The complete glossary of terms for financing and building a home

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As a first-time home builder it’s important to start the process with confidence and certainty. But in order to do this, you need to understand the language that the industry uses.

The property lexicon is chock full of building and finance jargon, and learning how to decipher it will be one of the keys to your success.

Our A-Z glossary for first-timers is a great place to start, and is a great refresher for everyone else.


Amortisation: The process of paying off a debt over time through regular payments, such as scheduled repayments of a home loan. Here the borrower pays the interest, as well as part of the principal in each repayment.

Application Fee: A fee charged to process an application for a loan. This fee is used by home loan providers to cover the costs involved in processing an application such as credit checks.

Approved Agent: A representative that’s authorised to process applications for the First Home Owner Grant (FHOG) on behalf of your state’s revenue office.


Basis Points: A basis point is a unit of measurement that is used to describe the percentage changes in a financial instrument (most commonly interest rates). One basis point = one hundredth of one percentage point.

BICOE (Construction Loan):A construction loan is a short-term loan (usually 3 years) that’s used to pay for the cost of developing land and constructing buildings. It lets you draw down your funds as the building project progresses rather than having to take on the burden of the whole loan on in one hit.


Capped Rate Loan: As the name suggests this type of loan comes with a cap on the interest rate. The cap prevents interest on the loan from rising above a specified rate.

Capital Gains Tax: A tax levied on the profit from the sale of a property.

Certificate of Compliance: A document that’s issued when your property complies with government regulations.

Conditional Approval: The first step along the road to getting your home loan approved. Conditional approval means that your loan application has been approved subject to given terms and conditions. This is a really useful pre-purchase exercise that gives you an indication of how much you’ll be able to borrow.

Conveyancing Fees: Conveyancing is the branch of law concerned with the preparation of documents for the transferring of property from one owner to another. Fees are charged for services such as reviewing the contract of sale, supplying a cost disclosure statement, drawing up a transfer of land, and much more.

Comparison Rate: A handy tool designed to help consumers identify the true (actual) cost of a loan. It factors in the interest rate, fees and charges and comes up with a single rate that can be used to compare loans from different lenders.

Commencement Date of the Eligible Transaction: When buying an existing home: the date when a contract is made. When building a new one: the date when laying the foundations commences.

Construction Loan: See BICOE (Construction Loan)

Covenant: To agree by lease, deed, or any other legal contract. A fancy way of saying legal agreement.


Defect Liability Period: A period of time after your home has been built during which a contractor has the right to return to the site to fix up any defects.

Depreciation: The reduction in the value of an asset over time, including an investment property.

Drawdown Date: The date you use your loan funds for the first time.


Early Repayment Adjustment:A fee imposed by your lender if you decide to end your fixed rate home loan early and move to another rate, repay the loan off early, or make a lump sum payment.

Economic Costs (or Break Costs): A fee which is payable if you switch your home loan from a fixed to a variable rate (during the fixed rate period).

Equity: The value built up in a home that represents the current market value of the property, less any remaining mortgage payments. In short: the part of your home that actually belongs to you and not your lender.

Establishment Fee: A fee charged by financial lenders to cover the cost of setting up your home loan. It is charged at the commencement of the loan, when the money is deposited into your nominated account.


First Home Owner Grant (FHOG): A government initiative designed to help first home owners enter the housing market. Introduced on 1 July 2000 the initiative was designed to offset the effect of the GST on home ownership. It is a national scheme and is paid out by means of a one-off grant payable to eligible first home owners who decide to build their first home. It is no longer available on pre-existing homes.

Fixed Interest Rate: An interest rate that remains the same for a pre-defined period of time. And as such, your repayments also stay the same.


Guarantee: An undertaking by a third party (spouses or immediate family members) to pay your home loan if you’re unable to meet your repayments.

Guarantor: A third party to a home loan – someone who helps you to get a loan by offering additional security. Guarantors are usually spouses or immediate family members.


Honeymoon Rate: Sometimes known as introductory mortgages, a honeymoon rate is much lower than the lender’s other home loan products (and the prevailing market rate). However, this generous rate only lasts for a pre-defined period of time.


Inclusions: A term you’ll come across when buying ‘off the plan’ that refers to items or services included in the stated base price of the home. The base price of a design will come with ‘standard inclusions’, which will vary greatly between builders.

Interest Only Loans: A loan in which, for a set period of time, the borrower pays only the interest on the principal balance, and not any part of the principal balance itself.


Lenders’ Mortgage Insurance: A one-off payment that covers your lender in case you can’t make your repayments. However, this insurance payment is only required if you sign up for a home loan with a deposit of less than 20 per cent of your homes sales price.

Line of Credit: A transaction account which gives you a credit limit that you can draw down at any time. It’s similar to a credit card, except you don’t have to make set repayments on the principal.

