Home Loan Glossary: 50 Terms Every Borrower Should Know

Understanding Home Loan Terminology

We see the same scenario play out in our offices almost every week. A smart, capable buyer signs a contract without fully grasping a specific clause in the fine print.

Those misunderstood terms often translate into thousands of dollars in unexpected costs or restricted flexibility later on.

Our team put this glossary together to stop that from happening.

You need to know exactly what you are agreeing to before you sign on the dotted line.

We have broken down the industry jargon into plain English and added the practical context that lenders often leave out.

A-C

Amortisation

This is the technical term for paying off your debt through regular scheduled installments. Each payment covers the interest costs first and then chips away at the principal balance.

We often remind clients that the early years of a 30-year loan are mostly interest payments.

You can dramatically shorten this period by making repayments calculated on a 25-year term even if you have a 30-year loan. A standard amortisation schedule in Australia typically spans 25 to 30 years.

Bridging Finance

This is a short-term facility that covers the gap when you buy a new property before your current one sells.

We generally advise caution here because the interest rates are typically higher than standard home loans.

Most lenders cap the term at 6 to 12 months. You must have a solid exit strategy to avoid being forced to sell your original home for a lower price just to clear the debt.

Broker (Mortgage Broker)

A professional intermediary who acts on your behalf to find the best loan product from a panel of lenders.

We operate in a market where over 70% of Australian home loans are now secured through brokers rather than direct-to-bank applications.

This service is typically free for borrowers because the lender pays the broker a commission upon settlement. A good broker does more than find a rate. They structure your application to meet the specific credit policies of different banks.

Capital Gain

The profit you make when the value of your property increases over time.

We categorize this as “unrealised” gain until you actually sell the asset.

If you bought a house in Brisbane for $600,000 and sold it today for $850,000, your capital gain is $250,000. Australian tax law generally exempts your main residence from Capital Gains Tax (CGT). Investment properties do not get this same full exemption.

Comparison Rate

This figure combines the interest rate with most upfront and ongoing fees to show the “true” cost of the loan.

We consider this one of the most misunderstood metrics in the industry.

The legal formula for a comparison rate is based on a loan amount of $150,000 over 25 years. Since the average Australian mortgage in 2026 is significantly higher than that, the comparison rate can sometimes be misleading for larger loan amounts. Always look at the specific fees applicable to your actual loan size.

Conditional Approval

An initial indication from a lender that they are willing to lend you a specific amount.

We call this “pre-approval” in many conversations.

It remains subject to specific checks like a satisfactory property valuation and full credit verification. Never sign an unconditional contract to buy a house based solely on a conditional approval. You risk losing your deposit if the final finance is declined.

Construction Loan

A specialized loan for building or major renovations where the lender releases funds in stages.

We help clients manage these “progressive drawdowns” to match the builder’s invoices.

You typically pay interest only on the amount drawn down during the build phase rather than the full loan limit. This aids cash flow while you are paying rent elsewhere during construction.

Conveyancer/Solicitor

The legal professional qualified to handle the transfer of property ownership and review the contract of sale.

Our team recommends engaging a conveyancer before you sign any purchase offer.

They check for caveats, easements, and illegal building works that could devalue the property. Their role is to ensure the “title” you get is clean and legal.

Cross-Collateralisation

This occurs when a lender uses more than one of your properties to secure a single loan or group of loans.

We usually advise investors to avoid this structure if possible.

Keeping properties “stand-alone” with different lenders or separate loan accounts gives you more control. Cross-collateralisation means if you sell one property, the lender might force you to use the proceeds to pay down debt on the others.

D-F

Deposit

The lump sum you contribute toward the purchase price from your own funds.

We see 20% as the “gold standard” deposit in the current market.

Contributing less than 20% almost always triggers Lenders Mortgage Insurance (LMI). On a $800,000 purchase, a 5% deposit versus a 20% deposit can mean the difference of paying an extra $30,000 in insurance costs.

Depreciation

A tax deduction available to property investors for the wear and tear on the building and its fixtures.

We encourage investors to order a Quantity Surveyor report to maximize this claim.

