Glossary
The language of lending, translated
Every term a lender or broker will use on your file, defined in a sentence or two. Where a term deserves a full guide, it links to one.
- Assessment rate
- The higher, buffered interest rate a lender uses to test whether you could still afford repayments if rates rose, currently the actual rate plus a margin.
- Borrowing power
- The amount a lender is willing to lend you, based on income, expenses, debts and their own policy. It differs between lenders, run a first estimate with the borrowing power calculator.
- Bridging finance
- Short-term lending that lets you buy the next home before selling the current one, carrying both temporarily. Full guide: bridging loans.
- Cash out
- Borrowing against your equity and taking the difference as funds, for renovations, investment or other stated purposes. Lender rules on purpose and amount vary.
- Comparison rate
- A legally required rate that folds most fees into the headline rate for a standard loan scenario, useful for comparing, not the rate you pay.
- Conditional approval
- A lender's yes-in-principle, subject to conditions such as valuation or final documents. Not a binding commitment.
- Construction loan
- A loan drawn in stages as a build progresses, with interest charged on the drawn balance. Full guide: construction loans.
- Debt-to-income ratio (DTI)
- Total debts divided by gross income; many lenders apply extra scrutiny above certain levels. Covered in large loans & high DTI.
- Equity
- Your property's value minus what you owe on it. The usable portion is smaller, see using equity.
- Fixed rate
- An interest rate locked for a set term, with repayment certainty traded for flexibility. Compared honestly in fixed vs variable.
- Formal (unconditional) approval
- The lender's binding written commitment to the loan, issued after valuation and verification.
- Genuine savings
- Deposit funds a lender accepts you saved yourself, with holding-period and evidence rules that vary. Full guide: genuine savings.
- Guarantor
- Usually a parent who pledges part of their property's equity as additional security, replacing deposit cash. Full guide: guarantor loans.
- HELP/HECS debt
- Student loan repayments scale with income and reduce borrowing capacity; clearing the balance is rarely the right trade. Full guide: HECS and home loans.
- Interest only
- Repayments covering interest but no principal for a set period, mostly an investor structure, with a step-up when it ends.
- Lenders mortgage insurance (LMI)
- A one-off premium protecting the lender when you borrow above 80% of the property's value, waived under the 5% scheme and for some professions. Estimate it with the LMI calculator.
- Loan-to-value ratio (LVR)
- The loan as a percentage of the property's lender-assessed value. 80% is the line where LMI usually starts.
- Offset account
- An everyday account whose balance reduces the loan interest charged, dollar for dollar, while staying accessible. Modelled in the offset calculator.
- Pre-approval
- A lender-assessed buying range, typically valid around 90 days, that lets you offer with confidence. Full guide: pre-approval.
- Principal and interest
- Repayments that reduce the debt while covering interest, the standard owner-occupier structure.
- Redraw
- Access to extra repayments you've made ahead of schedule; similar effect to offset, different access rules.
- Refinance
- Replacing your current loan with a new one, for pricing, structure or equity release. Full guide: refinancing.
- Serviceability
- Whether your income, at the buffered assessment rate and after expenses and debts, supports the requested loan. The core test in every approval.
- Valuation
- The lender's independent assessment of the property's value, which can differ from the price. When it comes in low: this guide.
- Variable rate
- An interest rate that moves with the market, keeping flexibility features. See fixed vs variable.
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Reviewed by Charles Touma
Director & Mortgage Broker · MFAA member · Corporate Credit Representative 580078 under ACL 389328
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