Mortgage terms without the fog

Application and assessment terms

Borrowing capacity is an estimate of the amount a lender may consider under its policy; it is not a recommended spending limit. Serviceability is the lender's assessment of whether repayments can be met after considering accepted income, expenses, liabilities and buffers.

Conditional pre-approval is an early approval subject to stated conditions. Formal or final approval generally follows completion of the lender's required borrower and property assessment, but you must still read its conditions and loan documents.

• Credit enquiry: a request to access credit-file information as part of an application or assessment
• Genuine savings: funds demonstrated over a period under a lender's policy
• Guarantor: a person or entity that provides a guarantee for another borrower's obligations
• Responsible lending assessment: required inquiries and verification associated with regulated credit assistance and lending

Rates, repayments and cost terms

The interest rate is the rate used to calculate interest under the contract. A comparison rate combines the interest rate with specified fees and a standard loan scenario to aid comparison; it may not reflect your balance, term, fees or feature usage.

Principal is the amount borrowed or still owing before interest and charges. A principal-and-interest repayment pays both, while an interest-only repayment generally does not reduce principal during the interest-only period.

• Fixed rate: a rate set for an agreed period, subject to the contract
• Variable rate: a rate that can change under the loan terms
• Loan term: the contractual period over which the loan is scheduled to be repaid
• Break cost: a possible charge when a fixed-rate loan is repaid or changed early

Property, security and equity terms

Security is property or another asset over which the lender takes rights to support repayment of the loan. A mortgage is the legal interest registered or taken by the lender over real property as security.

A valuation is the value accepted by the lender for its purpose, produced using a method it selects. Loan-to-value ratio, or LVR, compares the loan amount with the value the lender accepts. Equity is the difference between a property's value and debt secured against it, but usable equity is subject to valuation, policy and approval.

• Lender's mortgage insurance (LMI): insurance that generally protects the lender, not the borrower
• Cross-collateralisation: more than one property securing lending under a connected structure
• Refinance: replacing or changing lending, often through a new credit assessment
• Discharge: the process of releasing an existing lender's mortgage or closing secured lending

Account and feature terms

An offset account is a linked account whose eligible balance is used under the product rules to reduce the loan balance on which interest is calculated. Redraw is access, subject to terms, to some additional repayments previously made to a loan.

They are not interchangeable. Access, fees, calculation methods and tax implications can differ. A split loan divides lending into separate portions, which may have different rates or features.

• Extra repayment: an amount paid above the scheduled minimum, subject to product rules
• Package fee: a recurring fee associated with a bundle of eligible banking products or benefits
• Repayment holiday or pause: a lender-approved temporary change that may still allow interest to accrue
• Reprice: a change to pricing, often with the existing lender, without necessarily moving lenders

Purchase and settlement terms

A contract deposit is an amount paid or held under the sale contract; it is not automatically identical to the lender-required contribution. A finance condition is a contract term dealing with finance and requires legal or settlement advice, particularly because wording and deadlines matter.

Settlement is the legal and financial completion of the property transaction. A settlement agent or lawyer manages the conveyancing work; a broker coordinates the approved loan's readiness with the parties.

• Funds to complete: the amount the buyer must provide to complete settlement after approved loan funds and adjustments
• Transfer duty: a WA tax on dutiable transactions, subject to current rates and concessions
• Progress payment: a construction payment associated with a documented stage or supplied work under applicable arrangements
• Unconditional offer: an offer not subject to conditions such as finance, carrying greater completion risk for a borrower without final approval

People and disclosure terms

A mortgage broker is an intermediary who provides credit assistance and deals with lenders to help arrange a home loan. A lender is the credit provider. A conveyancer or settlement agent handles the legal transfer work, while tax and legal advisers cover their respective professional areas.

A Credit Guide provides required information about the credit assistance provider, services, remuneration and dispute-resolution arrangements. A credit proposal disclosure document sets out certain costs, fees and commissions associated with proposed credit assistance where required.