Terminology

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

Additional repayment
Extra funds paid into the loan over and above the minimum prescribed repayments.

Basic Variable
A variable interest rate home loan at a reduced rate generally with fewer features than a standard variable. Not usually recommended.

Break Costs
Costs incurred when a loan is paid off before the end of its term. These costs do not always apply and are generally associated with fixed interest rate loans.

Bridging Finance
Enables you to cover the purchase of a new property when you are yet to sell your existing property.

Capped Loan
The interest rate will not exceed a set level for a period of time, but unlike fixed rate loans, is allowed to drop.

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

Chattel Mortgage
A Chattel Mortgage is a loan facility. You own the asset, but the financier takes a consideration over the asset until the contract is paid in full. With a Chattel Mortgage, you can optimise your cash flow while minimising the impact of GST, which is not payable on individual repayments, as is the case with leasing.

If your business is registered for GST, you will be able to claim the GST portion of the purchase as an input tax credit (ITC) immediately, to the extent the goods are used for creditable purposes.

Alternatively, you have the option of funding the GST portion of the invoice price as part of the loan amount and have the loan structured to allow you the ITC as a payment after the next BAS is lodged and credit received.

Chattel Mortgage - Benefits
• Interest charged and depreciation of the vehicle or equipment are tax deductible.
• No capital outlay is required and cash flow protected.
• Terms can be flexible and fixed repayments make for easy future budgeting.
• After full payment of the chattel mortgage agreement, ownership of the goods is transferred to you.

You have the option to make payments with or without a balloon payment at the end of the term.

Commercial Hire and Asset Purchase
Commercial Hire & Asset Purchase are contracts that enable commercial users to purchase goods by means of repayment with guaranteed ownership.

Equity is increased with each payment and an option to purchase may be exercised at any stage during the contract. Depreciation and interest are usually tax-deductible, when the equipment is to be used for business purposes.

GST does not apply to each repayment or the residual/balloon, if applicable.

The GST applicable to the purchase of the asset on the purchase contract can be paid and may be claimed or included in the amount to be financed.

Hire Purchase - Benefits
• Interest charged and depreciation of the equipment are tax deductible
• No capital outlay is required and cash flow protected
• Terms can be flexible and fixed repayments make for easy future budgeting
• After full payment of the hire purchase agreement, ownership of the goods is transferred to you.

You have the option to make payments with or without a balloon payment at the end of the term.

Conveyancing
The legal process for the transferral of ownership of real estate.

Credit Limit
Maximum amount the borrower can use at any one time.

Daily Interest
Interest calculated on a daily basis.

Default
Failure to meet debt payment on a due date.

Default Rate
The rate a loan rolls/moves to automatically at the end of any fixed period.

Draw Down
To access available loan funds, especially referring to line of credit where the limit is set and you can use the funds as required.

Encumbrance
An outstanding liability or charge on a property, e.g. a mortgage.

Equity
In share market terms, equity is a synonym for shares and represents part-ownership of a company, as distinct from debt securities such as bonds and debentures. From a business perspective, equities represent the total interests of parties in the assets of that business entity. Lenders and creditors have a 'specific entity', and owners have 'residual' equity.

Equity Loan
A loan usually secured by the proportion of the value of your house that you own.

Fixed Interest
An interest rate set for an agreed term.

Finance Lease
The financier buys the equipment and leases it to you in return for agreed regular lease payments, which are tax-deductible to the extent the equipment or vehicle is used for business.

Leases typically include a residual or balloon, amount payable at the end of the agreed lease period. It is important this figure is based on the likely market value of the goods, otherwise they may be worth less than what you still owe. It is also necessary to arrange insurance for the leased goods.

GST applies to each lease payment and the residual/ balloon, but may be claimed as an input tax credit (ITC) when the goods are used for creditable purposes.

It is essential to consult your planner before entering into a finance lease.

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

Guarantee
A promise made - who is bound by the terms of a contract.

Guarantor
A party who agrees to be responsible for the payment of another party's debts. You may need to seek independent legal advice before signing off as a Guarantor.

Holding Deposit
A refundable deposit based on the goodwill of the buyer to go ahead with the purchase.

Home Loan
A loan in where you can either have a principal and interest or interest only loan being paid during the term of the loan.

Interest
Charge for the use of funds or the return on deposited funds.

