COMMONLY USED BANKING AND FINANCIAL TERMS

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ABA

(Australian Bankers' Association)

ACCELERATION CLAUSE

A term of a credit contract or mortgage that entitles the bank, under certain circumstances such as default, to be entitled to an immediate payment of all or part of an amount of the contract that would otherwise not be due.

A common example of this clause would be where a certain number of payments become overdue, and if not paid by a certain time, the entire debt can become due.

ACCEPTANCE

To agree to the terms of an offer or a contract.

ACCRUED

Interest you have earned or incurred that is yet to be paid to you or charged out.

ADJUSTMENTS

The process of allocating expenses (eg Council, electricity, phone, water rates) on settlement day that the seller has paid for but not used, and which the buyer has not yet used but will be billed for.

ALLOTMENT

A block of land that is created out of a larger area.

AMORTISATION

The amount of the loan payment multiplied by the number of equal periodic payments calculated to pay off the debt at the end of a fixed period. This amount includes accrued interest on the outstanding balance.

AMORTISATION PERIOD

The period of time that one has to repay a loan at the terms arranged.

AMORTISATION SCHEDULE

This is the formal name for the repayment schedule that shows each of your mortgage payments with a breakdown of how much is applied to principal and how much is applied to interest.

ANNUAL PERCENTAGE RATE (APR)

The annual effective rate of the mortgage which is made up of the interest rate, plus fees and charges that incur during the contract period. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account other points and other credit costs. The APR allows homebuyers to compare different types of mortgages based on the annual cost for each loan.

ANNUITY

A payment at regular intervals of a certain amount of money for a term of years or during the life of an individual.

APPLICATION FEES

Fees that are charged to cover or partially cover the lender's internal costs of setting up a loan approval for a home buyer.

APPRAISED VALUE

An estimate of the value of a property being used as security for a loan. The estimate is made by a qualified professional called an 'appraiser' or 'valuer'.

ARREARS

An overdue account that is yet to be paid.

ASSETS

Money, property or goods owned.

ASSETS

Everything that a person or a company owns or has a right to, from which a benefit can derive. Net assets are assets that are in excess of liabilities. Liquid assets are assets either in the form of cash or that are readily convertible into cash.

ASSUMPTION

The agreement between a buyer and a seller where the buyer takes over the payments on an existing mortgage from the seller. 'Assuming a loan' can save the buyer money because it is an existing mortgage debt whereby closing costs and new, possibly higher interest rates are not applied.

AT CALL

Funds which can be withdrawn on demand or without giving notice of intention to do so.

ATM

Automatic Teller Machine.

AUCTION

The public sale of property with ownership given to the highest bidder, subject to a reserve price being reached.

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BAD (BANK ACCOUNT DEBITS TAX)

State or Territory government tax (except ACT) on withdrawals from accounts on which a cheque may be drawn.

BAD DEBT

A debt with little chance of being recovered and that is then written off as a loss.

BALANCE SHEET

A statement of assets, liabilities and net equity for any enterprise taken at a given point of time.

BALANCED TRUST

Balanced Trusts invest in the broadest spectrum of investment markets, including shares, listed property trusts and government securities. The main advantage in making this type of investment lies in the flexibility afforded to their fund managers in being able to alter the investment composition of the trust in the light of changing economic and investment conditions, thus enabling the pursuit of the best results.

BALLOON PAYMENT

A large loan repayment made in order to clear a debt. Usually applied to a short-term fixed-rate loan, which involves small payments for a certain period of time with one large payment for the remaining amount of the principal at a time specified in the contract.

BANK CHEQUE

A cheque that draws money specifically from funds you own held in a bank account.

BANKER'S OPINION

Enquiries that are made from one bank to another to check on a customer's reliability or credit worthiness.

BANKRUPTCY

When a debtor has his/her estate placed into the hands of a receiver who then has the responsibility for distribution of the estate.

BASIC VARIABLE LOANS

Basic Variable Loans are like Standard Variable Loans, but having less features. In return for the reduced facilities, the lender applies a more competitive interest rate. As with Standard Variable Loans, the interest rate can fluctuate over the term of the loan.

BEARER

A person presenting a cheque to a bank for payment.

BILL OF EXCHANGE

A bill of exchange is a negotiable written order for payment of a specified sum to a designated person. Bills of exchange are commonly used in international trade. The person receiving a shipment of goods must pay the sum specified in the bill before taking title to the goods. Bills of exchange are often purchased by banks at a discount, and they may pass through several hands before redemption. It is sometimes called a bank draft.

BILL OF SALE

A written agreement whereby ownership of property is transferred but the original owner is allowed to retain possession.

BLUE CHIP STOCK

Shares in a well-established company that are highly regarded in financial circles.

BODY CORPORATE

A corporation of the owners of units within a strata building. The owner's form a self-elected council for the management of the building and common areas.

BRIDGING FINANCE

A short-term loan that covers a financial gap I time between the purchase of a new property and the sale of an old property.

BROKER

An individual whose business it is to assist and arrange funding or negotiation of contracts for a client but who is not responsible for lending the money himself. Brokers generally charge a fee or receive a commission for the services they perform.

BUILDING REGULATIONS

The standards that are formulated by local councils to control the quality of buildings.