You can claim depreciation on items like carpets, blinds, and hot water systems. This non-cash deduction can significantly improve the after-tax cash flow of an investment property.

Discharge

The administrative process of releasing the lender’s mortgage from your property title.

We initiate this process when you sell your home or refinance to a different bank.

Lenders typically charge a discharge fee ranging from $300 to $400 per security. This process can take 2-3 weeks. It is vital to submit your discharge authority form early to avoid settlement delays.

Equity

The portion of your property that you actually own outright.

We calculate this simply: Current Market Value minus Current Loan Balance equals Equity.

If your home is worth $1,000,000 and you owe $400,000, you have $600,000 in equity. You can often access a portion of this “usable equity” to fund renovations or a deposit on an investment property without selling your home.

Establishment Fee

A one-off fee charged by the lender to set up your new loan account.

We often negotiate to have this fee waived as part of a competitive application.

Costs vary but usually sit between $200 and $800 depending on the complexity of the loan structure. Some “Basic” loan products waive this fee entirely but might offer fewer features.

Exit Fee

A penalty charged for paying out a loan early.

We rarely see these on standard residential loans anymore.

Federal government reforms banned exit fees on new variable rate home loans taken out after 1 July 2011. However, “break costs” still apply if you exit a fixed-rate loan before the term ends.

Fixed Rate

An interest rate locked in for a specific time, usually between 1 and 5 years.

We see this as a tool for certainty rather than just trying to “beat the market.”

Your repayments remain identical every month regardless of what the Reserve Bank of Australia (RBA) does. The downside is that fixed loans often have caps on extra repayments (e.g., $10,000 per year) and high break costs if you refinance early.

Feature	Fixed Rate	Variable Rate
Repayment Certainty	100% fixed payments	Payments fluctuate with market
Extra Repayments	Usually capped/limited	Unlimited allowed
Offset Account	Rarely available	Standard feature
Break Costs	Yes (can be high)	No

First Home Owner Grant (FHOG)

A state-government scheme providing cash assistance to eligible first-time buyers.

We check eligibility criteria carefully as they differ strictly by state and territory.

Most states now restrict this grant to the purchase of new or substantially renovated homes. In NSW and Victoria, for example, the grant is typically $10,000 for new builds under a certain price cap. Established homes generally do not qualify for the grant but may qualify for stamp duty concessions.

G-L

Genuine Savings

Funds you have accumulated gradually over a period of at least 3 months.

We must demonstrate this to lenders to prove you have the discipline to manage a mortgage.

Lenders generally look for 5% of the purchase price to be genuine savings. Gifts, tax refunds, or selling a car often do not count toward this 5% requirement unless the money has sat in your account for over three months.

Guarantor

A third party who offers their own property as extra security for your loan.

We frequently use this strategy to help first-home buyers enter the market without a deposit.

This is usually a parent (Family Guarantee). It allows you to borrow up to 100% of the purchase price plus costs without paying LMI. The guarantor is liable for the guaranteed portion if you default.

Home Equity Loan

A facility that allows you to borrow against the equity in your existing property.

We see clients use this for debt consolidation, renovations, or investment deposits.

It is often cheaper than a personal loan because it is secured by real estate. However, it increases your total mortgage debt and reduces the equity you have built up.

Interest-Only Loan

A repayment structure where you pay only the interest charges each month.

We usually recommend this for investors seeking to maximise tax-deductible cash flow.

The principal balance does not decrease during this period. Interest-only terms are usually limited to 5 years. Once the term expires, the loan reverts to Principal & Interest (P&I), causing a significant jump in monthly repayments.

Interest Rate

The annual percentage charged by the lender for the use of their money.

We monitor the RBA Cash Rate closely as it directly influences variable home loan rates.

Even a 0.50% difference in rate can save you tens of thousands of dollars over the life of a loan. Rates vary based on your risk profile, loan amount, and LVR.

Lenders Mortgage Insurance (LMI)

An insurance policy that protects the bank if you cannot repay your loan and the property is sold at a loss.

We emphasize that this insurance covers the lender, not you.

LMI is generally required if your deposit is less than 20%. It is a one-off cost added to your loan amount. For a 90% loan on a $700,000 property, LMI can cost upwards of $15,000.

