GLOSSARY

Some common terms used in the industry

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A

Account number

The number that a bank or other financial institution gives to a particular account. This number plus the BSB identifies that account.

Asset

Something you own. It may be a financial item like money, bonds, shares or a bank account or physical item like a house, land or a car.

ATM (Automatic Teller Machine)

A machine found in public places and outside banks used to withdraw cash from your accounts 24 hours a day.

ATM card

A card that provides access to your own money via ATM and EFTPOS facilities. See also debit card.

Australian Prudential Regulation Authority (APRA)

The prudential regulator of the Australian financial services industry. It oversees banks, credit unions, building societies, general insurance and reinsurance companies, life insurance companies, friendly societies, and most of the superannuation industry. APRA is responsible for ensuring Australia has a stable, efficient and competitive financial system. It also provides statistics on the Australian financial sector.

Australian Securities and Investments Commission (ASIC)

The Australian Federal Government agency that enforces laws relating to companies, securities, financial services and credit, in order to protect consumers, investors and creditors.

Authorised deposit-taking institution (ADI)

Corporation authorised under the Banking Act 1959. Includes banks, building societies and credit unions.

B

Bankruptcy

A process for individuals to be legally declared as being unable to meet their debt obligations.

Broker

A person who arranges a contract between you and, for example, an insurance or mortgage service provider. Brokers usually receive a commission or fee for arranging a contract.

Brokerage

A fee charged by a broker for service.

BSB

A number that identifies a specific branch of a bank or other financial institution within Australia. The BSB number plus an account number identifies a particular account.

Building society

Community-based financial institution usually owned by its members that offers traditional banking services like savings accounts and loans, listed on the APRA website as a building society.  Also called a mutual building society. See also credit union.

Basic Variable Rate

Home loan with interest rate that’s lower than Standard Variable Rate (SVR). Also called no-frills home loan. Comes with limited or few loan product features. Suitable for first home buyers.

C

Capital

For individuals, the money or other assets owned for the purpose of investing. For a company, the funds received from owners or investors to further its business objectives.

Capital depreciation

A decrease in the value of a capital asset.

Capital gain

The difference between what you paid for an asset (including buying costs) and what you got when you sold it (less selling costs).

Capital gains tax

A tax on profits made from buying or selling certain assets.

Capital growth

The increase in value of an asset over time. Also known as capital gain.

Cash advance

Cash withdrawn from a credit card account. A transaction fee is usually charged, as well as interest from the date the cash is withdrawn until it is paid back in full.

Cash out facility

Offered by many retailers such as supermarkets, where you can take out extra cash from your cheque or savings account when you pay for purchases with your debit card.

Cash rate

The interest rate charged on overnight loans between banks. The Reserve Bank of Australia (RBA) sets a target cash rate in order to control monetary policy.

Caveat

In relation to property law, a caveat is a legal notice that shows who has an interest in your property. You can’t register a dealing (for example, to sell the property) until all caveats are removed or you get the consent of any people who hold a caveat. To put a caveat on your property or remove a caveat, contact your state’s Land Titles Office.

Chargeback

A return of funds from a retailer or service provider to a consumer’s bank account, line of credit or credit card, often initiated by the consumer’s bank.

Churning

The process of moving a customer from one financial product to another in order for an adviser or broker to earn a fee. This practice usually has little or no benefit to the customer.

Co-borrower

A person who borrows money jointly with you. Each person is responsible for the loan, so if one of you does not pay, the other person must pay the full amount.

Collateral

Property or assets you put up as security for a loan.

Cross Collaterisation

A property you put up as security to a lender as part of a loan for another property you intend to purchase.

Commission

A fee paid to an adviser or salesperson as an incentive for selling a particular product. An upfront commission is based on the sale amount of the product. An ongoing commission is based on the balance of the account.

Comparison rate

A rate that helps you work out the true cost of a loan. It includes the interest rate, and some fees and charges relating to a loan, reduced to a single percentage figure.

Compound interest

Interest paid on the initial principal and the accumulated interest on money borrowed or invested.

Condition report

Records the condition of a rental premises at the start of a tenancy.

Conflict of interest

A situation in which someone in a position of trust has competing professional and personal interests which could make it difficult for them to remain impartial. For example, an adviser or broker may sell you a product that benefits them more than it does you.