BUSINESS FINANCE

Business finance concerns a firm's acquisition of funds and the management of these funds for various operations.

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CAPITAL

The current value of your long-term assets ie house, property or business.

 CAPITAL GAIN

The monetary gain that is obtained when you sell an asset for more than you paid for it.

CAPITAL GAINS TAX

A Federal tax on the monetary gain that is made on the sale of an asset bought and sold after September 1985.

CAPITAL GROWTH

The increase in value of an asset or investment ie the difference between the current values and the original purchase price (provided the result is positive, not negative).

CAPITAL GUARANTEED

An investment where your money (principal) is guaranteed safe; usually by a bank, government body, or life insurance company.

CAPPED LOAN

A loan where the interest rate is not allowed to exceed a set level for a period of time. Unlike fixed rate loans, the interest rate is allowed to drop.

CAPS (INTEREST)

Consumer safeguards which limit the amount that the interest rate on an adjustable rate mortgage may change per year and/or the life of the loan.

CAPS (PAYMENT)

Consumer safeguards which limit the amount that monthly repayments on an adjustable rate mortgage may change.

CASH MANAGEMENT TRUST

A unit trust where investors (unit holders) pool their money into money market instruments which are normally only available to professional investors with hundreds of thousands of dollars to invest in the money market. Cash trusts operate with a trust deed, a trustee overseeing activities and a management company that is responsible for the investment strategy.

CAVEAT

The Latin for 'beware'. Usually a caveat is in the form of a contract clause that stipulates a particular requirement.

CAVEAT EMPTOR

Latin for 'let the buyer beware', or in Australia 'you pays your money and you takes your chances' . . .

CERTIFICATE OF TITLE

This document details of the land dimensions and ownership details, and whether there are any encumbrances on it.

CHATTELS

Chattels are personal property. There are two types of chattels. Real chattels include buildings and fixtures. Personal chattels include clothes and furniture.

CHEQUE

A cheque is a written order from a cheque-account depositor directing his or her bank to make funds available to a specified person or to 'cash' (anyone presenting the cheque for payment). A cashier's cheque is drawn by a bank against its own funds. Unlike a personal cheque, it has unquestioned validity. A TRAVELLER'S Cheque is a form of cashier's cheque.

Cheques are convenient to carry and use, are less subject to theft than cash, and serve as receipts after they are processed and returned. More than 90% of monetary payments in business are made by cheques.

A bank receiving a cheque drawn on another local bank sends it through a local clearinghouse, which then adjusts the customers bank accounts.

CLOSING

A meeting between a buyer, seller and lender or their agents where the property and funds legally change hands. This is commonly known as 'settlement'.

CLOSING COSTS

Usually include an origination fee, discount points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. The costs of 'closing' are usually around three to six percent of the mortgage amount.

CLUSTER HOUSING

A group of houses that share a common space.

COMMISSION

A fee which is payable to the real estate agent, by the vendor, for the sale of property.

COMMITMENT

An agreement which is often put down in writing, between a lender and a borrower to loan money at some future date subject to the completion of paperwork or compliance with stated conditions.

COMMON PROPERTY

An area used by many, rather than an individual. The area is owned by the tenants in common.

COMPANY TITLE

A property title that applies when owners of units in a block form a company.

COMPARISON RATE

A single figure meant to represent the entire cost of a credit product. The comparison rate takes into account financial features in addition to the interest rate. Comparison rates, if used, must be calculated according to Credit Code regulations and a warning must state the limits of the comparison rate. The bank will not generally make use of comparison rates.

COMPOUND INTEREST

Interest that is paid on accumulated interest as well as the original principal invested.

CONSUMER CREDIT CODE

An act of Parliament that governs the relationship that exists between borrowers and lenders.

CONSUMER PRICE INDEX (CPI)

Measures the national inflation rate. The index is measured quarterly (December, March, June and September quarters) and reflects changes in prices (up or down) of a fixed 'basket' or list of goods and services.

CONTINUING CREDIT CONTRACT

A contract under which multiple advances of credit are possible. Examples are: Overdraft, Line of Credit, Credit Card

CONTRACT OF SALE

A written agreement that outlines the terms and conditions for the purchase or sale of property.

CONVEYANCING

The legal process for the transfer of ownership of real estate.

COST OF CREDIT

An expression used, although not defined, in the Credit Code in relation to advertising for consumer credit. The cost of credit refers to interest rates, amounts of fees and charges and may also extend to comparative descriptions with competing products.

COUNTERSIGNED

Additional signature or signatures that guarantee the validity of a document.

COURT

A court or tribunal which has legal jurisdiction that enables it to make decisions or rulings about the application of the Credit Code. This includes the Supreme Court of any state or territory, State Credit Tribunals, Commercial Tribunals and Small Claims Tribunals.

COVENANT

Terms and conditions that specify the usage of a block of land or the buildings on the land.

COVER NOTE

A note of temporary property insurance put in place before the implementation of a formal policy.

CRAA (CREDIT REFERENCE ASSOCIATION OF AUSTRALIA)

The body which holds credit details on individuals.

CREDIT BORROWED

Money that is to be paid back under an arrangement made with a lender. Also, a sum of money that is paid into an account.

