The mortgage glossary
45 home loan terms in plain English — from LVR and LMI to offset, redraw and serviceability.
Alt-Doc Loan
A loan for self-employed borrowers verified with alternative documents — BAS statements, business bank statements or an accountant's declaration — instead of full tax returns. Rates are slightly higher than full-doc loans.
Application Fee
A one-off fee some lenders charge to set up a new loan, typically $0–$800. Often waived in packages or negotiated away — always check the comparison rate, which includes it.
Best Interests Duty
A legal obligation, in force since 2021, requiring mortgage brokers to act in the borrower's best interests when recommending loans. Bank staff selling their own products are not subject to this duty.
Break Cost
A fee charged for repaying or exiting a fixed-rate loan before the fixed term ends. It compensates the lender for lost interest and can run to thousands — always check before refinancing a fixed loan.
Bridging Loan
Short-term finance that lets you buy a new home before selling your current one, covering both properties for a limited period (usually 6–12 months) until the sale settles.
Cashback
A cash incentive (commonly $2,000–$4,000) some lenders pay borrowers who refinance to them. Worthwhile only when the underlying rate is also competitive.
Comparison Rate
The interest rate adjusted to include most fees and charges, calculated on a standardised $150,000 loan over 25 years. Designed to reveal the true cost of a loan beyond the advertised rate.
Conditional Approval
Another name for pre-approval — a lender's in-principle agreement to lend up to an amount, subject to conditions such as a satisfactory property valuation.
Construction Loan
A loan for building a home, drawn down in stages ("progress payments") as construction milestones complete. You pay interest only on the amount drawn during the build.
Credit Score
A number (typically 0–1,200) summarising your credit history, used by lenders in assessing applications. Multiple loan applications in a short period can lower it.
Debt-to-Income Ratio (DTI)
Your total debts divided by your gross annual income. Many lenders cap lending at a DTI of 6–8; it has become one of the key limits on borrowing capacity.
Deposit
Your upfront contribution to a property purchase. 20% avoids LMI; lower deposits are possible with LMI, a guarantor, or the First Home Guarantee (5%, no LMI, for eligible first home buyers).
Discharge Fee
An administrative fee (typically ~$150–$400) your outgoing lender charges when you repay or refinance a loan.
Equity
The difference between your property's market value and your loan balance. Usable equity (generally up to 80% of value minus the loan) can fund renovations, investment or a deposit on another property.
First Home Guarantee (FHBG)
A federal scheme letting eligible first home buyers purchase with a 5% deposit and no LMI — the government guarantees the gap. Uncapped places and no income caps since October 2025; Sydney price cap $1.5M.
First Home Owner Grant (FHOG)
A NSW government grant of $10,000 for eligible first home buyers purchasing or building a brand-new home under price caps. Separate from stamp duty exemptions.
First Home Super Saver Scheme (FHSSS)
A federal scheme allowing first home buyers to withdraw eligible voluntary super contributions — up to $50,000 per person plus earnings — to use as a deposit, with tax advantages.
Fixed Rate
An interest rate locked for a set period (usually 1–5 years), giving repayment certainty. Break costs apply if you exit early, and fixed loans often lack full offset features.
Genuine Savings
Funds you've saved or held over time (usually 3+ months) — many lenders require 5% genuine savings for high-LVR loans. Some accept rental history or gifted funds held for 3 months instead.
Guarantor
A family member (usually a parent) who offers equity in their own property as additional security for your loan, letting you borrow with little or no deposit and avoid LMI. Liability should always be limited to a set amount.
Help to Buy
A federal shared equity scheme where the government contributes up to 40% of a new home's price (30% existing) in exchange for an equity share. Income caps apply, unlike the First Home Guarantee.
Interest-Only (IO)
A repayment type where you pay only interest for a set period (usually 1–5 years), keeping repayments low but not reducing the principal. Common for investors; usually reverts to principal-and-interest afterwards.