Consumer lease

A consumer lease is an agreement where you get a hire an item (e.g. TV, fridge, washing machine), receive the item straight away and make regular payments until the term of the agreement finishes. At the end of the agreement term you will have paid more than the purchase price of the goods. These agreements might also be known as a rent to own, rent to buy agreement.

Consumer price index (CPI)

Records the change in purchasing power by measuring changes, over time, in the weighted average price of consumer goods and services such as food, transport and medical care. It represents consumption expenditure by households in Australian metropolitan areas.

Covenant

Written agreement between buyer and seller outlining the purpose, use and conditions pertaining to the property in question. Some examples can include restrictions on type of building materials allowable, number of dwellings permitted etc.

D

Debit card

A plastic card that gives you access to your bank accounts via ATM and EFTPOS facilities.

Debt agreement

A legal agreement for the repayment of unpaid debts that is less formal and intrusive than bankruptcy. The agreement is between you and all of your unsecured creditors and allows you to pay back your debts over an extended period of time at an amount per week you can afford.

Debt consolidation

See loan consolidation.

Default fee

An amount of money that you may be charged if you fail to make a repayment when it is due on a loan or credit card.

Deferred establishment fee

A fee charged by a lender when a loan is paid off before a set period has elapsed e.g. 3 years. Also known as an exit fee. It’s to cover the costs the lender incurred in setting up the loan.

Deferred payment

A debt that can be paid off at some time in the future.

Dependant

A person who relies on you for financial support e.g. children under 18 or your non-working spouse.

Deposit bond

Can be used in place of a deposit when a buyer exchanges contracts on a property. It guarantees that the buyer will pay the full deposit by an agreed date.

Depreciation

A decrease in the value of an asset.

Direct debit

A payment collection method that allows loan or service providers to draw money from your bank account on a regular basis.

Dispute resolution

A way to resolve issues instead of going to court. All Australian Financial Services (AFS) licensees, banks and other credit providers must belong to a dispute resolution scheme.

E

Early termination fee

A fee which may be applied if a loan is repaid earlier than the stated term.

Easements

An easement gives a non-owner the right to use a portion of registered land for a specified reason such as sewer pipeline access or power lines.

Effective interest rate

An annual interest rate that takes into account the effect of compound interest and fees. Also known as an effective yield or the annual percentage rate (APR).

EFTPOS (Electronic Funds Transfer at Point of Sale)

EFTPOS is an Australian network for processing credit cards, debit cards and charge card payments at the ‘point of sale’. EFTPOS also allows users of the system to withdraw cash at the time of purchasing a product or service through the merchant’s EFTPOS terminal. This function is known as ‘debit card cashback’ in many other countries.

Encumbered

An asset, such as a house or motor vehicle, which is owned by one entity but where someone else has a valid claim over it. For example, if your home is mortgaged, you own the asset but your lender has a claim over your home until the debt has been repaid.

Enduring power of attorney

Like an ordinary Power of Attorney (PoA), an enduring power of attorney authorises your nominated representative to make property and financial decisions for you. Unlike an ordinary PoA, an enduring PoA continues to have effect if you become mentally incapacitated at a later date.

Equity

The value of an asset such as your house or property, less any money owing on it.

Equity investment

An investment where you buy and hold shares in a company or property from which you expect to receive income and capital gains.

Equity release

A way of accessing the equity in your home to provide you with additional funds in retirement. See reverse mortgage and home reversion scheme.

Establishment fee

A one-off fee which may apply to set up a personal or other loan.

Estate

All of a person’s assets, whether real property or personal property, and their liabilities or debts.

Excess

In relation to an insurance contract, it is the amount of an insurance claim that consumers have to pay. The amount is specified in the insurance policy.

Exclusion

In relation to an insurance contract, it is something that is specifically not covered under the insurance policy. Depending on the type of policy these may include specific events, illnesses or pre-existing conditions.

Executor

A person specified in a will, or appointed, to administer the will.

F

Face value

The value of a security set by the company issuing it that will be the amount payable on maturity. This may differ from the market value, that is, the amount it trades for.