CREDIT CARD

A credit card allows its holder to buy on credit from stores, restaurants, and a multitude of other goods and service providers. The credit-card holder pays the company issuing the card for those purchases, and the company then reimburses the providers. With a 'charge card', a customer may purchase items from a particular store, or fuel of a particular brand. Both types of card offer the customer the option of paying the full amount of the monthly debt balance, or of paying only a portion per month, repaying the remainder at an annual rate that can be as high as 18-21%.

Many credit-card companies also impose an annual fee on credit-card holders. All credit-card companies charge retailers a fee - typically, around 3% of the purchase price - for each credit-card purchase. The cost to retailers - estimated at $6 billion in 1983 - is 'hidden in' the retail price of all goods and services sold by the firms that accept credit cards from their customers.

CREDIT CONTRACT

A document under which credit is, (or may be), offered by a credit provider. The credit recipient is referred to as the debtor. In the bank, a customer signs a terms and conditions letter, commonly called a loan offer, and that document becomes a credit contract upon signing.

CREDIT FEES AND CHARGES

Fees and charges which become payable in relation to a credit contract or mortgage excluding interest charges, transaction fees, government charges and duties on deposits and withdrawals.

CREDIT LIMIT

The maximum amount of credit the borrower can use at any one time.

CREDIT RELATED INSURANCE

Home buildings insurance that is taken out in relation to a credit contract, whether financed under the credit contract or not.

CREDIT REPORT

The ratio, expressed as a percentage, which results when a borrower's monthly payment obligation on long-term debts is divided by his or her net effective income or gross monthly income.

CREDITOR

A party to whom money is owed. (The party owing the money is known as the debtor).

CROSSED CHEQUE

A cheque with two parallel lines drawn vertically across, indicating that it must be paid into an account and cannot be cashed.

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DAILY INTEREST

Interest that is calculated on a daily basis - therefore varying according to the daily account balance.

DEBIT

An account entry to charge a withdrawal to a specified account.

DEBT

A debt, in finance, is the obligation to pay someone a sum of money. Usually a debt arises from a transaction in which one person (the debtor) receives something (eg goods, services, or money) from another person (the creditor). In return, the debtor promises to repay later under terms which are pre-arranged.

Most debts include a promise to pay INTEREST at a specified rate.

If a debtor fails to meet their repayment obligations, the creditor may take legal action to enforce payment or otherwise seize property in lieu of payment. In one procedure a JUDGMENT is obtained through a court process against a debtor, requiring that payment be made. If the debtor still fails to pay, state laws provide that the sheriff or some other law-enforcement agency may seize the debtor's property and dispose of enough of it to pay the sum owed, plus any legal costs incurred in doing so.

DEBENTURE

A type of fixed interest security, issued by companies (as borrowers) in return for medium and long-term investment of funds. Debentures are issued to the general public through a prospectus and are secured by a trust deed that spells out the terms and conditions of fund-raising and the rights of debenture holders. Typical issuers of debentures are finance companies and large industrial companies.

DEBT CONSOLIDATION

Taking advantage of lower interest rates that may be available by the grouping of multiple loans into one, lower interest rate loan.

DEBTOR

Someone who owes money to someone else.

DEED

A legal document that states an agreement or obligation relating to a property.

DEFAULT

A failure to meet legal obligations in a contract, specifically, failure to debt repayments on a due date.

DEFERRED ANNUITY

An annuity where income payments do not commence ie payments are deferred until some specified date in the future.

DELINQUENCY

Failure to make payments on time. This can lead to foreclosure.

DIVIDEND

The share of profits that are distributed to shareholders of a publicly listed company.

DISCOUNTED VARIABLE LOANS

Commonly referred to as the 'Honeymoon Rate'.

This type of loan has been used by the banks to combat the entry of Mortgage Managers into the market. It is the same as a variable rate loan, but has a lower interest rate (normally between 1.5% and 2.5% less) for an introductory period (between six months to a year). If you decide on a Discounted Variable Loan, ask about any 'break costs' involved. These are costs incurred if you discharge the loan early, and can be considerable.

DIVIDEND IMPUTATION

A tax system, where dividends paid by a taxpaying Australian company to its shareholders, carry a credit for the tax the company has already paid on its profits. This means that shareholders receive a reduction to the tax normally payable.

DOWN PAYMENT

Money paid to make up the difference between the purchase price and the amount of the mortgage (or borrowings). Down payments are usually ten to twenty percent of the sales price on Conventional loans, with some products offering 'no money down' up to five percent down payment terms.

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EARLY TERMINATION PAYMENT

The cost applied when paying out a loan early.

EARNEST MONEY

Money given by a buyer, to a seller as part of the purchase price in order to bind the transaction or assure payment.

EASEMENT

A right to use a corridor or passage of land which is owned by another party.

EFT (ELECTRONIC FUNDS TRANSFER)

Electronic transfer of funds from one account to another.

ELIGIBLE TERMINATION PAYMENT (ETP)

This is the term used to describe lump sum payments received when retiring or changing employment, that can be rolled over into an Approved Deposit Fund or Deferred Annuity. ETP's can include payments from a superannuation fund, approved deposit fund, deferred annuity, commutation of an annuity/pension, unused sick leave and 'golden handshakes.'

