchases. The amount varies depending on the property value, location, and whether you are a first home buyer, owner-occupier, or investor. Some states offer concessions or exemptions for first home buyers.
T
- Term
- The length of time over which a loan is scheduled to be repaid. The most common home loan term in Australia is 30 years, although shorter terms such as 20 or 25 years are available. A shorter term means higher repayments but significantly less interest paid over the life of the loan.
- Top-Up Loan
- An increase to your existing loan amount with your current lender. A top-up lets you borrow additional funds using the equity in your property, for purposes such as renovations, investments, or other major expenses. It is an alternative to refinancing with a new lender.
U
- Unconditional Approval
- Formal confirmation from a lender that your loan has been fully approved with no remaining conditions. At this stage the lender has completed all checks, including property valuation and document verification, and is committed to providing the funds.
- Unsecured Loan
- A loan that is not backed by any asset as security. Personal loans and credit cards are common examples. Because there is no collateral for the lender to claim if you default, unsecured loans typically have higher interest rates than secured loans.
V
- Valuation
- A professional assessment of a property’s current market value. Lenders order a valuation before approving a home loan to confirm the property is worth enough to serve as adequate security. Valuations may be conducted in person or via automated systems.
- Variable Rate
- An interest rate that can change at any time based on market conditions or the lender’s discretion. When rates go down your repayments decrease, and when rates go up your repayments increase. Variable-rate loans typically offer more flexibility than fixed-rate loans, including unlimited extra repayments and access to offset and redraw features.
Disclaimer: This glossary is provided for general information only and does not constitute financial advice. Definitions are simplified for clarity and may not cover every variation or legal nuance. Always consult a qualified financial adviser or your lender for advice tailored to your situation.