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Mortgage glossary: home loan words explained
Home loans hide behind their own vocabulary, and that is often the point. Here are 34 of the terms you will actually meet, each defined in one plain sentence. Nothing on this page is trying to sell you a loan. Bookmark it and come back whenever a word trips you up.
Last updated 1 July 2026 · 34 terms and growing
Deposits, equity and LVR
- Deposit
- The cash you put toward a purchase upfront. A larger deposit means a smaller loan, lower repayments and, past a certain point, no lenders mortgage insurance.
- Loan-to-value ratio (LVR)
- Your loan amount as a percentage of the property value. Borrow 400,000 dollars against a 500,000 dollar home and your LVR is 80 percent. Lower is lower risk to a lender.
- Equity
- The share of a property you truly own, being its value minus what you still owe. It grows as you repay the loan and as the property rises in value.
- Genuine savings
- Money you have accumulated and held over time, which many lenders like to see as evidence you can manage a budget, as opposed to a lump sum that just appeared.
- First Home Guarantee
- A Commonwealth scheme, administered by Housing Australia, that lets eligible first home buyers purchase with a smaller deposit while avoiding lenders mortgage insurance, subject to places and eligibility rules.
Rates and repayments
- Interest rate
- The price of borrowing, shown as a yearly percentage. On a large, long loan even a small difference adds up to a lot of money.
- Comparison rate
- A single figure that folds most fees into the interest rate so two loans can be compared honestly. Always weigh it against the headline rate.
- Fixed rate
- An interest rate locked for a set period, giving certain repayments but less flexibility and possible break costs if you exit early.
- Variable rate
- An interest rate that can move up or down over time, offering more flexibility and features but less certainty.
- Split loan
- A loan divided into fixed and variable portions, so you get some certainty and some flexibility at once.
- Principal and interest
- Repayments that chip away at the amount borrowed as well as the interest, so the balance actually falls over time.
- Interest only
- Repayments that cover just the interest for a set period, keeping payments lower but leaving the balance untouched until later.
Assessment and approval
- Serviceability
- A lender’s assessment of whether you can comfortably afford the repayments, based on your income, expenses and existing debts.
- Serviceability buffer
- An extra margin, guided by APRA to be at least three percentage points, added to the loan rate when testing whether you could still repay if rates rose.
- Pre-approval
- A lender indicating in advance roughly how much it may lend you, so you can shop with confidence. It is conditional, not a final guarantee.
- Credit file
- The record of your borrowing and repayment behaviour that lenders check. Repayment history stays for two years and defaults for five under the reporting rules.
- Default
- An overdue debt of a set size and age listed on your credit file. It generally remains for five years and signals risk to a lender.
- Responsible lending
- The legal obligation on lenders to make reasonable enquiries and assess that a loan is not unsuitable for you before offering it.
Loan types and features
- Prime loan
- A standard loan priced for a low-risk borrower with clean credit, documented income and a solid deposit. Explained in our prime home loans guide.
- Low doc loan
- A loan that verifies income with alternative documents such as BAS and bank statements, designed for self-employed borrowers whose paperwork is not a payslip.
- Non-conforming loan
- A specialist loan for borrowers who fall outside standard bank criteria, often due to credit history, usually at a higher rate.
- Offset account
- A transaction account linked to your loan whose balance is subtracted before interest is calculated, reducing interest while staying accessible.
- Redraw
- A feature that lets you pull back extra repayments you have made. Similar in effect to an offset, but usually less flexible.
- Bridging loan
- Short-term finance covering the gap between buying a new property and selling an existing one, repaid from the sale.
Costs and insurance
- Lenders mortgage insurance (LMI)
- A one-off cost usually charged when your deposit is below 20 percent. It protects the lender, not you, and can add thousands to your costs.
- Stamp duty
- A state tax on property purchases. First home buyers often qualify for concessions or exemptions depending on the state and price.
- Conveyancing
- The legal process of transferring property ownership, usually handled by a conveyancer or solicitor.
- Break cost
- A fee that can apply if you exit a fixed rate loan early, reflecting the lender’s loss when rates have moved.
- Establishment fee
- An upfront charge for setting up a loan. It matters most on short-term loans where it is spread over less time.
Investing and structures
- SMSF
- A self-managed super fund, a private super fund you run yourself, which can invest in property under strict rules set by the ATO.
- Limited recourse borrowing arrangement (LRBA)
- The structure an SMSF must use to borrow, where the lender’s claim is limited to the single property bought and that property is held in a separate trust until the loan is repaid.
- Sole purpose test
- The rule that everything an SMSF does must be for providing retirement benefits to members, which is why an SMSF property cannot be lived in by members.
- Caveat loan
- A fast, short-term loan secured by lodging a caveat over a property, quick to arrange but costly and brief.
- Rental yield
- The annual rent from an investment property as a percentage of its value, one way investors gauge income return.
Now put the words to work
The vocabulary makes a lot more sense once you see it in context. The guides do exactly that.