ENCUMBRANCE

An outstanding liability or charge (money owed) on a property.

 ENDORSE

To sign the back of a cheque to confirm or transfer ownership of that cheque to someone else.

ENFORCEMENT EXPENSES

The costs involved in the recovery of a debt under a credit contract, mortgage or guarantee. Enforcement expenses can include insurance, rates and taxes payable for the property, but only if those expenses are incurred after a breach occurs.

ENFORCEMENT PROCEEDINGS

Actions taken such as court proceedings, to recover money under a credit contract or guarantee, taking possession of mortgaged property or any other action taken to enforce a mortgage.

EQUITY

The amount of (or that portion of) an asset actually owned. Equity is the difference between the market value and the current amount of money still owing on the loan. This is also referred to as the 'owner's interest'.

EQUITY (FINANCE)

In finance, equity is the capital furnished by the owners or shareholders of a business firm. It is distinguished from debt, or funds supplied by the firm's lenders and other creditors. On the firm's financial statements, equity is equal to its net worth. When the company's debts have been paid, the owners of equity are entitled to all the remaining earnings and property of the company.

EQUITY LOAN

A loan usually secured by the proportion of the value of your house which you own.

EQUITY MORTGAGE

A loan secured by the part of the value of an asset (usually house) which you own.

ESCROW

An escrow is a holding account for money (or other securities) that is to be used for a specific purpose. In the case of a mortgage, when you make a mortgage payment, you are paying an additional amount above the principal and interest which is to be held for taxes and insurance. This money is held in escrow until it is time to make a payment to your insurance company or to the tax collector. At that time, the escrow agent will disburse funds to make the payment.

ERIC - (Effective Rate of Interest plus Costs)

ESTABLISHMENT FEES

Lending body fees which may or may not be charged to set up a loan.

ETIA - (Early Termination Interest Adjustments)

EXCHANGE OF CONTRACT

The legal point of time when the vendor and purchaser swap documentation and start enquiries with a view to settlement.

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FID - (FINANCIAL INSTITUTIONS DUTY)

State duty on the receipts of financial institutions.

FINANCE COMPANY

Finance companies make cash loans to consumers and also make loans for purchases of durable goods, which are then security for the loans. In addition, they finance consumer purchases by purchasing installment credit contracts that retailers have negotiated with buyers.

FITTINGS

Items that can be removed from a property without causing damage to it.

FIXED INTEREST

An interest rate that is set for an agreed period of time.

FIXED RATE LOANS

As the name suggests, fixed rate loans have fixed interest rates (or an interest rate which does not fluctuate) for the period of the loan. The term of these loans is normally between one and five years, although some lenders offer ten year fixed rate loans. Many borrowers feel more secure knowing that their repayments will not change during the term of the loan, however, if interest rates go down, borrowers may lose considerable savings which would have resulted from a variable rate loan. Fixed rate loans in general do not offer the value added features that variable loans do. Borrowers should be aware that most lenders do not allow extra repayments, or the use of an offset account with fixed rate loans. Some do not even allow fortnightly repayments. At the end of the fixed period, most loans revert to the standard variable rate of the time, unless the borrower chooses to fix for another term, at the prevailing fixed interest rates.

FIXTURES

These are items that would cause damage to a property if they were removed. Their removal must be set out in the contract of sale and any damage incurred is to be made good by the seller.

FORECLOSURE

A legal procedure in which property securing debt is sold to pay a defaulting borrower's debt.

FRANKED DIVIDEND

A dividend distributed by an Australian company out of profits on which company tax has been paid.

 FREEHOLD

The dwelling and the land on which it stands is owned by the owner indefinitely.

FROZEN ACCOUNT

An account in which all transactions have been suspended.

FUTURE VALUE OF MONEY

The future value of money is the value that your money will have after it has compounded at some interest rate for a period of time.

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GARNISHEE

To legally divert a part or whole of someone's money or property to someone else, for example, to pay child support to the caring parent of a child.

GEARED EQUITY INVESTMENTS

Recently approved plan to build wealth, using tax dollars, with minimum cash outlays.

GEARING

The ratio of your own money and borrowed funds in an investment.

GRADUATED PAYMENT MORTGAGE (GPM)

A type of flexible-payment mortgage where the payments increase for a specified period of time and then level off. This type of mortgage allows the borrower to qualify more easily. The payments will gradually increase over three to five years to a standard fixed payment.

This type of mortgage can cause the principal to actually increase for the first few years, resulting in an amount owed which is greater than the initial borrowings. This is because the interest on the mortgage will be more than the payment in its early stages.

GROSS MONTHLY INCOME

The total amount earned per month, before any expenses are deducted.

GUARANTEE

A promise made as bound by the terms of a contract.

GUARANTOR

A party who agrees to be responsible for the payment of another party's debts should the original party fail to pay or perform according to a contract.

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HIGHEST BID

The top price offered by a bidder at auction. If the reserve price is not reached and the property is passed in, the highest bidder is given the first option to negotiate with the vendor on a purchase price.

HOLDING DEPOSIT

A deposit that is refundable, based on the goodwill of the buyer to go ahead with the purchase.

