Finance jargon, explained

31 terms

31 terms

Borrowing powerBorrowing

The maximum a lender will advance you, based on income less expenses and existing commitments, stress-tested at a rate around 3% above the actual one. It is not the same as what you can comfortably afford, and the gap between the two is where people get into trouble.

ServiceabilityBorrowing

Whether you can meet repayments on the assessed rate rather than the advertised one. A lender declining on serviceability isn't saying you can't pay today — it's saying you couldn't if rates rose.

Pre-approvalBorrowing

A lender's conditional indication of what it would lend, usually valid three to six months. Useful for knowing your ceiling before you bid. It is conditional — a valuation coming in short can still end it.

Offset accountBorrowing

A transaction account linked to your loan. Every dollar sitting in it reduces the balance interest is charged on, without being a repayment you can't get back. $20,000 offset against a 6% loan saves roughly $1,200 a year.

RedrawBorrowing

Access to extra repayments you've already made. Similar effect to an offset but the money is legally the lender's until you pull it back, and access can be restricted or withdrawn.

Split loanBorrowing

Dividing a loan into fixed and variable portions, so part of your repayment is certain and part can benefit from rate falls or take extra repayments.

Construction loanBorrowing

A loan for building rather than buying. The lender releases the money to your builder in stages as the build progresses instead of in one advance, and you pay interest only on what has been drawn so far — so early repayments are small and grow as the house does.

Progress paymentBorrowing

One of the staged drawdowns on a construction loan — typically slab, frame, lock-up, fit-out and completion. Each one is released after the lender's inspection, against an invoice from your builder, which is why the schedule in your building contract needs to match what the lender will fund.

On-completion valuationBorrowing

What a lender values a build at: the land plus the finished house, based on the plans and the fixed-price contract, rather than what is standing on the block today. If it comes in under the contract price, the shortfall has to come out of your own pocket.

Credit scoreCredit

A number, usually 0–1200, that credit bureaus calculate from your repayment history, applications and defaults. Lenders use it as a first filter, not a verdict — a middling score with a clean recent history is very workable.

Credit enquiryCredit

A record left on your file every time a lender formally checks it. Several in a short window reads as shopping around in distress, which is why applying to lender after lender is worse than approaching the right one first.

DefaultCredit

A listing recorded when a debt over $150 is 60+ days overdue and the required notices were sent. It stays on your file for five years — even once paid, when it's marked as settled rather than removed.

Comprehensive credit reportingCreditCCR

The regime under which lenders report your repayment history month by month, not just your failures. It means consistent on-time payments now actively help you, where once only mistakes were visible.

Specialist or non-conforming lendingCredit

Lenders who price for risk rather than declining it — defaults, discharged bankruptcy, short trading history. Rates are higher, and the usual plan is to refinance to a mainstream lender once the file has aged.

Chattel mortgageAsset finance

You buy the asset and own it outright from day one; the lender registers a mortgage over it as security until the loan is repaid. The most common structure for business vehicle and equipment purchases.

Balloon or residualAsset finance

A lump sum left owing at the end of the term — often 20–40% of the purchase price. It lowers monthly repayments, but the amount doesn't disappear: you refinance it, pay it out, or sell the asset to clear it.

Finance leaseAsset finance

The financier owns the asset and leases it to you over a set term, with a residual payable at the end. You use it and maintain it; you don't own it unless you pay the residual.

Novated leaseAsset finance

A three-way vehicle lease between you, your employer and a financier, paid out of your salary. It ends if you leave the job — the obligation reverts to you personally.

PPSRAsset financePersonal Property Securities Register

The national register of security interests over non-land property. Check it before buying any used vehicle or machinery privately: if there's money owing on it, the financier can repossess it from you even though you paid the seller in full.

Low-doc / no-doc asset financeAsset finance

Approval based on trading history and asset type rather than full financials. Available to established ABNs, usually up to a set limit, and priced slightly above a fully documented deal.

Yellow goodsAsset finance

Trade shorthand for earthmoving and construction plant — excavators, loaders, dozers. Named for the livery, and financed by specialist funders rather than general lenders.

LVRPropertyLoan to Value Ratio

The loan as a percentage of the property's value. Borrow $640,000 against an $800,000 property and your LVR is 80% — the threshold above which mortgage insurance usually applies.

Usable equityProperty

Not the same as your equity. Lenders typically let you access up to 80% of your property's value less what you still owe. On an $800,000 home with a $400,000 loan, that's $240,000 usable — not $400,000.

Valuation shortfallProperty

When the lender's valuer assesses the property below the price you agreed. The lender lends against their figure, not yours, so the difference has to come out of your own pocket.

Cooling-off periodProperty

A short window after signing a private-sale contract in which you can withdraw, usually for a small penalty. In Victoria it's three business days — and it does not apply to auction purchases.

GuarantorProperty

Usually a parent using equity in their own property as additional security, which can remove the need for mortgage insurance. Their property is genuinely at risk if the loan isn't paid, and the guarantee can be released once you've built enough equity.

LMICostsLenders Mortgage Insurance

A one-off premium charged when your LVR exceeds 80%. It insures the lender, not you — but you pay it, and on a high-LVR purchase it can run to tens of thousands.

Comparison rateCosts

The advertised rate with most fees folded in, so two loans can be compared honestly. Calculated on a standard $150,000 over 25 years, so it's directional rather than exact for your actual loan.

Stamp dutyCosts

State tax on property transfer, scaled to purchase price. Typically the largest single upfront cost after the deposit, though first home buyer concessions and exemptions can reduce or remove it.

Break costCosts

The fee for exiting a fixed-rate loan early. It's not a flat penalty — it's calculated on the lender's funding loss, so it can be negligible or very large depending on where rates have moved since you fixed.

Establishment feeCosts

The lender's charge for setting up the loan. Often negotiable or waived, and worth asking about before you accept a headline rate as the whole picture.