Common Terms Glossary
These are the key terms relating to mortgage and property loans.
An accredited investor is a term used to refer to financially sophisticated or wholesale investors who have a special status under financial regulation laws. An example of an accredited investor could be a high-net-worth individual, a bank or a large corporation. Funding.com.au is licensed to accept retail investor funds, so there isn’t a requirement to have an accreditation process.
Accrue refers to the ability for something to grow over time (accumulate). In finance and property, it is most frequently used when referring to interest.
Adverse or impaired credit is a term used to describe a poor track record of repayment history on credit cards or loans. This is reflected in an individual’s credit report. Funding.com.au takes into consideration adverse credit during our approval process.
Amortisation is paying off one’s debt through regular payments over a set period of time. Consumers often encounter amortisation when paying off a home mortgage or car finance. For instance, if you were to borrow from Funding.com.au you would encounter amortisation as we request that loans be paid in monthly instalments.
An anchor tenant is the individual or person who is serving as the main attraction in a commercial property. For example, if a retail centre has one large department store in the middle of it, the department store may be considered the anchor tenant.
In direct contrast to an anchor tenant, ancillary tenants are the smaller tenants of commercial space.
The annual percentage rate (APR) is the annual rate that is charged for borrowing. It is a percentage that shows the yearly cost of funds over the term of a loan.
The annualised return is the net return per annum of each loan. For example, on the Funding.com.au platform annualised returns typically range from 7% up to 9% per annum.
Anti-money laundering checks are an essential part of the Know Your Customer (KYC) procedure which help prevent money laundering, identity theft and identity fraud. In practice, they involve collecting a customer’s name, date of birth, an official document confirming their identity and a residential address. At Funding.com.au, we take our AML checks very seriously to ensure our customers are always protected. For example, at the point of an investor registering we may require extra documents, such as passports, driver licences, Medicare cards, utility bills and bank statements to assist in the verification of investors.
Appraisal is the valuation of a property conducted by a licenced independent valuer.
Appreciation is the increasing value of an asset or security over time. For example, vintage cars increase in price as they get older due to a restricted supply, this is known as appreciation.
Interest is paid in arrears. This means the interest payment will pay the interest for the month immediately preceding the payment due date
An ABS is a security backed by receivables, a loan or a lease. These can be an alternative to investing in corporate debt. In the mortgage industry this is usually referred to Residential Mortgage Backed Security (RMBS) or Commercial Mortgage Backed Security (CMBS) and can often also be referred to as ‘secured’ lending.
An asset can be classed as anything with a financial value that will provide a future benefit to the owner. For example, owning a property is commonly seen as owning an asset, as it is assumed the value of a property will increase with time.
The Australian Government has guaranteed deposits up to $250,000 in Authorised Deposit-taking Institutions (ADIs) such as your bank, building society or credit union. This means that this money is guaranteed if anything happens to the ADI. Funding.com.au is not an ADI and your funds are therefore not guaranteed by the government under this policy.
The Australian Securities and Investments Commission (ASIC) is an independent Australian government body that acts as Australia’s corporate regulator. ASIC’s role is to enforce and regulate company and financial services laws to protect Australian consumers, investors and creditors. Funding.com.au is regulated by ASIC.
Financial institutions in Australia are only permitted to accept deposits from the public if they are Authorised Deposit-taking Institutions. The ADI’s authority is granted by the Australian Prudential Regulation Authority (APRA) under the Banking Act 1959. Funding.com.au is not an ADI as we do not offer savings products which take deposits. Your funds are for investment purposes which is different from savings.
Available Loan Amount shows the amount remaining to be invested in each loan. For example, a loan was for $800,000 but $500,000 has been sold to investors, therefore you can invest a minimum of $1,000 in this loan or a maximum of $300,000 as that is the ‘available’ amount remaining.
Balance is the amount of money available in a financial account. It can also refer to the remaining amount owing to a lender or creditor. A person’s current account has $1,500.00 in it. This is their balance. On the other hand, if the person borrows $20,000 for a personal loan, and after 2 years, owes $12,000, this is the outstanding balance owed.
The balance shown for your Funding.com.au account is the amount you currently have left to invest in our loans on the platform. For example, if you top up your account for the first time with $5,000, once processed your available cash balance will be $5,000. As you then invest in loans your balance will decrease and your investment portfolio will increase.
A balloon payment is a payment at the end of a non-amortised loan. If a person borrows money and agrees to not make monthly payments, but make one big payment at the end, this payment is known as a balloon payment.
Bankruptcy is an official legal status of an entity or individual that cannot repay the debt it owes to creditors.