HOME BUILDINGS INSURANCE

An insurance policy issued over a mortgaged house. This is referred to by the Credit Code as 'insurance over a mortgaged property'.

HOME EQUITY LOANS/LINES OF CREDIT

Equity loans work a little like an overdraft or credit card.

The facility is secured by a registered mortgage over your property. You can draw down and pay back the loan when you like (according to conditions). It is often used by investors, and people with considerable equity in their home.

HOUSING EXPENSES-TO-INCOME RATIO

The ratio, expressed as a percentage, which results when a borrower's housing expenses are divided by his/her gross monthly income (conventional loans).

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ILR - (INDICATOR LENDING RATE)

The base rate on which interest rates for variable rate overdrafts and term loans are set.

INCLUSIONS

Items included with the property eg light fittings, fridge, etc.

INCOME STATEMENT

A statement indicating income and expenditure for a period, usually a year.

 INFORMATION STATEMENT

Statutory forms as set out in the Credit Code. An example of this type of form would be 'Things You Should Know About Your Proposed Credit Contract' (Form 2).

INTEREST

The lending body's charge for the use of funds advanced or the return on deposited funds.

INTEREST ONLY

Usually a short-term arrangement whereby payments are made on the interest only, not on the principal.

INTEREST ONLY LOAN

A loan where the principal is paid back at the end of the term and only interest is paid throughout the term of the loan. The loans are usually for a short term (one to five years).

INTERMEDIATE-TERM FINANCING

When a firm needs financing for a somewhat longer period (typically 1 to 5 years), it often turns to so-called term loans, generally from commercial banks and life-insurance companies. A term loan is covered by a contract in which the borrower agrees to repay the principal and interest over a period of 1 to 5 years, usually in installments. Alternatively, a company can lease assets. LEASING enables a firm to contract for the use of equipment without purchasing it.

INTERNAL RATE OF RETURN

A measure of the return on an investment (or loan) which takes into account the time value of money by showing the rate of interest at which the present value of future cash flows is equal to the cost of the investment or loan.

INVENTORY

A list of items included with the property, for example furniture, movable items, etc.

INVESTMENT BONDS

A lump sum investment product. Technically, an investment or insurance bond is a single premium lump sum investment, life insurance contract.

INVESTOR

Money source for a lender.

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JOINT TENANTS

The equal holding of property between two or more persons. If one party dies, their share passes to the survivor/s.

JUDGMENT AND EXECUTION

Most civil (or non-criminal) cases are brought to secure money damages. If a jury awards damages to the plaintiff, the court enters a judgment entitling the plaintiff to collect a sum of money from the defendant.
Judgments are not, however, self-enforcing. If the defendant refuses to pay, the plaintiff must locate money or property belonging to the defendant and submit certain papers to the sheriff, who can then seize the money or property.

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KEY REQUIREMENT

The provisions of the Credit Code that govern the financial information the bank must disclose in credit contracts and statements for regulated accounts. Any breaches of key requirements can result in civil penalties.

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LAND TAX

A State Government tax charged to the owners of any property over a stipulated value, unless the property is to be used as their principal place of residence.

LEASE

A document granting a period of tenancy of a property under specific terms and conditions as set out in the Lease Agreement.

LETTER OF CREDIT

A letter of credit is an instrument issued by a bank, usually addressed to a correspondent bank, stating that it will accept drafts charged against it in the name of a person or company. Commercial letters of credit are often used by importers and exporters to finance the purchase of goods. A circular letter of credit, often used by travellers, is one not addressed to any particular bank. The TRAVELLER'S CHEQUE is a form of letter of credit.

LENDER'S MORTGAGE INSURANCE

Insurance that protects the bank as a lender against and financial losses that might result should it become necessary to sell the mortgaged property as a result of the borrower's default. Mortgage insurance does not relieve the borrower of his obligation to meet the shortfall.

 LIABILITIES

Someone's debts or obligations. In law a liability is an obligation arising from a contract, from the customary law of TORT, or from a specific statute. An example of a contractual liability is the obligation of a partner in a business to pay the firm's debts. An example of a tortious liability is the obligation of a property owner to pay compensation to victims of accidents resulting from the owner's NEGLIGENCE. An example of a statutory liability is the obligation of a violator of a traffic law to pay a penalty for the offence.

LIEN

The right to hold property as security against a debt or loan.

LINE OF CREDIT

A flexible loan arrangement with a specified ceiling to be used at a customer's discretion.

LOAN SECURITY DUTY

Mortgage stamp duty.

LOAN TO VALUATION RATIO (LVR)

The ratio of the amount of the mortgage loan to the valuation of the security (usually the property).

LONG-TERM FINANCING

Permanent or long-term funds are obtained by selling securities. Securities are of two kinds: EQUITY, or STOCK, and DEBT, or BONDS. Bonds carry a specific interest rate that is paid periodically until the obligations mature, at which time the principal is repaid. Equity is ownership in the firm and carries no specific rate of return; if the firm is a Incorporated Company, the equity is represented by stock, the holders of which are entitled to share in the profits of the business. The common stock of companies owned by the general public is bought and sold in the STOCK MARKET.

LOW START LOAN

A loan where the initial repayments are low and increase over time.