Interest Only Loan
The principal is paid back at the end of the term and only interest is paid during the term.

Investment
An asset acquired for the purpose of producing income and/or capital gains for its owner.

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

Joint Venture
A Joint venture – a project undertaken by two or more parties to achieve a mutual objective. For example, a private company may enter into a joint venture with a government body in order to undertake and complete a construction project.

Line of Credit
A flexible loan arrangement with a specified ceiling to be used at a customer's discretion. Generally you only need to pay interest on the loan but you can repay any of the principal without penalty.

Leverage
Refers to the process of increasing funds available for investment through borrowing. Financial leverage (Also called gearing): The use of long-term debt in financing an entity.

Loan to Valuation Ratio
The ratio of the amount lent to the valuation of the security (usually the house). For doctors and dentists our limit can go up to 100%. See gearing

Mortgage
A charge over land given by the owner (borrower/mortgagor) to a lender (mortgagee) to secure repayment of a loan or to ensure satisfaction of a debt.

Mortgages Brokers
A person or organisation marketing numerous loans from a panel of lenders. They offer a service where they will select the best loan or loans for borrowers from this selection – but there is generally no ongoing service.

Mortgage Insurance (Lenders)
A form of insurance taken out by the lender to cover themselves in the event that the borrower defaults on their loan and the sale of the property is unable to cover the outstanding amount. Mortgage insurance premiums are usually payable by the borrower when the amount borrowed is over 80% of the property value and sometimes at lower loan to valuation ratios. In many cases Bongiorno's can go up to 100% without incurring this cost. However, normal lending criteria apply.

Mortgage Originator
Retail and more often wholesale lender who sources securitised funds in order to package them as loans.

Novated Lease
A Novated lease has become an increasingly popular form of vehicle financing over recent years. A novated lease combines many features of more traditional forms of vehicle finance to deliver some attractive benefits for both employers and employees.

A Novated Lease is an agreement between an employee, and the employer and the financier, where the obligations to meet the repayments under the finance lease is with 'the employer'.

With a novated lease agreement, you own the vehicle and have the right to take it with you should you change jobs and, structured correctly, there may be tax advantages with your remuneration package.

As with other leasing structures, repayments with a novated lease are flexible and amounts depend on the term, interest rate, amount borrowed and the residual payment.

Benefits of a novated lease for the employee include:
• Greater flexibility with the choice of a vehicle
• Financing of the vehicle may be paid with pre-tax dollars
• Option to own the vehicle at the end of the novated lease term
• The vehicle may be leased for 100% private use

More than one vehicle may be leased with employer consent.

Off the Plan
The purchase of a property, often an apartment, before it has been completed i.e. after only having seen the plans, not the finished product.

Offset Account
Every dollar in your savings account is 100% offset against your loan account, working to reduce your daily interest charges.

Operating lease and rental
An Operating Lease is simply a rental agreement. You avoid the risks associated with ownership and have no residual value liability. At the end of your operating lease agreement you may simply return the equipment.

Only available through businesses, the benefits of an operating lease are that working capital is maintained, lease rentals will be fully tax deductible if the vehicle is used to generate taxable income and there is no resale value risk as the financier will own the equipment at the end of the term of the operating lease.

Also very important feature with an operating lease is that the finance cost is known for a fixed period of time - an operating lease is great for budgeting the cost of your new medical and dental equipment.

Operating Lease - Benefits
• Operating lease payments are tax deductible
• No capital outlay is required and cash flow protected
• Terms can be flexible and fixed repayments make for easy future budgeting
• Option to purchase the equipment at the end of the term.
• No liability as to the residual value at the end of the term.
• Protection against obsolescence.

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

Portability
Where a new property may be substituted as security for an existing loan

Principal
The capital sum borrowed on which interest is paid.

Principal and Interest
A loan in which both the principal and the interest are paid during the term of the loan. For example a home loan.

Redraw Facility
A loan facility whereby you can make additional repayments on your loan and then access these extra funds when necessary.

Refinancing
To replace or extend an existing loan with funds from the same institution or another.

Security
An asset that guarantees to the lender their borrowings until the loan is repaid in full.

Stamp Duty
A state government tax based on your purchase price which is levied on your mortgage and purchase price.

Standard variable
A variable home loan with comprehensive features. This is often the variable rate fixed rates roll to at the end of their fixed term.

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