The online mortgage broker

Glossary

A

ABN


Australian Business Number.

Accreditation


Receiving permission from a lender to recommend their products and apply for their loan products on behalf of the consumer.

ACL


An ACL is an Australian Credit Licence, which is required for those who engage in credit activities – such as benefiting from the provision or recommendation of mortgages. (Not to be confused with ‘Australian Consumer Law’)

 

ACN


Australian Company Number.

ACR


An Authorised Credit Representative. Credit representatives are authorised to engage in specified credit activities on behalf of a credit licensee.

Agents


Various professional people and firms that provide services directly or indirectly to consumers, applicants, guarantors or their self-employed businesses, e.g. real estate staff, conveyancers, and accounting firms.

Aggregator


Mortgage aggregators, dealer groups and even franchise groups that have a commission contract in place directly with lenders and usually act as an aggregation point between lenders and finance brokers.

Applicant


A legal entity such as an individual that is legally able to borrow funds.

Application


The various processes and procedures involved with seeking a loan, as defined by our panel of lenders.

Application fee


A fee charged by a lender for processing a home loan application. Not all lenders charge a fee. The fee is (usually) paid by the customer.

Appraisal


A real estate agent’s estimation of the property’s likely sale price. (Not to be confused with a valuation, which is a valuer’s assessment of a property’s value – used to calculate the LVR.)

Arrears


Behind in repayment obligations.

Assessment


NCCP Act 2009 mentions two types:

  1. Preliminary Assessment – conducted by a credit assistance provider prior to suggesting or proposing a consumer apply for, increase or remain in a particular credit contract; and/or
  2. Final Assessment – conducted by a credit provider/lender before they approve the application.

 

Both types involve making reasonable inquiries and verifying those inquiries. In both cases, it is illegal to proceed if the assessment has not been completed or if the assessment outcome is that the credit contract would be ‘unsuitable’ (see definition below) for the applicant/s.

Assessment Rate


An Assessment Rate is the interest rate used when the lender is assessing the serviceability of your loan. It is generally higher than the rate of the product you are applying for. For example, if the product’s interest rate is 5%, they may assess you on your ability to pay off the loan if the (assessment) rate is at 7%.

Assets


Items of value owned by a consumer which include real estate, motor vehicles, shares, superannuation, etc.

B

Bankruptcy


Legally declared as unable to repay debts.

Bonus


Income received in addition to salary.

Borrowing Power


The maximum estimated loan size that is likely to be approved for an applicant.

How much can I borrow?

 

Break Cost


This is the cost incurred when you make an additional payment (either a partial payment, or a payment that pays out your loan in full; including refinance) that exceeds the lender’s allowable amount (e.g. $10,000 per year) during the fixed rate period. Depending on your fixed interest rate and how long you have to go until your fixed term ends, it could come to a significant amount.

Bundle


A collection and collation of specific supporting documents required by a specific lender for a specific deal including mandatory documents and conditional documents required because application form and credit policy driven conditions apply to the specific deal, all collated in the specific order specified by the selected lender.

C

Capital Gains Tax


Tax incurred from the profit of an investment asset (not applicable to primary places of residence).

Cash out


A function of refinancing that allows the borrower to draw against the accrued equity of an asset.

Clawback


Money retrieved by a lender due to a contract being prematurely terminated.

Commission


Income received on a sale basis instead of a salaried basis.

Comparison Rate


It can be difficult to compare home loans that have different interest rates and fees. This is why credit providers must give a comparison rate when they advertise a rate or a weekly payment for home loans. The comparison rate includes the interest rate or weekly repayment amount, plus most fees and charges.

A comparison rate gives you an indication of the true cost of a loan. It’s a way of comparing loans equally by including known fees (upfront, ongoing and exit) on top of the interest rate and is calculated specifically on a $150,000 loan over 25 years. As this is a precise reference point, we recommend that you look at the cost of the mortgage over the entire loan term (which uno provides) because it’s more accurate and tailored to your situation.

Conditional Approval


Early stage of the lender application process. There are still outstanding conditions to be met on the way to receiving ‘unconditional approval’.

Construction Loan


A loan sought to facilitate building on land owned by the applicant.

Consumer


Applicants and customers.