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MANAGEMENT OF FUNDS

A company must allocate its available funds among various uses on the basis of financial plans. Such plans assume that the funds spent will produce sufficient profits in order to pay the interest on debt capital and to earn a satisfactory income to the owners on their equity capital. Another task of business finance is the management of a company's surplus funds. Proper analysis and planning are necessary to assure that the funds will be available where they are needed in the business at a future date.

MARGIN

The difference between the lender's interest indicator rate (or other reference rate) and the rate actually charged to borrowers.

MARKET VALUE

The highest price that a buyer would pay and the lowest price a seller would accept on the sale of a property. Market value may be different from the price a property could actually be sold for at a given time.

MATURITY

The date on which a debt or other borrowing is due to be repaid in full.

MONEY

Money cannot be defined as some particular object but must instead be defined by the functions it serves - to act as a medium of exchange and a standard of value.

MONEY MARKET LINKED LOANS

The interest rates charged on Money Market Linked Loans are, as the name suggests, dependent on fluctuations in the financial market. Not many lenders offer this type of home loan.

MORTGAGE

A form of security for a loan usually taken over real estate. The lender, the mortgagee, has the right to take the real estate if the mortgagor fails to repay the loan. The mortgage creates a lien on the property as security for the debt.

MORTGAGE INSURANCE

Money paid to insure the mortgage in most cases where the down payment is less than twenty percent.

MORTGAGE OFFSET

A non-interest earning account that is offset against a home loan to reduce the total interest payable.

MORTGAGEE

The lender of funds.

MORTGAGOR

The person borrowing money in the terms of a mortgage.

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NEGATIVE AMORTISATION

Occurs when the monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid balance of the loan. The danger of negative amortisation is that the borrower ends up owing more than the original amount of the loan.

NEGATIVE GEARING

A way of obtaining tax advantages through an investment where the deductible expenses (typically including interest) exceed the income derived from the investment.

NEGOTIABLE INSTRUMENTS

Certain kinds of business documents, or paper, can be exchanged for money because they enable their holders to obtain legal interests on the basis of the documents themselves. NEGOTIABLE INSTRUMENTS are usually classified under the following three groupings:

1) commercial paper, which includes formal documents involving a promise (eg, a promissory note) or order (eg, a cheque) to pay a sum of money;

2) commodity paper, which represents an ownership interest in property held by another such as a trucker or shipper (for example, a bill of lading); and

3) investment paper, which includes stocks and bonds.

NET INCOME

The borrower's gross income minus income tax.

NET WORTH

Net worth is the value of holdings after liabilities are satisfied.

NOMINATION FORM

The authority completed by multiple debtors, who live at the same address, naming one of them to receive Credit Code notices and documents on behalf of all borrowers.

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OFFER TO PURCHASE

A legal agreement that details a specific price for the purchase of a specific property.

OFFSET ACCOUNT

A savings account that is linked to your mortgage in such a way that the interest earned on your savings is applied to reduce the interest on your mortgage.

OLD SYSTEM TITLE (COMMON LAW TITLE)

Consists of a 'chain' of the title documents stretching back to the original owner.

OPTION TO BUY

A legally binding document which gives a person, for a fee, the right to buy something usually within a specific time frame at a specific price.

ORIGINATION FEE

The fee charged by a lender to prepare loan documents, make credit checks, inspect and sometimes appraise a property. This is usually calculated as a percentage of the value of the mortgage.

OVERDRAFT

A pre-arranged limit to which a person can exceed an account balance.

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PASSED IN PROPERTY

Is 'passed in' at auction if the highest bid fails to meet the reserve price set by the vendor.

PAYEE

The person or entity to which a cheque is payable.

PAYMENT

The periodic payment due on a mortgage loan each payment period (normally a month) to cover accrued interest and to repay a portion of the principal balance. Most mortgages are set up where the payments will reduce the principal balance a little with each payment until the balance is zero when the last payment is made.

PENSION

A regular payment made to a person from a superannuation fund or from the Department of Social Security or Department of Veterans Affairs.

PERSONAL PROPERTY

Personal property, or personalty, in common law, is anything of value that is movable and not attached to the land. It is contrasted with real property, or realty, which includes land, minerals, trees or crops, and buildings.

Personal property covers all other possessions, including minerals taken from the ground, felled trees, and the lumber used to repair a house. Primarily, however, personal property consists of such tangible or corporeal possessions as automobiles, furniture, clothing, and jewellery.

Although the BOND, the MORTGAGE, and the LEASE are examples of property that is valuable solely because it represents the ownership of real property, each is generally regarded as personalty. They are classified as incorporeal and intangible property.

PITI

This abbreviation stands for principal, interest, tax, insurance. It is a common term to describe the payment one makes on a mortgage, when that payment includes taxes and insurance. Also called 'monthly housing expense'.

PLAN

Detailed illustration of a house showing the internal layout and dimensions and the position of the house on the land.

POWER OF ATTORNEY

A legal document authorising one person to act on behalf of another.

PRE-CODE CREDIT CONTRACT

Credit contracts made before the commencement of the Credit Code, or after commencement if the loan offer was made before the commencement date.

PRE-CONTRACTUAL STATEMENT

A statement disclosing key financial information which may consist of more than one document. Typically it is the terms and conditions letter before it is signed by the customer.

