Quick answer
Loan jargon is easier once the key words are clear. This glossary explains common Australian lending terms in plain English, including LVR, serviceability, security, caveat, mortgage ranking, balloon payment, offset, redraw, drawdown, capitalised interest and general security agreement, with links to guides that go deeper on each.
Key points
- Most loan jargon describes four things: how much you borrow, what backs it, how you repay it and what it costs.
- Many terms have a plain meaning that is simpler than the contract wording.
- If a term on your paperwork is not listed or not clear, ask the lender or broker to explain it in writing.
- Understanding the words makes it easier to compare loans and spot gaps in an offer.
Why does loan jargon feel so confusing?
Loan paperwork is written for lawyers and credit systems, not for people sitting at the kitchen table. The words themselves are mostly simple ideas dressed up in formal language. This glossary translates the ones that come up most often when borrowing in Australia, grouped by theme so you can jump to the part you need.
Ownright Custom Finance arranges home, private, rural, business, commercial, asset and personal loans Australia-wide. Director Trevor Scott has spent more than 40 years explaining these words to borrowers, and the team’s approach is the same as always: if a term is not clear, we say it again in plain English. This is general information, not personal advice.
What words describe the loan amount and value?
Principal. The amount you actually borrow, before interest and fees.
Loan to value ratio (LVR). The loan amount compared with the value of the security. Lower LVR means you hold more equity. See what is LVR.
Equity. The part of an asset’s value you own outright, being its value less what is owed on it. Our equity calculator gives a quick estimate.
Valuation. An assessment of what a property or asset is worth. A lender may order its own. See how to get a property valuation for a loan.
Deposit. Your own contribution toward a purchase, which reduces the amount borrowed.
Facility limit. The maximum a lender will make available, such as on a line of credit.
What words describe security?
Security (collateral). An asset a lender can claim and sell if a loan is not repaid. See types of loan security explained.
Mortgage. A registered interest over land that secures a loan.
First, second and third mortgage. The order in which lenders rank for repayment from a sale. Explained in first, second and third mortgages. Product pages: second mortgage and third mortgage.
Caveat. A notice lodged on a land title to record a claimed interest. See what is a caveat loan.
General security agreement (GSA). A contract giving a lender a claim over the personal property of a business. Covered in general security agreements and PPSR explained.
PPSR. The Personal Property Securities Register, a national government register of security interests in things like vehicles and business assets.
Guarantor. A person who promises to repay if the borrower cannot. See what is a guarantor.
Cross-collateralisation. Using the same security for more than one loan, or several assets for a single loan.
Discharge. The release of a mortgage or other security once the debt is repaid.
What words describe repayments and structure?
Principal and interest. Repayments that cover both the interest charged and part of the amount borrowed.
Interest-only. Repayments that cover only interest for a set period, so the balance does not fall. See interest-only vs principal and interest.
Fixed rate. Interest set for a defined period. Variable rate: interest that can change. Compare in fixed vs variable loans explained.
Term. The length of the loan.
Amortisation. The gradual reduction of the loan through scheduled repayments.
Balloon (residual). A lump sum due at the end of the term, used to lower regular repayments. See balloon payment loans explained and balloon and residual finance.
Capitalised interest. Interest added to the loan balance instead of being paid. Interest in advance: interest paid up front. See capitalised interest and interest in advance explained.
Offset account. A linked account whose balance reduces the interest charged. Redraw: access to extra repayments already made. See offset account vs redraw facility.
Drawdown. The release of loan funds. See progress drawdowns, single drawdowns and redraws explained.
Line of credit. A reusable limit you can draw on. Overdraft: a limit on a transaction account. Compare in line of credit vs overdraft vs term loan.
What words describe cost?
Interest rate. The price of borrowing, expressed as a rate. Ownright does not publish rates because each loan is priced on the borrower’s circumstances.
Comparison rate. A figure that includes some fees to help compare loans. It does not cover every cost, so read the fee schedule.
Establishment fee. A fee for setting up the loan.
Ongoing fee. A recurring fee, such as an annual or monthly package fee.
Early repayment (break) fee. A charge that can apply when you repay or refinance before the end of a fixed term, depending on the contract.
Exit fee or discharge fee. A fee for closing the loan or releasing security.
What words describe approval and assessment?
Serviceability. A lender’s assessment of whether you can afford the repayments. See what is loan serviceability.
Full doc loan. A loan assessed with complete income documents. Low doc loan: assessed with alternative evidence. See low doc vs full doc loans.
Credit file (credit report). A record of your borrowing and repayment history held by credit reporting bodies. See how to get your free credit report in Australia.
Credit enquiry. A record that a lender checked your credit. See what is a credit enquiry.
Default. A serious overdue debt recorded on your file. See how long do defaults and late payments stay on your credit file.
Conditional approval. An approval subject to conditions, such as a valuation or documents. Unconditional approval: conditions have been met.