Continuing Professional Development (CPD)


Relevant industry training that includes seminars, certificates, workshops, etc. This is usually measured in hours. Different bodies have varying minimum requirements, as follows:

  • ASIC = 20 Hours per annum
  • FBAA = 25 Hours per annum
  • MFAA = 30 Hours per annum

Credit Adviser


A term used to describe a mortgage broker. The MFAA tried to introduce this as an industry standard, but variations still widely exist.

Credit Assistance


Suggest or assist a consumer apply for, increase or remain in a particular credit contract.

Credit Assistance Quote


The CAQ provides an estimate of the fees and charges incurred to the consumer for using the service provider (e.g. mortgage broker). This is given upfront and usually accompanies the Credit Guide. Because uno does not charge a fee for service, we are not required to give a CAQ.

Credit Check


Used to obtain the customer’s credit score.

Credit Guide


A disclosure document required by legislation that is given by credit providers and credit assistance providers to consumers. It details what the provider does (services), contact information and how the consumer can make a complaint if they are not satisfied with the given services. The Credit Guide is given as soon as it becomes likely the consumer will use the provider’s services. uno’s credit guide can be found here

Credit History


Given in a customer’s credit check that details their past credit activity such as applications, defaults, directorships, etc.

Credit Impairment


A negative mark on a credit check, such as a default.

Credit Policy


A Credit Policy is a set of guidelines / lending criteria that lenders abide by when providing a loan product. It is put in place by them to manage their risks and to comply with legislations.

Credit Proposal Disclosure Document


This gives information about the recommended product – such as expected repayment amounts, total cost of the loan, features, upfront fees and estimated commissions. It is given when recommending a particular credit contract to a consumer.

Cross collateralisation


When one loan is used as collateral for another loan.

Customer


A person seeking to obtaining credit (a home loan).

D

Deal


A specific lending scenario which would include at least one and possibly more than one credit contract.

Debt Consolidation


Using one loan to cover debts from multiple other loans – e.g. refinancing a mortgage to include credit card debts in the repayments.

Find out more about debt consolidation here.

Default


Failure to pay money owed. This could be a bill or the principal sum of a credit contract (failure to make repayments is arrears).

Dependents


Persons not included on the finance application that depend on the applicant/s for financial support.

Deposit


Funds used to secure the rights of an asset.

Deposit Account


A savings account.

Deposit Bond


A form of guarantee accepted by a vendor in lieu of a deposit. The underwriter guarantees payment of the deposit bond value to the vendor in the case that the purchaser does not proceed with the purchase under the normal terms of the contract of sale.

Discharge Fee


An early termination fee paid to lender for closing a credit contract prior to the expiry of the loan term.

Dividends


Income received from shares, etc.

E

Equity


The portion of an asset owned by a consumer.

Establishment Fee


A fee paid to the lender by a consumer when entering a new loan contract.

Exit Strategy


A plan for mature age applicants to repay their debt after retirement. This can involve relying on rental income, superannuation or the sale of investment properties.

Expenses


Usual consumer expenditure.

Extra Repayments


A loan feature that allows for extra repayments to be made on top of the minimum monthly repayment amount.

F

FBAA


The FBAA is the Finance Brokers Association of Australia.

FHB


First Home Buyer.

Read more about FHB’s here.

FHOG


First home owner grant – this is allocated on a state-by-state basis.

For more information on the FHOG, specifically based on your state click here.

Fixed Rate


A set interest rate for a determined period of time, usually between 1-5 years.

Full Doc Loan


A loan with all necessary supporting docs (typically in relation to income verification) submitted.

G

Genuine Savings


Savings that have been maintained in a consumer’s account for at least three months.

Gift


Money given to an applicant from a friend or relative to contribute towards their deposit/loan application. A gift does not have to be repaid. Typically, a statutory declaration must be signed by the party giving the gift.

Government Benefits


Money received by the government, e.g. pension or Centrelink payments.

Guarantor


A person who is not an applicant on the loan that is legally responsible for paying back the entire loan if the borrower cannot or will not make the repayments. The guarantor will also have to pay any fees, charges and interest.

H

Honeymoon Rate


An introductory rate that lasts for a set period. This usually lasts for up to 12 months and is used by some lenders to attract new customers.

I

Interest Only Repayments


Repayments that only go towards the interest component of the loan repayments. Interest only repayments do not pay off the prinicipal loan amount.

Interest rate vs. comparison rate


The interest rate is simply the interest a borrower is required to pay back on a loan.