PREDOMINANT PURPOSE

The purpose for which more than 50% of the credit is to be used. If the credit is to be used to purchase good or services, the predominant purpose is that purpose for which the goods or services are intended to be most used.

PREPAIDS

Expenses necessary to create an escrow account or to adjust the seller's existing escrow account. Can include taxes, hazard insurance, private mortgage insurance and special assessments.

PREPAYMENT

A privilege in a mortgage permitting the borrower to make payments in advance of their due date.

PRE-PAYMENT PENALTY

Money charged for an early repayment of debt.

PRINCIPAL

The capital sum borrowed on which interest is paid. The principal amount of the loan is the amount still owed on the loan. As you make payments, only a portion of each payment is applied to the principal; the rest is applied to interest.

PRINCIPAL AND INTEREST LOAN

A loan in which both the principal and the interest are paid during the term of the loan.

PRIVATE SALE

The sale of a property without an estate agent.

PRIVATE TREATY SALE

A property sale where the buyer negotiates on a price set by the seller.

PURPOSE DECLARATION

A statement specifying that credit will be used wholly or predominantly for business or investment purposes (or both).

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RECISION

The cancellation of a contract.

RECEIVER

A receiver is a person appointed by a court to take control of the assets and income of a company or individual while litigation is pending involving either, as in a BANKRUPTCY proceeding.

The court may appoint a receiver when a creditor offers proof that action is needed to conserve the assets of the firm or person. Such a receiver collects income and makes disbursements from the funds in his or her custody only as authorized by the court. In a bankruptcy proceeding, the court may later appoint a TRUSTEE either to liquidate the assets or to run the company until a reorganisation can take place.

REFINANCING

To replace or extend an existing loan with funds from the same institution or another. This can be done to obtain a lower interest rate or simply to 'pull out' part of the equity the borrower has already built up in the mortgage.

REGULATED

A credit contract, mortgage, guarantee or related document or transaction to which the Credit Code applies.

REGULATIONS

Provisions of the Credit Code that set out practical requirements for complying with the legislation.

RELATED CONTRACT OR TRANSACTION

Contracts or transactions which are connected with regulated credit contracts. For example, Credit related Insurance Contracts.

RENEGOTIABLE RATE MORTGAGE (RRM)

A loan in which the interest rate is adjusted periodically.

REQUISITIONS ON TITLE

A process by which the buyer requests additional information about the title of the property from the seller.

RESERVE PRICE

The specified minimum price that is acceptable to a seller at auction of property.

RIGHT OF WAY

Can be either somebody's right to cross other property or a general pathway across your land.

RISE AND FALL CLAUSE

A building contract clause that allows the final pricing to move up or down according to fluctuations of material prices or wages.

ROLLOVER

The renewal of a loan facility or continuation of a deposit at each maturity date, usually including a revision of the interest rates. (The term is also used to describe the transfer of Eligible Termination Payments to an acceptable superannuation or rollover fund.)

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SEARCH

An examination to confirm that a vendor is in a position to sell a property and that there are no encumbrances on it.

SECURED TRANSACTIONS

When a sales transaction involves an extension of credit, the seller naturally wants to ensure that the buyer will pay as promised by establishing a legal interest in property held by the buyer that may be enforced if the buyer defaults. The most logical property for the seller to hold a secured interest or LIEN in is the merchandise sold.

SECURITY

An asset that guarantees the lender their borrowings until the loan is repaid in full. Usually the property is offered to secure the loan.

SELF-AMORTISING LOAN

A loan is said to be self-amortising when the payment amount is calculated such that there is no balance at the end of the loan period. Most fixed-rate mortgages are self-amortising loans.

SEMI-DETACHED

Two houses that share a common wall or walls.

SERVICING

All the steps and operations a lender performs to keep a loan in good standing, such as collection of payments, payment of taxes, insurance, property inspections etc.

SETTLEMENT DATE

Date on which the new owner finalises payment and assumes possession.

SHARED APPRECIATION MORTGAGE (SAM)

A mortgage in which a borrower receives a below-market interest rate in return for which a lender (or another investor such as a family member) receives a portion of the future appreciation in the value of the property. May also apply to mortgages where the borrower shares the monthly principal and interest payments with another party in exchange for a part of the appreciation.

SHAREHOLDER

A person who buys a portion of a public or private company's capital. By doing so that person becomes a shareholder in that company's assets and receives a share of the company's profit in the form of dividends.

SHORT-TERM FINANCING

Sources of short-term financing (funds available to the firm for less than one year) are trade credit, commercial bank loans, and, to a lesser extent, commercial paper. Trade credit is a short-term debt that results from credit sales to the firm. When the company purchases goods on credit, it is in effect borrowing money from the seller; this is an important source of funds for many firms.

Commercial bank loans are another major source of funds for many firms, particularly those which need to finance seasonal increases in inventories and provide credit for their customers. Larger companies often sell commercial paper to obtain short-term funds.

These unsecured promissory notes are usually issued in large denominations and have interest rates that are competitive with those of other short-term loans.

SIGNATORY

A person authorised to utilise an account.