A basis point is a unit of measure for interest rates. One basis point is 1/100th of 1%, or 0.01% and is used to identify the percentage change in a financial instrument. If you borrow at a rate of 9.00%, you are borrowing at 900 basis points, or bps.
A bond is a type of debt investment allowing an investor to lend money to a company which borrows the funds for a set period of time at a fixed or variable interest rate.
A borrower is a legal name for an individual using funds from a business or individual for a set period of time upon the condition of promising to repay the loan. At Funding.com.au our borrowers can be individuals, companies, trusts ad SMSF’s.
A bridge (or bridging) loan is a short-term loan that is used until long-term finance can be secured. This allows the borrower to meet immediate obligations by providing a cash flow instantly. These loans are often short term with higher interest rates. Examples of where our borrowers at Funding.com.au might use a bridging loan: • Purchasing a property where there is a quick completion deadline. • Refinancing a property to raise capital for business or other use. • Purchasing or refinancing a property that requires renovation or is unmortgageable by mainstream banks in its current state.
A broker (see also Intermediary) is a licenced professional who acts as a middleman in negotiations and transactions. A broker often receives commission for introducing the two parties. At Funding.com.au we use mortgage brokers as a key source of new mortgage applications (dealflow).
Capital is money that is used to generate income or make an investment. For example, investors at Funding.com.au invest their ‘capital’ in the loans shown on the platform.
Capital Gain is an increase in the value of an asset making it worth more than it was bought for. If a person buys a house for $300,000, and in 5 years they sell it for $500,000, the increase in value ($500,000-$300,000=$200,000) is the capital ‘gain’.
CGT is tax on the profit when you sell an ‘asset’ that’s increased in value. It is the gain you make from the sale that is taxed. Investors with funding.com.au are not subject to CGT as all gains are income and not capital growth.
Comparative Market Analysis (CMA) is an analysis of all nearby recently sold homes which are comparable. This helps establish a price range for a house about to be put on the market. The licensed independent valuers that funding.com.au use, conduct CMA as part of their methodology to determine the value of a property.
Compound interest is interest calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan. Interest from investments with funding.com.au are not compounding. See Simple Interest.
A Court Judgment is a court order sent by a Court to collect money on which you owe. It’s one of several methods creditors can take in the debt collection process.
A Credit Rating is an assessment of the ability for an individual or organisation to meet their financial obligations. This is based on previous purchasing and spending history.
The Credit Reference Agency is a corporation which collects credit rating information for individuals and then provides this to financial companies in order for them to be able to understand an individual’s credit worthiness. An example of a credit reference agency is Equifax.
A Credit Report is a report detailing an individual’s credit history. This is prepared by a credit agency and can be used by a lender to determine how creditworthy an individual is in the loan application phase.
A credit score is used by lenders to determine whether you qualify for a particular credit card, loan, mortgage or service. For example, a credit score takes into account the amount of available credit your currently using, history of credit payments and public records.
A Credit Search, also known as a credit check is the process of evaluating an individual’s credit history in order to understand the likelihood that the individual will be able to meet their obligations.
Debt consolidation is the act of taking out a new loan in order to pay off other outstanding debts, usually with the objective of lowering the average cost of the finance or for ease of managing outstanding debt obligations.
Debt lending is the act of a business raising capital by borrowing. In most cases this is done by companies issuing bonds or other debt security.
Debt service is the amount of money required to pay back the interest and principle on a debt. For example, when borrowers are paying back a debt it is known as ‘servicing the debt’.
A Deed is a written legal document that transfers ownership of property. The deeds of a property include a description of the property and the names of new and old owners. It is signed by the individual transferring the property.
The study of demographics relates to understanding the population based on different factors such as age, sex, income, employment type. Demographics allow companies to access their potential market. For example, a company selling high end luxury cars would benefit from knowing how many people earn over $60,000 in order to be able to afford the product.
Depreciation is a reduction in the value of an asset overtime. For example, the economic crisis in 2008 saw share prices depreciate by as much as 50%.
Discounted Cash Flow or DCF is a measure used to understand the attractiveness of an investment. The method uses future free cash flow estimates and compares them to the present value estimate.
Distribution is known as a companies’ payment of stock, cash or physical assets to its shareholders. In funding.com.au’s case, the distributions are monthly, that’s monthly payments of interest.
Diversification is a risk management technique used by investors to ensure a wide variety of investments are made across one portfolio. For example, if you were to diversify your investments using Funding.com.au you could invest across loans in different locations, with different LVR’s.