Comparison rates calculate the interest a borrower will need to pay along with any fees and charges – this is expressed as a single percentage to assist borrowers in assessing the true cost of each loan. For more information on comparison rates read here.

Investment


Any asset with income earning potential, e.g. rental properties.

K

Key Fact Sheet (KFS)


A document authored and published by a lender in a set format to inform borrowers about a the features of a loan. The product KFS is usually available via the lender website.

L

Lender


Organisations with mortgage products; they lend money to borrowers. These might be financial organisations (e.g. CBA, Westpac, NAB, ANZ, Suncorp); Credit unions; Building Societies; and/or Mortgage Managers. 

uno works with more than 20 lenders, with roughly a third of our business going to the big four banks and two-thirds going to non-major lenders. 

Lenders Mortgage Insurance (LMI)


Lenders Mortgage Insurance (LMI) is an upfront charge you pay when borrowing over 80% of your property’s purchase price. It is an insurance policy paid by the borrower which covers the lender. Read more about LMI here.

Liabilities


Formal ongoing obligations, such as a personal loan, separate from day-to-day expenses.

Loan Term


The period over which the loan is expected to be repaid.

Low Doc


A loan that does not require all supporting docs (typically in relation to income verification for self-employed people) to be submitted. These are commonly sought by self-employed applicants and usually come with higher interest rates due to the increased risk to the lender. As such, many low doc loans require lower LVRs.

LVR


Loan to Valuation Ratio. The loan amount divided by the security value expressed as a percentage. This is a key indicator of risk to a lender in any deal. Typically no higher than 60% for Lo Doc loans, no higher than 80% without Lenders Mortgage Insurance and no higher than 97% for mainstream lenders.

For more information on LVR, read here.

M

MFAA


The Mortgage and Finance Association of Australia – an industry body that lobbies on behalf of its members. Most lenders require that loan writers have membership with the FBAA and/or MFAA in order to gain accreditation.

Mortgage Adviser


Another name for a mortgage broker.

Meet uno’s mortgage advisers here.

Mortgage Broker


An intermediary that introduces borrowers to lenders (usually a bank) and assists with application preparation plus, possibly negotiates a less than advertised interest rate on your behalf, known as a special pricing request.

As a minimum, they must have completed a Cert IV in Finance & Mortgage Broking to operate legally. Mortgage brokers must have an ACL, be an employee of a credit licensee or as a Credit Representative under a ACL held by another entity (usually their aggregator).

Meet uno’s mortgage brokers here.

Mortgage Product


This is anything the lender calls a product. There is no single definition of the items that make up a product.

Mortgage Servicing


This is the activity that occurs after settlement and relates to ongoing repayments, interest charges, balances etc. Sometimes lenders outsource this activity to a third party.

Mortgagee


The lender in a mortgage.

N

National Consumer Credit Protection Act 2009 (NCCP)


The National Consumer Credit Protection (NCCP) is the current credit licensing and governance framework introduced in 2011 to enforce responsible lending for credit providers – including brokers.

Negative Gearing


An investment that costs more to maintain than the income it produces. This can be claimed as an expense to reduce owner’s taxable income.

O

Off the Plan Purchase


Buying a property before it has been built/completed.

Offset Account


A transaction account linked to a mortgage. The amount in the offset account is taken off the principal when calculating the interest payable.

Owner Occupied


A property which is (or will be) the primary place of residence for the consumer.

P

Part IX


A debt agreement between the consumer and the creditor to which they owe money.

Part X


A personal insolvency agreement – typically for those in more severe debt than those eligible for a Part IX.

Partial Offset


A transaction account linked to a mortgage. A designated portion of the amount in the offset account is taken off the principal when calculating the interest payable.

PAYG


“Pay As You Go” is a type of salaried employment.

Permanent Resident


A Permanent Resident is someone who has gained permanent residency and can indefinitely live in Australia for as long as they wish.

Portability


Loan portability allows borrowers to transfer their existing mortgage to a new property when moving home, which can save borrowers from repeating the process of getting a mortgage every time they move. If changes need to be made (for example, if additional financing is needed), borrowers may have to take out a new mortgage instead.

Positive Gearing


An asset that is generating surplus income – it makes more money than what it costs to maintain. This extra income contributes to a larger taxable income for the owner.

