Financial Terminology

Financial Terminology

Knowledge is power

All the industry jargon and fine print can make for a confusing read, especially if you don't work in finance. Here at LKFS, we want to help you understand every part of the services we offer so you can make the informed decisions that are best suited to your specific situation. 

The List below serves as a glossary to help you find out more about many popular loan features.  Please feel free to contact us on 1300 930 106 if you have any further questions.

Enquire Online


100% offset:

By linking a saving or transaction account to a loan, you offset the loan principle by the amount in the linked account. This is an effective way to save money by paying less interest. For example if the principle on a loan was $200,000 and there was 10,000 sitting in a linked savings account, then you would only be charged for the interest calculated for 190,000.

Approval in principle (Conditional approval):

An initial estimate of how much can be borrowed from a lender based on the information a person has given them. Approval in principle is useful to have when you are looking to buy a property.

Bridging finance:

A short term loan or facility that can be used when buying a new property before you have sold your current house. 

Comparison rate:

A rate which expresses interest and most other applicable fees that are payable during the term of a loan as a single figure. However,  some costs such as early payment fees and even some savings, such as fee waivers, are generally not taken in to account. A comparison rate is a useful tool when trying to get a general estimate of how much a loan will cost over its entire term.

Conveyancing:

The process in which ownership of real estate or property is transferred from one party to another.

Cooling-off period:

During a cooling-off period, a person or organisation can decide not to follow through with a contract. The duration of a cooling-off period is different in each state.

Credit limit:

The the monetary limit a borrower can obtain as outlined in their loan contract

Credit report (Credit reference):

A document that illustrates the credit history of a potential borrower. A credit report can only be prepared with the consent of the borrower.

Deposit guarantee:

A deposit guarantee can sometimes be used instead of a cash deposit when buying a property.

Draw down date :

The date in which the borrower first makes a withdrawal from their loaned funds

Equity:

The value of an asset after the deduction of any outstanding loan amounts

Facility or loan agreement:

The agreed upon contract between a lender and one or more other parties which outlines the terms of a loan or facility

Facility limit:

The the monetary limit a borrower can obtain as outlined in their contract

First home owner grant:

A grant issued by the Federal Government which helps first home owners purchase property. It should be noted that as of 2014 the first home owners grant is only issued to first home owners who are seeking to purchase a brand new house, or those who wish to construct their own home.

Fixed interest:

The period in which the interest rate of your loan remains the same. During this time your repayment amount does not change.

Government fees:

There are a number of potential charges payable to the state or federal government. These fees include stamp duty and mortgage registration fees. The charges and amounts payable vary over the different states.

Guarantee:

A promise made by a third party in which they vow to meet the requirements of a borrower's payments if the borrower is unable to.

Guarantor:

A third party which promises to take over a borrower's payment obligations should they be unable to.

Indicative borrowing capacity:

An initial estimate of how much can be borrowed from a lender based on the information a person has given them.

Interest in advance:

This is the practise of charging the interest at the beginning of a period of time and is generally only available on fixed rate loans.

Interest in arrears:

This is when the interest on a loan is charged at the end of a period of time, usually a month.

Interest only loan:

With this type of loan feature, only the interest accrued on the debt is payable for a pre-arranged amount of time.

Introductory rate:

A lower interest rate is offered for specified time. At the end of that time, the borrower will begin paying the standard rate, as agreed upon in their contract.

Lender's mortgage insurance (LMI):

An insurance policy taken on by the lender to protect itself against a borrower who is of higher risk of defaulting.

Loan or facility agreement:

The agreed upon contract between a lender and one or more other parties which outlines the terms of a loan or facility

Loan to value ratio (LVR):

This ratio can be understood as the complete amount of the loan divided by the actual value of the property.

Mortgage:

A legal document which gives a lender ownership over property as security for a loan.

Pre approval (approval in principle):

An initial estimate of how much can be borrowed from a lender based on the information a person has given them. Approval in principle is useful to have when you are looking to buy a property.

Principle:

The amount yet remaining on a loan. This is the amount that interest repayments are calculated from.

Refinancing:

The act of taking out a new loan with better terms or rates to pay off an existing loan.

Stamp duty:

The federal government does not charge stamp duty, is enforced at a state level. Stamp duty is a fee paid by the buyer whenever a property is sold.

Term:

The length of the loan in question.

Variable interest rate:

This means that the interest calculated on you loan repayment fluctuates with the market,potentially changing your costs.