Due Diligence is the process of audit or investigation on a person or company prior to becoming involved in a business arrangement. For example, we carry out thorough due diligence on all of our borrowers from background checks, independent valuation reports and occasionally we also do site visits.
Early Repayment Charge or ERC is a fee that a borrower may have to pay if they repay part of or a whole loan early.
Earnings are the amount of money that a company or individual produces during a specific period.
An Encumbrance is a charge against a property by someone other than the owner. The most common type of encumbrance is a mortgage. Unencumbered is when a property is owned without any debt owing.
An entity can be a business, person, organisation or partnership that has a legal and independent existence.
Equity is the value of an asset minus all the liabilities attached to the asset. It is calculated using the formula, Equity = Assets – Liabilities. For example, in the context of property the difference between the market value of the property and the amount the owner has outstanding on the mortgage is known as the borrower’s equity.
Escrow is a financial instrument belonging to a third party on behalf of a buyer and a seller. Once funds have been exchanged between two parties, they are held by the escrow service until all obligations have been fulfilled. For example, lender funds are held in escrow or by an escrow service, typically a solicitor’s trust account, until the mortgage is ready to settle, and funds advanced to the borrower for the commencement of the mortgage.
An Establishment Fee is a cost charged by the lender for processing a loan application.
The method by which a borrower intends to repay their loan. A common example of an exit strategy that a borrower may have with a Funding.com.au loan is using the proceeds of the sale of a property to repay their bridging loan.
Fair Market Value is an estimate of the market value of a property based on what a knowledgeable, willing buyer would pay to a knowledgeable and willing seller.
FinTech (short for Financial Technology) is the term given to the industry made up of financial companies that employ the use of technological advancements to enhance or streamline the consumer experience and disrupt the processes of incumbent financial institutions.
A Lien is the legal right of a lender to repossess collateral if a borrower is unable to fulfil their obligations. Thus, the first lien gives the lender the highest priority over the collateral.
Fix and Flip is a relatively new term used to describe the concept of renovating a property before selling it. This is done in hope that it will add value to the property. This is not practiced often in Australia as tax obligations are usually cost prohibitive for quick turnaround of property transactions.
Foreclosure is the legal process a lender goes through if they need to recover funds from a borrower who has not paid their loan. In the case of property, the lender would sell the property which was used as collateral for the loan. This is typically at auction via a licenced independent real estate agent.
Gross Amount refers to the total amount of something before any deductions are made. For example, your gross income is your income before tax and national insurance have been deducted.
The GRV is the estimated value a new property or development will receive on the open market when it is completed. This is also known as “as if complete” value.
A Guarantor Loan is an unsecured loan which requires a guarantor to sign the credit agreement. The purpose of the guarantor is to agree to pay the borrowers debt if he or she defaults on repayments. Funding.com.au do not offer any unsecured loans but we usually also insist on guarantors as an addition layer of security to the first registered mortgage.
Hard Assets are physical items such as property, oil and precious metals. They are considered valuable because they can be used to purchase goods and services.
An Illiquid Asset is one that cannot be sold easily. There is usually a lack of investors willing to buy this asset.
In-Fill Development is the development of land that is surrounded by developments/buildings in an existing community. Thus, the term ‘In-Fill’ implies the new development is filling in the gaps.
An Income Multiple is the factor by which a lender will multiply a borrower’s gross annual salary to determine their borrowing capability.
An Income Property is one that has been developed or brought for the purpose of renting out to create additional income.
An Insurance Policy that protects business owners and employees when they are found to be at fault due to an error.
An Individual Voluntary Arrangement (IVA) is an agreement made with creditors to pay of parts of an individual’s debt. It is a formal alternative for individuals wanting to avoid bankruptcy.
Industrial property is a form of commercial property that is designed for the use of manufacturing or warehousing for example. An example of industrial property is a warehouse that is used to manufacture cars.
Inflation is the rate at which prices for goods and services increases. The Reserve Bank of Australia try to limit inflation and prevent deflation to ensure the economy runs effectively. The reason a schooner of beer cost $5 last year and is now $7, is due to inflation. This may be caused by small increases in the ingredients of the beer, or the rents charged to the venue owner, so they must increase their price to cover these costs. This generally upward trend in prices is the inflation.
Institutional Lending is a loan that is provided by a lender that is regulated by law.
Interest is the charge payable for borrowing money, or the money earned on an investment. You will often see interest presented as an annual percentage rate, for example 8 per cent per annum (8%pa).
Interest Coverage Ratio is used to measure a companies or individual’s ability to pay interest on their debt. It is calculated by dividing the company’s earnings before interest and taxes by the interest expense.