Fee for service

An amount paid to a service provider such as an accountant, adviser or lawyer, for specific work, completed at your request, for your benefit. Different to a commission.

Finance broker

A go-between who negotiates with banks and other credit providers to arrange loans on behalf of others. They must be licensed by ASIC or be an authorised representative of someone who is licensed. See check ASIC lists for how to check for a licence.

Financial adviser

A person or authorised representative of an organisation licensed by ASIC to provide advice on some or all of these areas: investing, superannuation, retirement planning, estate planning, risk management, insurance and taxation.

Financial counsellor

A person who gives free, confidential and independent assistance to people with financial problems. Financial counselling services are usually provided by community or welfare organisations.

Financial product

A facility that helps you to save, invest, get insurance or borrow money.

Financial service

A service dealing with the management of money. It includes providing advice on financial products, dealing in financial products, making a market for financial products, operating a registered scheme or providing a custodial or depository service.

Financial Services Guide (FSG)

A guide that contains information about the entity providing you with financial advice. It should explain the financial service offered, the fees charged and how the person or company providing the service will deal with complaints.

First Home Owners Grant

A grant provided by state governments to first home buyers, to offset the effect of the GST on buying or building a home. For more information see the Government’s First Home Owner’s Grant website.

Fixed deposit

See term deposit.

Fixed interest rate

Interest is paid at a fixed rate over the term of a loan or investment. Opposite of variable interest rate.

Fixed rate home loan

Allows you to lock in an interest rate on your loan, typically for 1 to 5 years. Protects against interest rate rises but also means you won’t benefit from falling interest rates. Opposite of variable rate home loan.

Fixed term deposit

Money left with a bank or other investment provider for a fixed period at a pre-agreed interest rate.

G

Gearing

Borrowing to invest, such as when you buy a house using a mortgage or buy shares using a margin loan.

Growth asset

Assets such as shares and property that not only produce an income but have the potential to grow in value over time.

Guarantor

A person who guarantees a loan for someone else. The guarantor is legally responsible for paying the other person’s debts if the debtor can’t pay them.

H

Honeymoon or introductory interest rate

An interest rate offered for a short time at the start of a loan, credit card or savings account. For a loan it is a lower interest rate that will eventually revert back to a standard rate. For savings accounts it is a higher rate that will revert back to a standard deposit interest rate after the honeymoon period.

I

Identity fraud/theft

Using someone else’s personal details in order to steal money or gain other benefits by pretending to be that person.

Income producing asset

Any asset that generates an income. For example, dividends are paid on shares, investment properties generate rental income, bonds and bank accounts produce interest.

Industry sector

A classification used to group companies that are related in terms of their primary business activities. Major industry sectors include consumer discretionary, consumer staples, energy, financials, healthcare, industrials, information technology, metals and mining, telecommunications and utilities.

Inflation

The increase in the cost of goods and services over time.

Insurance policy

A written legal agreement that sets out what is being insured and for how much.

Insurance premium

Money charged by an insurance company for coverage.

Interest

Payment for the use of money over time. You earn interest by lending your money. If you borrow money, interest is the amount you pay to borrow the money. The rate of interest can be fixed or variable. It is usually calculated as a percentage of the amount lent or borrowed. For example on a $10,000 car loan that has an interest rate of 10%, you would pay $1000 interest in the first year.

Interest rate

The relationship between the amount of money borrowed or lent and the money paid in return for the use of that money. Usually expressed as a percentage per year.

Interest-free deal

Allows you to buy goods or services now and pay for them later. You don’t have to pay interest for a set period. You are usually required to make regular repayments during the interest-free period. Any money outstanding at the end of the interest-free period will incur interest, often at a very high rate.

Interest-free period on credit cards

The days where you don’t have to pay interest on your credit card purchases. Interest-free periods usually start on the first day of your billing cycle, not when you make a purchase.

Interest-only home loan

Where only the interest is paid on a loan for a specified period. No principal repayments are required during that time. We refer to them as I/O or Interest Only repayments.

Investment

An asset bought with the aim of producing an income and/or an increase in value over time.

Investment Choice

Making a conscious decision about how your money will be invested.

J

Joint Account

An account with a financial institution that is in the name of more than one person. Any individual whose name is on the joint account can operate the account; but it is possible to restrict any withdrawals by requiring both people to sign.