Pre-Approval


This is approval for a purchase prior to selecting a security. It is recommended that applicants get pre-approval prior to bidding at auctions so they are aware of their borrowing limitations.

Preliminary Credit Assessment


The PCA is a formal documentation of the assessment outcome.

Principal & Interest Repayments


Repayments that contribute to both the principal and interest components of the loan obligations and reduces the principal over the loan term.

Product Features


Add ons to the loan that can be a benefit to the applicant. These can include offset accounts, redraw facilities, extra repayments, etc.

R

Recommendation


A suggestion to a consumer that they apply for, increase or remain in a particular credit contract. This can only be given once an assessment is completed and the assessment result is that the particular credit contract is ‘not unsuitable’ for the consumer. This is a form of credit assistance.

Redraw Facility


Redraw facility is a loan feature that allows consumers to access any extra funds that have been contributed to their home loan. Redraw facilities can give customers flexibility when needed and allow them to make extra repayments to pay off their loan faster.

Requirements & Objectives


What the customer is looking to achieve and expects from the loan.

Risk Fee


A fee charged by some lenders in place of LMI.

S

Sale Proceeds


The extra money received as a result of selling an asset.

Security


The asset used to secure credit. It is used to cover the cost of the loan in the event of the borrower not being able to meet their obligations under the credit contract.

Self-Employed


A customer who owns their business, such as a sole trader.

Serviceability


Broadly defined, serviceability is the ability of a borrower to meet loan repayments, based upon the loan amount, the borrower’s income, expenses and other commitments.
This generates an overall figure, known as the debt service ratio – a borrower’s monthly debt expenses as a proportion of monthly income.
Most lenders set a maximum debt service ratio of between 30 and 35 percent.

Settlement


Exchange of ownership of an asset.

Shortlist


Two or more loan products that seem to suit the consumer.

Specialist Lender


A lender that operates in niche markets.

Split Loan


A loan that is divided between multiple products/types. A common split is to have one part fixed rate, the other variable. The reason for having a split may be to get partial benefits of each product. For example, an offset account may only be available on a variable rate product, but the customer also wants to fix a portion of their repayments to have greater stability.
Some lenders limit the number of splits available.

Stamp Duty


A government cost incurred when purchasing real estate. This differs from state-to-state and is based on the purchase price of the property.

Standard Variable Rate


Each lender has an SVR that is reverted to when a loan’s fixed rate period expires, for example.

Substantial Hardship


This is, for example, a consumer having to sell their principal place of residence to comply with their financial obligations under a credit contract.

Suggest


Proposing to a consumer that they apply for, increase or remain in a particular credit contract. It can even be giving the consumer the impression that they should apply for, increase or remain in a particular credit contract. This is a form of credit assistance.

Supporting documents


Documentary evidence required by lenders to verify application data, used by us and lenders to confirm the information that the applicant has provided during their application process, usually grouped into a bundle.

T

Top Up


An increase to the existing loan amount.

Trail commission


An ongoing stream of payment the broker receives after a loan settles. The payment amount is a percentage of the remaining loan balance (or the principal amount) of the product. Trail commission lasts as long as the loan is open.

Trust


A structure set up to allow ownership of an asset on behalf of one or more beneficiaries.

U

Unconditional Approval


A stage of the loan application in which all approval conditions have been met.

Unencumbered


An asset that does not have any debt owed, e.g. a house without a mortgage on it.

Unsecured Loan


No collateral provided to back the loan product.

Unsuitable


NCCP Act 2009 mentions two unsuitable scenarios:
1. The consumer would be unable to meet their financial obligations or may only meet them with substantial hardship; and/or
2. The proposed contract would not meet the consumer’s requirements and objectives having regard to the purpose, amount of credit sought, timeframe and any particular additional expenses, features or flexibility identified in the assessment process.

Upfront Commission


Income received from lenders for referring them business. This is a one-off payment given at the time of settlement and is calculated as a percentage of the final loan amount. The calculation for commission payment will differ from lender to lender.

Upfront Fee


Charged by the lender to the borrower, this covers administration costs for preparing the loan documents and processing.

V

Valuation


An assessment of a property’s value. This is used to calculate the LVR.

Variable Rate


Loan products that have fluctuating interest rates.

VOI


Verification of Identity is a process to ensure that applicants are who they claim to be.

W

White Label


A ‘home-branded’ loan, a similar concept to home-branded products found in supermarket aisles.

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