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Glossary of Terms

Borrower
The person who is borrowing money or receiving credit under a Loan Agreement

Certificate of Title
The official document of title showing ownership of the land described in it. The Certificate of Title describes the area and location of the land, it shows the registered proprietor (land owner) and all charges (mortgages) and other interests, (e.g. easements) affecting the land.

Conveyancing
The process of legally transferring ownership of interests in land.

Contract
A legally binding agreement between two or more people. Contracts may be written, oral, partly written, or partly oral, or implied by a person's behaviour. Contracts relating to land must be in writing.

Credit
The maximum credit allowed to a borrower on an account.

Credit Reference or Credit Report
A report prepared by a credit reporting agency which sets out the credit history of a person. A satisfactory Credit Reference is often required by a lender before approving a loan.

Debt Servicing Ratio
A measure of the borrower's capacity to repay a loan. A lender generally calculates the Debt Servicing Ratio by taking into account a borrower's expenses as a proportion of the borrower's income.

Default
Failure to make a loan repayment by a specified date.

Deposit
Money paid by one party to a contract to secure the performance of the contract by the other party. In a house purchase the deposit is the amount of money that is paid to secure the purchase of the house. The deposit is often payable to the real estate agent as the seller's agent. It is important to find out what paying a deposit will commit you to, whether a deposit is refundable and, if so, in what circumstances.

Early Repayment Charge
When a fixed interest rate is repaid before the end of its fixed term a charge may apply.

Equity
The difference between the market value of a property used as security for a loan and the amount of the loan.

Establishment Charge
A fee paid by a borrower, usually to a lender, to cover the costs of processing a loan application.

Facility
Another term used to describe a loan or credit availability.

Guarantee
An agreement by which a person (guarantor) promises to meet the obligations of another person (borrower) on default. Lenders in some circumstances require a guarantee of the borrower's obligations under a Loan Agreement.

Interest
An amount payable by the borrower to the lender as the lender's recompense for making the loan. A borrower can choose to borrow on a fixed interest rate or a floating interest rate.

Interest Only Loan Agreement
A Loan Agreement under which the borrower makes no principal repayments during the loan term, but must repay the whole of the principal on loan maturity. During the term of an Interest Only Loan Agreement, payments of the amount of interest accruing on the loan will usually be required at regular intervals.

Lease
A contract under which the owner of a property (lessor or landlord) grants to another person (lessee or tenant) the right to exclusive possession of the property for an agreed period, usually in return for rent.

Loan Agreement
The contract between the lender and the borrower that sets out the loan terms and conditions. These will include amount, repayment obligations, interest rate, and the security required. It is important to read the Loan Agreement carefully, and it is wise to get legal and financial advice, before it is entered into.

Mortgage
A security over property given to the lender for the repayment of principal and the payment of interest on the loan. A mortgage over land is registered or noted on the Certificate of Title to that land. The party that has the benefit of the mortgage (usually the lender) is called the mortgagee. The party giving the mortgage by charging his or her property is called the mortgagor.

Principal
The amount that has been borrowed. Interest is generally payable on the Principal outstanding from time to time.

Refinancing
The repayment of an existing loan from the proceeds of a new loan. A refinancing could involve repaying one lender and borrowing from another lender.

Registration
The process following settlement, by which legal title to property is transferred into the name of the purchaser. With a land purchase, this is done through the Land Transfer Office. Where the land purchase is secured by a mortgage, the lender that has the first mortgage will hold the Certificate of Title following registration of the land into the name of the purchaser.

Repayment Holiday
A period during which loan repayments are suspended. During this period interest still accrues. Payments are generally adjusted afterwards so that the loan is still repayable within the original time period.

Revolving Credit Facility or Line of Credit
A loan or Line of Credit which allows the borrower to repay and re-draw funds, up to the agreed credit limit.

Sale and Purchase Agreement
A contract between a seller (vendor) and a purchaser for the sale and purchase of property. A Sale and Purchase Agreement for land must be in writing.

Settlement
The process by which a sale and purchase of property takes place. It is commonly done by lawyers and involves the payment of the purchase price (less any deposit already paid) in exchange for the Certificate of Title, a transfer document, and a release of previous charges over the property. Keys to the property are usually either handed over to the purchaser or his/her lawyer at settlement, or able to be picked up from the estate agent immediately following settlement.

Term
In relation to a loan, Term means the period from the making of the loan until the loan must be repayable. Sometimes 'Term' can also mean a defined period that is shorter than the whole of the loan Term (e.g. Fixed Interest Term).

Vendor
The seller of a property.