Loan to Valuation Ratio: Your loan amount divided by the value of your property. To calculate it, divide your loan amount by the value of your property then multiply it by 100 to get a percentage.

Loan Origination Fees: An add-on charge that lenders impose on home mortgage borrowers. It is a one-off flat fee that is payable at closing and usually ranges from 0.5 percent to 1 percent of the total amount of the loan.

Lump Sum Payment: An unscheduled extra repayment made to your home loan.


Mortgage Broker: A go-between between you and your lender who negotiates the terms of your loan on your behalf.

Mortgage Offset Account: This type of account allows you to offset the balance in that account against the balance of your home loan. This means you pay less interest on your home loan. For example, if you have a home loan balance of $300,000 and have $40,000 in your offset account you’ll only pay interest on a home loan balance of $260,000.

Mortgage – Basic Variable: A type of home loan in which the interest rate is not fixed. This type of home loan generally carries cheaper rates, as it tends to come with little to no extra features. This ‘no frills’ loan tends to be around 0.5% lower than a standard variable loan, and is ideal for first homebuyers.

Mortgage – Standard Variable: A type of home loan in which the interest rate is not fixed. These loans often come with heaps of flexible features such as offset facilities, redraw, extra repayments and the ability to split the loan. In order to access these features, however, the borrower generally pays a higher interest rate.

Mortgage- Fixed Interest Rate: A mortgage in which the interest rate remains fixed for the life of the loan.


New Home: A home that hasn’t been previously occupied or sold as a place of residence, including as residential accommodation. This may include house and land packages and homes purchased ‘off the plan’.

95% Home Loan: A loan that allows you to borrow up to 95% of the total value of the property. They’re pretty common, and are offered by the vast majority of lenders in Australia.

Non-deductible Debt: Money that’s used to purchase an item that doesn’t generate any form of income e.g. a home you intend to live in or credit card debt.


Off the Plan: Buying property off-the-plan means purchasing a place that is yet to be built. You can view design and building plans, but there’s no physical property to see or inspect.

100% Offset: See Mortgage Offset Account.


Property Tax: Property tax is a tax assessed on real estate. This tax is usually based on the value of the property (including the land) and is assessed by your local government.

Principal: The amount still owing on your home loan – your interest is calculated on the principal.

Pre-Approval: See Conditional Approval

Pre-Payment: Any extra loan payments you make on top of your scheduled repayments.

Pre-Payment Fee: Similar to: early repayment adjustment. However, this only applies to fixed rate loans.

Pre-Qualification: A process whereby a lender examines the financial situation of a borrower and makes a tentative assessment of how much they’re entitled to borrow.

Provisional Sum Items: An estimate of the costs involved with carrying out particular work, which includes the cost of supplying the necessary materials. This is required if the builder cannot say for certain exactly how much the work is going to cost, after making all reasonable enquiries.


Qualifying Ratios: Calculations used to obtain an overall picture of a borrower’s monthly debt to income ratios. There are two types of ratios used for mortgage qualification purposes. ‘Housing ratio’ (your expected monthly housing expenses divided by your monthly income) and ‘debt ratio’ (your total monthly debt divided by your monthly income).


Rate Lock: A home loan feature that allows you to secure an interest rate prior to your loan settling.

Redraw: A home loan facility that allows you to access the extra repayments you have made on your loan.

Rental Yield: Rental income generated from a property as a percentage of a property’s value. It can be calculated in two different ways: as a gross percentage (before expenses are deducted) or as a net percentage (after expenses accounted for).

Repayment Holiday: When you decide to take a break from making repayments on your home loan.


Security: A tradeable financial asset that’s used to secure your loan (e.g. land).

Settlement Costs: Also known as closing costs, these are all the extra costs that go hand in hand with closing a property sale. These include: loan application fees, appraisal fees, inspections fees, transfer taxes, attorney fees etc.

Strata Title: A form of ownership created for multi-level apartment blocks and subdivisions with shared areas.

Stamp Duty: A tax you pay to your state or territory government when you buy a property. See our stamp duty calculator.

Split Loans: When you split your loan into more than one loan account. For example, one could part could be on a fixed rate, with the remainder on a variable rate.

Sunset Clause: A clause in the contract of sale that refers to the maximum time in which the developer has to finish the build. If your property is not finished by this time you’re legally entitled to break your contract and get your deposit back.


Title Search: The process of compiling all of the documents relating to the history of a property. These are important when it comes to determining all of the relevant interests in, and regulations concerning, that piece of real estate.

Transfer Duty: See Stamp Duty

Turnkey: A popular type of property investment that sees a buyer purchase a piece of real estate; lease it out; and then sell it. Essentially, the buyer is purchasing an investment property purely to create a reliable stream of income.


Unencumbered Value: Unencumbered property is property that’s not subject to any claims by creditors. Its unencumbered value is: the amount for which it might reasonably sell for on the current market.


Variation: Changes to an off the plan development which are caused by things like council planning requirements.

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