SPLIT LOANS

This is more of a facility than a type of loan itself. A split loan allows you to split the total amount you wish to borrow into a number of smaller, different type of loans. Should variable rates rise, the rise only affects a proportion of the total loan amount. This type of loan is also used by a number of borrowers to separate amounts borrowed for domestic and investment/business purposes.

SPREADSHEET

A spreadsheet is a computer program designed to facilitate the manipulation of data in the form of words, numbers, or graphical element . The value of a spreadsheet lies in the way it automates processes. This saves time, for example, when a user wants to change a variable and the computer calculates the effect of the change on the entire program. Spreadsheets are popular tools in business, where they now speed up and simplify such procedures as budgeting.

STAMP DUTY ON TRANSFER

A State Government tax assessed on the selling price of the property.

STANDARD VARIABLE LOANS

The variable loan has undergone many changes recently. There are now many facilities available as standard with this loan such as redraw options and interest offset accounts. This loan is still very common, but its popularity with new mortgage seekers has been eroded somewhat by the proliferation of Discounted Variable Loans. The interest rate varies over the term of the loan.

 STATUTORY INFORMATION

Information which the Credit Code requires the bank to give to applicants, debtors, mortgagors or guarantors. Examples of this type of information include: Information statements, pre-contractual statements (or Terms and Conditions letter).

STATUTORY NOTICES

Notices which are required under the Credit Code to be given to debtors, mortgagors or guarantors.

STEPPED

A stepped account is one in which different amounts of interest are paid on different portions of the account, for example, two percent on the first $1,000 and three percent on the second $1,000.

STRATA CORPORATIONS

A body corporate incorporated under strata titles legislation in relation to land subdivided wholly or mainly for residential purposes, or a body corporate whose issued shares give a right to occupy land for residential purposes.

STRATA TITLE

This title gives you ownership of a 'unit' of a larger building which you may sell, lease or transfer at your discretion. Also entitles you to membership of the body corporate.

STRATUM TITLE

A title that records your ownership of a 'unit' of a larger property. Unlike a Strata Title, the owner becomes a shareholder in the company that manages the common area, not just a member.

SUPERANNUATION

An investment vehicle which operates primarily to provide benefits for retirement. Superannuation savings are usually made through trust funds and if these funds meet prescribed government standards they are eligible for tax concessions.

SURETY

A legal term referring to a person who undertakes to pay money, perform some duty, or assume some responsibility in case another person (the principal) fails to carry out the terms of a contract. A surety differs from a guarantor (see GUARANTEE) in that the contract of the latter is entered into separate from the principal's original contract while the contract of suretyship is made at the same time and by the same instrument as the principal's contract. The surety has a much more direct liability than the guarantor.

SURVEY

A plan showing the boundaries of, and the building position within, a block of land. The survey is prepared by a registers land surveyor.

SUSCEPTIBILITY REPORT

Shows likelihood of future pest infestations.

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TENANTS IN COMMON

The equal or unequal holding of property by two or more persons. If one party dies, the property is divided according to law.

TERM

The length of a home loan or a specific portion within that loan.

TERM DEPOSIT

Called a fixed interest account. Money invested for a fixed term at a fixed rate of interest applied for the duration of the deposit.

TITLE

A document that gives evidence of an individual's ownership of property.

TITLE INSURANCE

A policy, usually issued by a Title Insurance company, which insures a homebuyer against errors in the title search. The cost of the policy is usually a function of the value of the property, and is often borne by the purchaser and/or seller.

TITLE SEARCH

Process to ensure that the vendor has the right to sell and transfer ownership. The Title Search is usually performed by a Title company.

TORRENS TITLE

Records your ownership of a piece of property. You are lawfully entitled to lease, sell or dispose of the property as you desire. Also known as Certificate of Title.

TOWN HOUSE

Usually a two storey dwelling registered under a strata title.

TRANSFER

A document registered with the Land Titles Office that confirms the change of ownership as noted on the Certificate of Title.

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UCCC

The Uniform Consumer Credit Code.

UNENCUMBERED

A property free of liabilities, encumbrances or restrictions.

UNIT TRUST

A unit trust is an investment which operates under the unit principle enabling investors to share in a pool of professionally managed investments. The success of a unit trust depends on the expertise and experience of the management company which is responsible for the trust's investment strategy. Common types of investment undertaken by unit trusts are property, shares, mortgages, and the Short Term Money Market.

UNDERWRITING

The decision whether to make a loan to a potential homebuyer based on credit, employment, assets, and other factors and the matching of this risk to an appropriate rate and term or loan amount.

UNREGULATED

A credit contract, mortgage, guarantee or related document or transaction to which the Credit Code does not apply.

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VALUATION

A report as required by the lender, detailing a professional opinion of the property's value.

VARIABLE INTEREST RATE

A rate that varies in accordance with the rates in the marketplace.

VENDOR

A party who offers a property for sale.

VENDOR STATEMENT

A statement by the seller to the buyer detailing material particulars regarding the property in question.

VERIFICATION OF DEPOSIT (VOD)

A document signed by the borrower's financial institution verifying the status and balance of his/her financial accounts.

VERIFICATION OF EMPLOYMENT

A document signed by the borrower's employer verifying his/her position and salary.

VILLA

Single storey attached dwelling.

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ZONING

Local authority guidelines as to the permitted uses of land.

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