Lenders Mortgage Insurance (LMI)
A one-off premium protecting the lender (not you) when you borrow above 80% of a property's value. Costs range from a few thousand dollars to $35,000+ at 95% LVR, and can usually be added to the loan.
Loan Term
The length of the loan contract, most commonly 30 years. A longer term lowers repayments but increases total interest; refinancing to match your remaining term avoids silently restarting the clock.
Low-Doc Loan
A loan requiring reduced income documentation, designed for self-employed borrowers — see Alt-Doc Loan. Modern low-doc lending still requires meaningful income verification under responsible lending laws.
LVR (Loan to Value Ratio)
Your loan amount as a percentage of the property value. An $640,000 loan on an $800,000 home is 80% LVR. Below 80% avoids LMI and unlocks the sharpest rate tiers.
Mortgage Registration Fee
A NSW government fee (around $170) to register the lender's mortgage on the property title.
Offset Account
A transaction account linked to your loan whose balance offsets the loan principal when interest is calculated daily. $50,000 in offset against a $500,000 loan means interest on only $450,000 — while your money stays accessible.
Owner-Occupier
A borrower who lives in the property. Owner-occupier loans carry lower rates than investment loans, and living in the home is a condition of first home buyer schemes.
Package (Professional Package)
A bundle combining a home loan with an offset, credit card and fee waivers for an annual fee (~$300–$400). Worthwhile only if the rate discount and features outweigh the fee.
Pre-Approval
A lender's assessment that they're prepared to lend you up to a set amount, subject to a property and final checks. Usually valid 3–6 months; strongly recommended before making offers or bidding at auction.
Principal
The amount you've borrowed, excluding interest. Principal-and-interest repayments reduce it over time; interest-only repayments don't.
Principal and Interest (P&I)
The standard repayment type covering interest plus a portion of the loan balance, so the debt reduces to zero across the term. Owner-occupier P&I loans get the market's lowest rates.
Redraw
A facility letting you withdraw extra repayments you've made ahead of schedule. Similar effect to offset, but the money legally sits in the loan and access can be restricted — offset offers cleaner separation, especially for future investment properties.
Refinancing
Replacing your current loan with a new one — with another lender or your own — to get a better rate, unlock equity, consolidate debts or change loan features.
Rentvesting
Renting where you want to live while owning an investment property where prices and yields are favourable — a strategy to enter the market without giving up lifestyle location.
Reprice / Retention Offer
A rate reduction your existing lender offers to stop you refinancing away. Asking for a reprice (in writing, citing competitor rates) is the zero-cost first step before any refinance.
Serviceability
A lender's calculation of whether you can afford the loan — income minus expenses, debts and buffers. Assessed at your rate plus a ~3% buffer, which is why borrowing capacity is lower than many expect.
Settlement
The legal completion of a property purchase, when funds change hands and the title transfers. Typically 4–6 weeks after exchanging contracts in NSW.
SMSF Loan (LRBA)
A Limited Recourse Borrowing Arrangement letting a self-managed super fund borrow to buy investment property inside super. Requires a compliant structure, larger deposits (20–30%+) and specialist lenders.
Split Loan
A loan divided into fixed and variable portions — hedging between repayment certainty on the fixed part and flexibility (offset, extra repayments) on the variable part.
Stamp Duty (Transfer Duty)
A NSW state tax on property purchases — roughly $31,000 on an $800,000 purchase. Eligible first home buyers are exempt up to $800,000 with concessions to $1M.
Unconditional Approval
The lender's final, binding approval of your loan after valuation and verification — the green light to proceed confidently to settlement.
Valuation
The lender's independent assessment of a property's value, which (not the purchase price) determines your LVR. A low valuation can require a bigger deposit — brokers can order valuations with multiple lenders when one comes in low.
Variable Rate
An interest rate that moves with the market and lender decisions. Variable loans typically allow unlimited extra repayments, full offset and no break costs.
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