An Interest-Only Loan is a loan whereby the borrower only pays interest on the principle balance.
Intermediaries, sometimes referred to as mortgage brokers, are professionals who act as a middleman between two parties. For example, an intermediary may liaise with Funding.com.au to obtain property finance on behalf of their client.
An Investment Opportunity can occur in any situation where an individual is offered the option to buy and asset/security or to invest in a loan with the expectation of a financial return.
A Joint Venture occurs when two or more individuals get together to achieve a specific task.
Judicial Foreclosure is a judgment made in court in favor of a foreclosure of a mortgage, which orders that the property used to secure the loan should be sold to pay the debt.
Know your customer (KYC) is the process of a business identifying and verifying the identity of its clients.
A Lender is an individual or organisation that lends money. For example, as the name suggests Funding.com.au are classed as a ‘lender’.
To ‘Leverage’ is the ability to utilise equity within an asset to provide collateral for further debt facilities. For example, leverage is most commonly used when individuals obtain mortgages to purchase a home.
Lien is the legal right of a lender to claim the assets/collateral from a borrower who has not met their loan obligations.
Liquidity is used to describe the degree at which an asset/security can be bought or sold quickly without impacting the price
A Loan is the act of lending a sum of money, property or asset in exchange for future repayment. Here at Funding.com.au we provide fast and flexible loans to individuals and corporate entities wanting to borrow money against property in Australia.
Loan Extension is the act of giving a borrower additional time to repay to their outstanding debt. For example, we may extend a loan for 3-6 months if the borrower is looking to refinance.
The “Loan-to-Value Ratio”, known as LVR for short, is the ratio of the loan amount to the value of the property that we lend against. If a property is worth $1m and the LVR is 65%, we have lent $650,000.
Maturity usually refers to a date when a loan, bond or other debt instrument is due to be repaid in full. On the Funding.com.au platform the schedule end date could also be referred to as the ‘maturity or expiry date’.
Mezzanine Financing usually refers to the financing between a company’s senior debt and equity. In a payment scenario mezzanine finance is secondary to the senior debt.
MLR checks, short for Money Laundering Regulations, apply to banks, building societies and credit unions. They involve carrying out thorough due diligence and KYC checks to prevent money laundering or financing of corrupt businesses.
A Mortgage is a type of loan which is secured by the collateral of a specific property. The borrower must pay the mortgage back with predetermined set payments. For a residential mortgage, the lender has a claim on the property in case the borrower defaults on their payments.
Net return is your gross income from an investment minus any deductions such as income tax or capital gains tax. There are no fees or additional charges for investors on funding.com.au’s platform. The only deductions are income tax.
Net Worth is a key measure of how much an individual or business is worth. It is the value of total assets minus total debt owed. Consider the following example, you own a property worth $850,000, a car worth $30,000 and an investment portfolio with a market value of $100,000. However, you have an outstanding mortgage balance of $200,000 and a car loan of $10,000. You therefore, have assets of $980,000 but debt of $210,000. So your net worth is $980,000 – $210,000 = $770,000
Occupancy Rate is the number of units in a building that have been rented out in comparison to the total number of units.
Open Market Valuation or OMV is the price at which a property would sell for in a competitive auction setting.
Operating expenses are the expenditures incurred by a business in order to perform business as usual.
The Overview provided on the Funding.com.au platform is a full description of the property you are investing in. For example, the commentary will provide investors with information such as the approximate location, description of the property and details about the loan purpose and exit strategy.
Passive Investors are investors which purchase investments for long term appreciation and limited maintenance. This is a good way to invest your surplus funds, so you earn additional income on top of your regular employment or business activities.
Personal Liability is a financial obligation that an individual is responsible for.
Personal Loans are loans which are issued without a security/asset as collateral. They are also referred to as unsecured loans. For example, a personal loan may be a loan used to finance a wedding. Funding.com.au does not offer any unsecured personal loans.
A portfolio is a grouping of financial securities or assets (investments, bonds, stocks, equities). They are either ‘managed’ by financial professionals or ‘held’ by investors.
Portfolio Performance involves understanding how well a managed portfolio has performed in relation to comparison benchmarks.
A Prepayment Penalty is a clause in a loan contract confirming that if a loan is pre paid before the due date a penalty may be applied.
Principal is the amount of money that is actually borrowed. If for example you were to take out a $400,000 loan, this is the principal. By the time you pay back the loan, you may pay back $436,000 (depending on the interest rate). The $36,000 is the interest and the $400,000 is the principal.
Property Development is a business which ranges from renovating buildings to purchasing bare land and building on it.