Joint Tenants

When property is held by two or more people together in equal shares. On the death of one joint tenant the property automatically passes to the other joint tenant(s), regardless of what may be set out in the deceased person’s will.

K

No entry yet

L

Lease

A document that grants someone the use of a property for a given period in return for rental payments. The document will specify the terms and conditions of the agreement.

Lender's Mortgage Insurance (LMI)

Lender’s mortgage insurance (LMI) is a type of insurance that protects a credit provider from borrowers not being able to repay their loan. LMI is usually a one-off cost to a home loan borrower, payable when the amount borrowed exceeds 80% of the value of the property. LMI does not benefit the borrower, it only protects the lender.

Leverage

The use of financial instruments or borrowed capital to increase potential gains or losses. For example, borrowing money to invest in property or other assets, buying a share in a ‘geared’ managed fund or investing in derivatives.

Liability

A debt or money owed, for example, a bank loan or credit card debt.

Life cover

An insurance policy that pays a set amount of money to an insured person’s beneficiaries when the insured person dies. Also known as term life insurance or death cover.

Limited recourse loan

A loan used to purchase a single asset or group of assets where the lender’s claim on assets is limited to the asset(s) purchased with the loan, if the borrower defaults on the loan.

Line of credit loan

Allows you to use a single account for your home loan and everyday spending. Interest is added to the loan each month and repayments are not necessary while the loan is within its credit limit. It allows you access to the equity in your home without having to apply for a new loan.

Loan consolidation

When several loans are combined into one, with the aim of reducing repayments. Also known as debt consolidation.

Loan to value ratio (LVR)

The amount of a loan as a percentage of the value of the asset it was used to buy. It is calculated by dividing the loan amount by the value of the asset.

Low-doc loan

A loan that requires less financial documentation to prove income, assets and liabilities than a standard loan. Typically used by self-employed people and small business owners, they are usually offered at higher interest rates and may include terms that restrict borrowers.

LVR

See loan to valuation ratio.

M

Marginal Tax Rate (MTR)

The highest rate of tax a taxpayer will pay on their income. More information can be found on Australian Taxation Office’s (ATO) website.

Mezzanine finance

A hybrid of debt and equity financing that is typically used to finance the expansion of existing companies or build development projects. It is usually debt capital that gives the lender the right to convert to an ownership or equity interest in the company if the loan is not paid back in time and in full. This type of investment tends to be high risk and suitable only for sophisticated investors.

Minimum payment

The lowest amount that must be paid each month on a debt such as a loan or credit card.

Mortgage

A form of security (usually over real estate) that is used to secure repayment of a debt (usually a home loan).

Mortgage broker

A person who matches borrowers to lenders and arranges mortgage contracts between the two parties.

Mortgage fees

Fees paid by mortgagors for setting up, administering and ending a mortgage.

Mortgage scheme

A scheme that invests in mortgage loans or in companies that lend money for mortgages.

Mortgage-backed security

An investment in a collection of loans for which the lender holds a mortgage over the property the loan was used to purchase. The loans are written by a financial institution, then sold to an intermediary, who packages (or securitises) the loans into different groups, based on their level of risk. The packaged group of loans is then offered to investors.

Mortgagee

Someone who lends money in a mortgage arrangement.

Mortgagee sale

When a mortgagee sells a property to recoup their costs because a mortgagor defaults on their repayments.

Mortgagor

Someone who borrows money in a mortgage arrangement.

N

Negative gearing

Borrowing money to invest where the return from the investment is less than the borrowing costs. For example, the rental income from your investment property is less than the interest payments on the loan used to purchase the property.

No Negative Equity Guarantee (NNEG)

Protects you from owing more on your reverse mortgage than your home is worth. The NNEG puts a limit on the amount owed.

No-Interest Loans Scheme (NILS)

A community program that provides interest-free loans for individuals or families on low incomes.

Non-recourse loan

A type of loan secured by collateral such as property or shares, where if the borrower defaults the lender can only seize the assets put up as collateral for the loan. The lender cannot seek further compensation from the borrower even if the assets used as collateral do not cover the full amount of the loan.