Line of Credit

A revolving credit facility secured by your property that works like a giant credit card.

We find these useful for disciplined investors who need quick access to funds.

You have an approved limit and only pay interest on the money you actually use. Rates are typically higher than standard term loans. Since there is no set repayment schedule, it requires strict financial discipline to pay down the debt.

Loan-to-Value Ratio (LVR)

A risk assessment percentage comparing your loan size to the property’s value.

We use LVR to determine which interest rate tier you qualify for.

LVR = (Loan Amount ÷ Property Value) × 100. A borrower with an LVR under 60% often gets a significantly lower interest rate than someone with an LVR of 90%. Lenders price their loans based on this risk tiers.

Low Doc Loan

A loan product designed for self-employed borrowers lacking up-to-date tax returns.

We use alternative verification methods like Business Activity Statements (BAS) or accountant letters for these applications.

Interest rates are generally higher than full-doc loans. Lenders may also restrict the maximum LVR to 60% or 80% to mitigate the higher risk.

M-P

Mortgage

The legal document that gives the lender a security interest in your property.

We differentiate this from the “loan” itself, which is the money you borrowed.

The mortgage is the “charge” registered on the title. It gives the lender the legal right to take possession and sell the property if you fail to meet the repayment terms.

Mortgage Offset Account

A transaction account linked to your home loan where the balance actively reduces your interest payable.

We consider this the single most effective tool for paying off a home loan faster.

It works on a 100% offset basis. If you have a $500,000 loan and $50,000 in your offset account, the bank only charges interest on $450,000. Unlike paying down the loan directly, you retain access to your cash in the offset account if you need it.

Negative Gearing

A tax strategy where the costs of owning an investment property (interest, maintenance) exceed the rental income it generates.

We advise discussing this with your accountant to understand the cash flow implications.

The annual loss can be deducted from your other taxable income (like your salary), potentially resulting in a tax refund. It is essentially a bet that the capital growth of the property will eventually outweigh the ongoing monthly losses.

Offset Account

See Mortgage Offset Account.

P&I (Principal and Interest)

The standard repayment method ensuring your loan is fully paid off by the end of the term.

Our calculations show that P&I rates are generally lower than Interest-Only rates.

Paying P&I builds equity immediately. As your principal balance drops, the interest component of your repayment decreases, meaning more of your money goes toward clearing the debt each month.

Portability

A feature allowing you to “swap” the security property on your loan without closing the account.

We use this to avoid break costs and new establishment fees when moving house.

Instead of paying off your old loan and applying for a new one, you substitute the new property title. This requires simultaneous settlement of your sale and purchase.

Pre-Approval

See Conditional Approval.

Principal

The actual amount of money you borrowed.

We focus on reducing this figure because interest is calculated on the remaining principal daily.

Every dollar you pay off the principal reduces the interest charged the following day. This compounding effect is why extra repayments made early in the loan term are so powerful.

Progress Payments

The funds released by the lender at specific stages of a construction contract.

We manage these across the five standard build stages: Slab, Frame, Enclosed, Fixing, and Practical Completion.

The lender will usually require a valuer to inspect the site before releasing the final payment to ensure the work matches the contract.

Property Valuation

A professional assessment of a property’s market value ordered by the lender.

We warn clients that a bank valuation is often more conservative than a real estate agent’s appraisal.

The lender uses the lower of the purchase price or the valuation amount to calculate your LVR. If you buy a house for $800,000 but the bank values it at $750,000, you may have to cover the $50,000 shortfall from your own pocket.

R-S

Redraw Facility

A feature allowing you to access extra repayments you have made on your loan.

We recommend checking if your lender charges a fee for each redraw.

Unlike an offset account, money in a redraw facility technically belongs to the lender until you redraw it. For tax purposes on investment loans, redrawing money for personal use can contaminate the tax-deductibility of the loan interest.

Refinancing

The process of moving your existing loan to a new lender or a different product.

We help clients refinance to secure lower rates, access equity, or consolidate other debts.

Refinancing involves a new application and credit assessment. You must weigh the long-term savings against the costs of switching, such as discharge and registration fees.