Recourse debt is typically a debt that is backed by a guarantee that the borrower will repay the debt.
A Redemption occurs when an investors capital is returned. When investing with Funding.com.au ‘redemption’ occurs when the borrower has repaid their loan. Once the borrower has repaid their loan Funding.com.au will return investors capital.
Refinancing is the act of revising the way in which a debt is paid. For example, an individual may replace an older loan with a new loan that offers a more favorable rate or more flexible terms.
Regulation, broadly speaking are rules imposed by the government with the intention of managing individuals and company’s economic behavior.
A REIT, short for Real Estate Investment Trust, is a company that owns or finances real estate for the purpose of producing an income. Funding.com.au is not a REIT as we’re not investing funds into property ownership.
Residential Property is property that is used as a dwelling to house people. It can also be property that is in the process of being built or changed to become a dwelling.
Retained interest is interest that has been paid in advance and is deducted from the Gross Loan Amount.
The Risk v Return trade-off suggests that high risk investments will provide a greater return. And vice-versa
Second Charge is a legal charge registered against a property as a way of securing a debt. They are known as secondary charges as they have secondary priority behind the first charge (usually a mortgage).
A second registers mortgage is a mortgage taken out on a property which is already mortgaged. Loans with second mortgages as the security are significantly higher investment risk as lenders are second in line to recover funds after the first mortgage lender. There is a greater chance that lenders aren’t able to recover all of their funds. See also Mezzanine Financing.
Secured Lending is lending to a borrower which has secured an asset as collateral for the loan. For example, Funding.com.au only do secured lending as all of our loans are secured by first charge over a property.
A Secured Loan is a loan whereby the borrower provides an asset (e.g property) as collateral for the loan, which then becomes a secured debt owed to the loan provider if the borrower was to default. Here at Funding.com.au all of our loans are secured over a property located within Australia.
A self-managed super fund (SMSF) is a superannuation trust structure that provides benefits to its members upon retirement. The main difference between SMSFs and other super funds is that SMSF members are also the trustees of the fund. It is a common practice for investors to register their SMSF as the entity in which they will invest from with the funding.com.au platform.
Simple interest is the amount of interest earned on the original amount of money invested. Simple interest is paid out as it is earned and does not become part of an account’s interest-bearing balance. The invested amount is called principal. Let’s say you invest $5,000 (the principal) at an annualised interest rate of 7.5 percent. Multiplying the principal by the interest rate gives you an interest payment of $375. This is your simple interest. At funding.com.au, investors are paid their interest monthly. In this example you would receive $31.25 per month on your $5,000 investment.
Special Purpose Vehicles also known as SPVs are entities that are usually created as subsidiary companies in order to isolate financial risk. Thus, if the parent company is to go bankrupt the assets of the SPV are still secure. Corporate entities in the form of SPVs are the preferred structure for property developers to purchase and own separate property developments.
The process by which the borrower’s rights in the property are extinguished and the lender becomes the legal owner of the property.
Subordinated Debt is the debt on a loan that will be paid out after the senior debt has been paid.
Taxable Income is income that can be taxed by the government. You only pay tax on your taxable income. Examples of taxable income include work-related income, interest earned on savings and profits from renting out properties.
A Tenancy Agreement allows a landlord to possess the property immediately after the initial agreed period. Therefore, the landlord can evict a tenant after the agreement period without a legal reason.
For each loan there is a minimum term and maximum term. The “Term Remaining” is the borrower’s deadline to repay their loan, Investors should be prepared to commit their funds for the whole duration of the loan. However, borrowers do also sometimes pay back early.
A Trust is a relationship between a trustor and a trustee. The trustor gives the trustee the right to hold an asset (including property) for the benefit of a third party.
A Trustee is a individual or entity that has admin rights for assets (including property) for the benefit of a third party.
Underwriting is a process whereby an underwriter will ensure your profile as a borrower matches the lenders criteria. The main purpose of it is to asses a borrower’s risk. The process is based on the 3 C’s: Credit, Capacity and Collateral.
Unsecured Lending is when a loan is issued and supported by only the borrower’s creditworthiness, as oppose to a type of collateral. They are also known as personal or signature loans. An example of unsecured lending could be pay day loans.
A Vacancy Rate (%) is used to show the number of available units in a property or complex in a certain time period.
Value Add occurs when a business or individual takes a service or product and enhances it to give it a greater value.
Withdrawing is the process of requesting for your available balance on the platform to be sent from Funding.com.au to a bank account in your name.
Yield is known as the return on an investment. You will usually hear yield used to refer to interest and it is usually shown as a percentage of the investment.