National Rental Affordability Scheme (NRAS)

The National Rental Affordability Scheme (NRAS or the Scheme), which commenced in 2008, aims to increase the supply of new and affordable rental dwellings by providing an annual financial incentive for up to ten years. This incentive is issued to housing providers to provide affordable rental dwellings at least 20 per cent below market rates. Read more here.

O

Offset account

A transaction account that is linked to a mortgage account. It reduces your interest payable as interest is only charged on the net balance, i.e. your mortgage balance less your offset account balance.

Overdraft facility

An arrangement that allows you to withdraw more funds than you have in your account.

Overdrawn account

When the limit on a credit card or bank account (including any overdraft facility) has been exceeded.

P

Payday loan

A cash advance against your next pay. These short-term loans charge a high interest rate and must be paid back by a certain date. Often amount is capped up to $2,000 and repayment term is between 16 days to 1 year.

Pension

An income stream that makes regular income payments. Examples include the government age pension or an account-based pension from your super fund.

Personal Identification Number (PIN)

A number used as a security access code for phone banking and to withdraw money from an ATM or via EFTPOS.

Personal insolvency agreement

Similar to a debt agreement but more structured and formal and costs more. Your property comes under the control of a trustee who must investigate your financial affairs. Your name, some personal details and details of the controlling trustee and creditors meeting must be advertised in a local or national newspaper.

Personal loan

A low-value loan for personal use such as to buy a car or take a holiday. These loans are usually not secured by an asset and are usually payable over 2-7 years.

Phishing

Emails or text messages that attempt to trick you into giving out your personal information such as usernames, passwords or banking details.

Portfolio

The collection of assets held by an investor. Can include shares, fixed interest, derivatives, property, collectables, managed investments and cash.

Power of Attorney

A document that appoints someone to act on your behalf in a legal or business matter. A Power of Attorney (PoA) may be general or specific and may be unlimited or limited to a specific act. It is different to an enduring power of attorney.

Premium

In relation to an insurance contract, it is the price charged by an insurance company for providing the insurance cover.

Primary card holder

The individual in whose name a credit card account is created. You are solely liable for all transactions on the account, including any secondary cards.

Principal

The original sum of money invested, or the amount borrowed or still owing on a loan.

Product Disclosure Statement (PDS)

A document that financial service providers must provide to you when they recommend or offer a financial product. It must include information about the product’s key features, fees, commissions, benefits, risks and the complaints handling procedure.

Property development

The business of buying land or property and developing or improving the asset for the purpose of selling at a profit.

Property investment

Land and/or buildings, purchased to provide an income and/or capital growth.

Property trust

A trust fund, managed by an investment manager who invests in a range of properties, including residential, industrial, office buildings, shopping centres, hotels and other specialist properties. If the trust is listed, units can be bought and sold on a stock exchange. Income is generated by the assets of the trust and unit values will reflect the value of the trust assets.

Q

No entry yet

R

Redraw facility

Gives you access to any extra money you have deposited into your home loan.

Refinance

When you replace or extend an existing loan with funds from either the same or a different bank or financial institution.

Rent to buy

Rent to buy or rent to own schemes usually include a standard residential tenancy agreement and an option to purchase the property.

Renter’s insurance

Insurance cover for the contents of a rental home.

Return

The amount of money your investment earns.

Reverse mortgage

A type of home loan used in retirement as a way for people to access the equity in their home. The loan amount depends on your age, the value of the home and how it is taken (lump sum, regular payments or draw down as needed). Interest is added to the loan and does not have to be repaid until the house is sold, usually as part of a deceased estate.

Risk

The possibility that your investment may fall in value or earn less than expected.

Risk tolerance

The degree of uncertainty you are prepared to accept in relation to investment returns, in particular the extent to which you are prepared to experience a negative investment return while trying to achieve positive investment returns.

S

Standard Variable Rate (SVR)

The interest rate that lenders advertise which often consist of multiple product features bundled together and packaged as professional package. Not to be confused with Basic Variable Rate.

Savings account

A deposit account held at a bank or other financial institution that offers a higher interest rate than most basic transaction accounts. Account holders can usually access their account at any time.  

Savings bond

A type of government bond offered to retail investors as a medium term investment. May also refer to a type of fixed term deposit or investment bond offered by an Australian bank.