Repayment Holiday

A feature allowing you to pause repayments for a short period, such as during maternity leave or a career break.

We advise using this sparingly as interest continues to capitalize (add up) during the break.

You typically need to have made extra repayments previously to be eligible. The missed payments are added to your loan balance, increasing your debt.

Reserve Price

The confidential minimum price a seller is willing to accept at auction.

We note that once bidding passes this reserve price, the property is “on the market” and will be sold to the highest bidder.

If the bidding does not reach the reserve, the property is passed in, and the highest bidder usually gets the first right to negotiate.

Serviceability

The lender’s calculation of your ability to repay the loan.

We run these numbers using a “stress test” rate rather than the actual interest rate.

Under APRA guidelines, lenders must assess your ability to repay the loan at an interest rate at least 3.0% higher than the current product rate. This ensures you can still afford the mortgage if rates rise.

Settlement

The official day the property ownership is transferred from seller to buyer.

Our team coordinates with your conveyancer and the bank to ensure funds are exchanged correctly.

On this day, the loan begins, the seller gets paid, and you receive the keys. You do not need to be present for settlement; your representatives handle it electronically via platforms like PEXA.

Split Loan

A structure that divides your loan into multiple accounts, often mixing fixed and variable rates.

We often suggest a 50/50 split to hedge against interest rate movements.

This gives you the certainty of a fixed rate on one portion while keeping the flexibility of an offset account and extra repayments on the variable portion.

Stamp Duty (Transfer Duty)

A state government tax levied on the transfer of property.

We remind buyers that this is an upfront cost in addition to your deposit.

The amount varies significantly by state and purchase price. For a median-priced home in Sydney or Melbourne, stamp duty can easily exceed $30,000. Some first-home buyers may be eligible for exemptions or concessions.

Strata Title

A legal ownership structure common for apartments and townhouses.

We check the strata report for “special levies” before you buy.

You own your individual “lot” (the interior of your unit) but share ownership of common property like driveways, gardens, and elevators. You must pay quarterly strata levies to maintain these common areas.

T-Z

Term

The lifespan of the loan contract.

We typically set this at 30 years to keep minimum monthly repayments manageable.

You can choose a shorter term (e.g., 20 or 25 years) to pay less interest overall, but this commits you to higher mandatory monthly payments. Most borrowers stick to 30 years and make voluntary extra payments to pay it off sooner.

Title

The legal record held by the Land Registry office proving who owns a piece of land.

We conduct a title search to ensure the seller actually has the right to sell the property.

The title also lists any mortgages, covenants, or easements that affect the land.

Transfer Duty

See Stamp Duty.

Unconditional Approval

The final green light from the lender confirming your finance is secure.

We confirm this status in writing before advising you to declare your contract unconditional.

Once you have this, the lender is legally committed to funding the loan (barring fraud or major changes). This is the milestone that allows you to proceed to settlement with confidence.

Valuation

See Property Valuation.

Variable Rate

An interest rate that moves up or down throughout the loan term.

We explain that these rates are influenced by the RBA cash rate and the lender’s funding costs.

Variable loans offer the most flexibility. They come with features like offset accounts and unlimited extra repayments without penalty. If the RBA cuts rates, your repayments may fall; if they hike rates, your repayments will rise.

Vendor

The legal owner selling the property.

We negotiate with the vendor’s agent on your behalf.

In a property transaction, the vendor dictates the settlement terms and reserve price, but market conditions ultimately determine what they can achieve.

Quick Reference: Common Acronyms

Acronym	Meaning
FHOG	First Home Owner Grant
LMI	Lenders Mortgage Insurance
LVR	Loan-to-Value Ratio
P&I	Principal and Interest
IO	Interest Only
RBA	Reserve Bank of Australia
PAYG	Pay As You Go (standard employee)
ABN	Australian Business Number (self-employed)

Still Have Questions?

The definitions above cover the mechanics, but the strategy is where the real value lies.

We know that reading about a “split loan” is different from knowing exactly how to structure one for your specific income.

At AJ Home Loans, our role is to translate these terms into a clear plan that saves you interest and protects your assets.

Book a free consultation to discuss your home loan questions. We will give you clear answers without the sales pitch.