Responsible lending. Rules that require licensed lenders and brokers to make reasonable inquiries about your finances and needs. ASIC explains the framework on its website.
What words describe types of lenders and loans?
Bank (ADI). A deposit-taking lender regulated by APRA.
Non-bank lender. A lender that is not a bank. See non-bank lenders explained.
Private lender. A lender outside the mainstream, often funding on security and exit. See what is a private mortgage.
Bridging loan. Short-term finance to cover a gap, such as buying before selling. See bridging loan exit strategies.
Refinance. Replacing a loan with a new one. See home loan refinance.
Chattel mortgage. A loan for a business vehicle or equipment where the borrower owns the asset and the lender holds security. See chattel mortgage explained.
Hire purchase. A finance company owns the asset until the final payment. See hire purchase.
Credit representative. A person authorised to deal in credit on behalf of a licensee. See what is an Australian credit representative.
Quick reference: the same idea in two words
| Everyday question | Loan term |
|---|---|
| How much is the property worth compared with the loan? | LVR |
| Can I afford the repayments? | Serviceability |
| What can the lender claim if I stop paying? | Security |
| Who ranks first if the property is sold? | Mortgage ranking |
| What is left to pay at the end? | Balloon or residual |
| Can I take extra repayments back out? | Redraw |
| Is interest being added to what I owe? | Capitalised interest |
How do you use this when reading a loan offer?
- Find the loan amount, term and repayment type.
- Identify the security and who ranks ahead of the lender.
- Check the fees, including those that apply when you leave.
- Look for features such as offset, redraw or drawdown conditions.
- Note any end-of-term payment such as a balloon.
- Ask for any unclear words in writing.
Keeping documents handy also helps. Our checklists, how to get loan ready and what documents do I need for a loan, are a good start.
How does Ownright help?
Words are only part of it. The real work is finding a loan that fits your circumstances when the standard route does not. Whether it is a self-employed home loan, a secured business loan, a personal loan or a private second mortgage, we explain every term and every trade-off. You can browse everything we arrange on our loans overview.
What words describe people and roles in a loan?
Borrower. The person or entity that takes on the debt.
Co-borrower. Another person who shares responsibility for the loan.
Mortgagor and mortgagee. The mortgagor gives the mortgage, which means the borrower, and the mortgagee receives it, which means the lender.
Grantor and secured party. On the PPSR, the grantor gives security and the secured party holds it.
Broker. A person who arranges loans between borrowers and lenders and is usually a credit representative or licensee.
Conveyancer. A professional who manages the legal transfer of property at settlement.
What words describe things that go wrong?
Arrears. Missed repayments that leave a loan behind. See mortgage arrears help.
Hardship. A request to a lender to vary a loan because of difficulty paying. MoneySmart and the Australian Financial Complaints Authority both publish guidance.
Mortgagee sale. A sale of a property by the lender after a default. See how to stop a mortgagee sale.
Shortfall. The amount still owed if a sale does not cover the debt.
Insolvency. Being unable to pay debts as they fall due.
Why does knowing these words help?
Because the terms point you to the questions that matter. When you hear “second mortgage”, you can ask about ranking. When you hear “balloon”, you can ask how it will be paid. When you hear “capitalised”, you can ask what the balance will be at the end. A borrower who asks those questions is better placed to compare offers, and to notice when something is missing.
If a term is still unclear after reading this page, write it down and ask the lender or broker to explain it before you sign. A good adviser will not mind.
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Frequently asked questions
What does LVR mean?
LVR stands for loan to value ratio. It compares the amount borrowed with the value of the property or asset used as security. A lower LVR means more equity and usually less risk for the lender, which can widen your options. Lenders set their own limits depending on the property and the borrower.
What is serviceability?
Serviceability is a lender's assessment of whether you can afford the repayments after living costs and existing debts. Lenders look at income, expenses, other loans and sometimes allow a buffer for changes in interest costs. It is separate from the value of the security, and both are assessed before approval.
What is the difference between a comparison rate and an interest rate?
An interest rate is the cost of borrowing the money, while a comparison rate rolls in some fees and charges to help compare loans on a like-for-like basis. MoneySmart suggests checking fees as well as rates. Neither tells the full story without the loan terms, so read the whole offer.
What is a default on a credit file?
A default is a record that a debt has been seriously overdue, typically after a set number of days and a formal notice. It can stay on your credit report for years and can make borrowing harder. Paying it off and then waiting can help, and specialist lenders may still consider your application.
What does it mean to refinance?
Refinancing means replacing an existing loan with a new one, usually to change the lender, the structure, the amount or the repayments. Reasons include accessing equity, consolidating debts, changing from interest-only to principal and interest, or moving away from a lender that has declined your needs.
Where can I look up other finance words?
MoneySmart, run by ASIC, and business.gov.au both publish plain-language explanations of finance terms. Your credit contract and key facts sheet are also worth reading closely, and a broker can explain anything that is unclear. Asking for clarification in writing before you sign is always reasonable.