Home loan jargon explained: Simple definitions for home buyers

Buying a home is an exciting milestone. However, the jargon used in the home loan industry can make it tricky to navigate and difficult to understand what you are signing up for. In this guide. we break down common home loan terms into easy-to-understand explanations.

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Conditional approval – Also known as pre-approval, gives you an idea on how much you can borrow.  A conditional approval will come with conditions you are required to meet before you receive full approval to purchase a certain property.

Conditional offer – An offer to buy a property if the conditions set out in the offer are met.

Construction loan – A loan designed for the process of building a house. Money is released to you in stages as the building work progresses.

Debt-to-income ratio (DTI) - A measure of your total debt compared to your income, used by banks to assess borrowing limits.

Deposit – The upfront amount of you pay towards buying a home. Often around 20% of the properties purchase price.

Drawdown date – The date of which your home loan starts and when interest and repayments are calculated from.

Equity – The portion of your home that you actually own, calculated by the value of your home minus what you owe on your mortgage.

Fixed rate – An interest rate locked in for a set period of time. E.g. 6 months – 5 years.

Floating rate -   An interest rate (sometimes referred to as a variable rate) that will fluctuate up and down in line with market interest rates. A floating rate is not locked in for any period of time.

Interest – The cost charged by the lender for borrowing money. Interest is charged as a percentage of the loan amount and paid within your regular repayments.

Loan repayment term – The number of years it will take you to pay off your home loan. When applying for your home loan, you can choose your loan repayment term between 1 and 30 years.

LVR (Loan-to-value Ratio) - The size of your loan in comparison to the value of your property. For example, if your house is worth $1,000,000 and you have a deposit of $200,000, you’ll have a home loan of $800,000. Meaning your LVR would be 80%.

Principal – The total amount you are borrowing.

Refinance – The process of replacing your existing home loan with a new loan, allowing you to switch to a different lender, restructure your loan or adjust your home loans terms.

Refixing – The process of securing a new interest rate for a certain period of time at the end of the current fixed period.

Restructuring – The process of reviewing how your existing loan is structured.

Serviceability - A bank's assessment of whether you can afford loan repayments, based on income and expenses.

Settlement date – The date when the buyer pays the balance of your deposit, and the ownership of the property is transferred to the buyer.

Top-up – Borrowing an extra amount against your existing home loan.

Valuation – An assessment of a property’s value. Valuations are provided by a licensed property valuer.

Vendor – Also known as a seller. The person selling the property.

Dosh does not provide any financial advice or recommendations. Any information we make available to you does not take into account your particular investment objectives, financial situation, or investment needs. None of the information we provide can be taken as investment, financial, or tax advice.