Secondary card

An additional credit card given to a person you have nominated where any money they spend will be borrowings against your credit card account. You are liable for transactions on both cards.

Secured loan

A loan that is backed by an asset. The lender may sell the secured asset to get its money back if you cannot repay the loan. Opposite of unsecured loan.

Security

In relation to financial assets, a security is an investment such as shares or bonds which can be traded in financial markets.

Security for a loan

An asset that is put up to guarantee a loan. If the loan is not repaid, the lender may sell the asset to get its money back. See also mortgage.

Seller/ Vendor

A seller who is selling the property under their name as reflected on the property Title. Also known as Vendor.

Stamp duty

A state tax imposed on certain transactions, such as car registrations, mortgages and property transfers.

Statement of Advice (SOA)

A document that sets out the advice given to a consumer by their licensed financial planner or adviser. It must include the basis on which the advice is given, details of the providing entity, and information on any payments or benefits the adviser or licensee will receive.

Store card

A form of credit card offered by large retailers. Store cards are used like regular credit cards but usually charge much higher interest rates.

Strata levy

A fee paid by property owners for the management of the common property of buildings established under a strata title.

Strata title

A building, flats or units divided into blocks, each of which has a title and common property that is part of the land and building in the strata plan.

Sub-prime loan

A loan given to a borrower who doesn’t meet the credit criteria for an ordinary loan. This may include borrowers with a poor credit history, low income earners and those with already high levels of debt. Sub-prime loans carry a higher interest rate because the risk of default is higher than that of a standard loan.

Superannuation (Super)

Money that you and your employers put into a special fund during your working life to provide you with money to live on when you retire.

Superannuation guarantee (SG)

The minimum amount that your employer must pay into your superannuation fund.

T

Tax file number (TFN)

A unique number assigned to taxpayers by the Australian Taxation Office for tax administration. You need to quote the number to employers, benefit and allowance providers, banks and other investment bodies.

Tenancy

A person’s right to occupy land or buildings as per the terms of a lease or other agreement.

Tenants in common

Where two or more people hold shares in a property. Each owner has the right to deal with their share of the property separately to the others. Tenants in common may pass on their share to a nominated beneficiary in their will.

Term

The length of time a loan or an investment will run for.

Term deposit

An account with a financial institution where money is deposited for a set period of time. The interest rate is usually fixed for the term of the deposit and is generally higher than a transaction account but not always higher than some other at-call high interest savings accounts. Also known as a fixed deposit.

Third party property insurance

A type of car insurance that covers damage you cause to other people’s property (e.g. their car or home), as well as your own legal costs.

Transaction account

An account with a financial institution where your money is readily available for day-to-day transactions.

Transaction fees

Charges for any account transactions you conduct i.e. withdrawals, deposits, transfers.

Trustee

A person or company that holds or administers assets for the benefit of someone else.

U

Underinsured

When there is not enough insurance to cover the value of the insured property.

Unencumbered

An asset that has no money owing on it and no individual or entity has any claim over the asset.

Unsecured loan

A loan for which no asset has been used as security. The interest rate is usually higher than for a secured loan as there is a higher risk to the lender of not getting their money back.

V

Valuations

Written report of the estimated value of a property, usually prepared by a licensed valuer. Valuation takes into consideration multiple factors including (not limited to) the location of the property, the physical building and its condition, type of council zoning, usage and purposes, existing caveats, covenant or any encumbrances placed on the property etc.

Variable interest rate

Where consumers receive interest on an investment or pay interest on a loan at a rate that may go up or down during the term. Opposite of fixed interest rate.

Variable rate home loan

A home loan where payments increase or decrease in line with rises or falls in official cash rates. Opposite of fixed rate home loan.

Vendor finance

Where the seller of a house or other asset, such as a car, offers to lend you money to buy the property or asset as part of the sale.

W

Will

A legal document that sets out how you want your assets and other belongings to be distributed when you die.

X

No entry yet

Y

Yield

The rate of return on an investment.

Z

No entry yet
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Community Brokers T/A Aussit Group Pty Ltd is a Credit Representative of Australian Credit Licence 383640. Our Credit Representative Number is 485973. We are a member of FBAA and CIO.

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