Jargon explained

Asset finance

If you are seeking finance to fund the purchase of new machinery, equipment or vehicles to support your business you’ll require an asset finance loan.

Balloon payments

You choose to pay a larger sum of the loan value at the end of the loan term. The sum you pay is usually based on a fixed percentage of the total loan value.

Big-4 banks

Refers to the four largest banks currently operating in New Zealand which include: ANZ, ASB, BNZ and Westpac.

Bridging loan

If you already own a property, this is a short-term loan that can help you finalise the purchase of your new property before you’ve sold your existing one.

Capital

Wealth in the form of money or other assets owned by you, your company.

Capital gain

A profit from the sale of your property or investment.

Collateral

Something pledged as security for repayment of a loan, to be forfeited in the event of a default.

Commercial property

Refers to property that produces a financial return in the form of rent to the owner, usually by being occupied by businesses.

Construction lending

Is a sum of money that is loaned where the proceeds are used to finance construction to your land or property.

Construction loan

If you want to build a home this is your loan. Most construction loans are interest only for the first year while the build is underway and interest is charged on the amount you draw down on from the loan for building repayments.

Cost benefit analysis

An adviser assessing the cost of establishing a loan - i.e. your deposit covering the costs that you will incur when you take out a loan (costs include lawyers, conveyancers, tax etc).

Credit history

A file that is kept by a credit agency for up to 7 years regarding your repayment history on loans and credit cards.

Credit limit

Refers to the capped amount your lender has allowed you to spend via a credit card, with your spending limitation based on the information in your initial application.

Credit rating

An estimate of the ability of a person or business to fulfil their financial commitments, based on previous dealings or on their credit history.

Debt consolidation

Merging your debt into one amount to simplify your repayments.

Deposit

A sum of money used to secure the purchase of an item or a sum that you put in a bank account.

Depreciation

Generally calculated based on either the passage of time or the use of your asset or property.

Equity

The monetary value of an investment less the outstanding loan amount.

Fixed rate

Your interest rate and repayments will stay the same during the fixed term of your car loan.

Fixed rate loan

Basically, this is the opposite of a variable rate loan. Your interest rate and repayments will stay the same during the fixed term, no matter what. So no surprises.

Funds to complete

The total funds required to complete a purchase transaction. Include the property purchase funds, and all fees and charges associated with the transaction.

Interest cover ratio

Used to determine how a company can pay interest on outstanding debt. The ratio is usually calculated by dividing a company's (or your) earnings before interest and taxes by your interest expenses for the same period.

Interest only loans

Where for a set term, you pay only the interest on the principal balance, with the principal balance unchanged.

Interest rate

A percentage calculated against an amount of money that you borrow, and is paid as a fee for the use of that amount of money over time.

Introductory rate loan

Also known as ‘honeymoon’ loans, these offer a low interest rate for a short period (eg. a year), after which the rate moves to the standard variable rate.

Investment loans

An amount you borrow specifically used for investment property purposes.

KiwiSaver First-Home Withdrawal

You may be eligible to withdraw up to everything in your KiwiSaver fund (except the initial $1,000 Government contribution) and put it towards your first home.

KiwiSaver First Home Grant

A grant of money that eligible first home buyers can apply for as contributions to the purchase of their first home loan. Depending on whether you're buying an existing home or a new build, you can get up to $10,000 towards buying your first home.

Lenders Mortgage Insurance

A percentage against the amount you borrow if no or little deposit is paid by you (up to 20% of the property value). This amount is paid by you in order to pay for the lender’s insurance to protect them in case you falter on your repayments.

Limited guarantor loan

When another person or family member puts up a property they own that they have equity in as security, allowing you to borrow up to 100% of the purchase price of a home without needing a deposit. This will also mean that you will avoid paying the LMI.

Line of credit

Drawn from the equity in your property or an agreed amount that your lender has approved. This means you can use just a portion of what you borrowed, and so you only pay interest on money actually withdrawn or used.

Line of credit loan

This gives you flexibility and easy access to cash for renovating or investing. It lets you draw against the loan balance, up to a credit limit set by the lender.

Loan portability

Portability allows you to transfer your current loan from your old property to your new one, thereby avoiding many of the setup and ongoing costs associated with a new loan. A lot of people don't stay in the same home for the whole 25 or 30 years they've got their home loan for. Many home loans these days have a loan portability feature in part or total, but it's not offered by all lenders so it's important to check with your mortgage adviser. Because it's the same loan, you'll not have to pay exit and entry fees.

Low deposit loan

When you have up to 20% of the value of a property as an initial down-payment to secure the purchase of that asset. A higher interest rate is usually charged.

Low doc loan

Where you do not need any supporting evidence, just a declaration from yourself and your accountant that you can afford to make repayments for the duration of the loan. This type of loan is suitable for those who are self-employed or have an irregular income.

Loan-to-Value Ratio (LVR)

Expressed as a percentage, it refers to the amount of the loan against the value of the property purchased.

Negative gearing

A tax advantage calculated as a return from an investment property after maintenance and mortgage interest costs.

Net income

Refers to your available income from salary or property after deducting depreciation, interest, taxes and other expenses.

Non-bank lenders

Are lenders who do not represent a mutual bank, building society or a credit union. A non-bank lender usually sources their own wholesale funding and then lends out their funds making a margin on the difference.

Offset account

A savings account that is linked to a home loan. It reduces your interest payable because the interest is only charged on the net balance of your savings account.

Overdraft

Your lender will agree to provide you with a credit limit and you can borrow up to that limit. Typically the interest rate will be higher than other alternatives due to the increased risk to the lender. You cannot get an overdraft with a fixed interest rate.

Packaged loan

Professional packages offer discounts on standard variable and fixed rates, the waiving of fees, and in some cases, great deals on other products from the same lender. A packaged loan usually comes with one annual fee for the bundled products.

Parental guarantee

Refers to when your parents or other family members help you secure a loan in your name by offering you to use the equity in their home for some or all of your loan.

Personal loan

Smaller amount of money borrowed compared to a home loan. Used to purchase items like holidays, cars and medical procedures.

Pest and building inspections

A recommended pre-purchase property inspection report, usually paid by you, which identifies structural and pest infestation on the property.

Positive gearing

Positive gearing is when the earnings of an investment property (typically rent) are more than the expenses (loan interest and repayment and maintenance costs), resulting in a net profit. 

Pre-approval

An indication from a lender that you are eligible to apply for a home loan up to a certain limit. Depending on the lender, further conditions will have to be met including verification of the information you have provided and confirmation on the suitability of the property prior to formal approval being issued.

Principal

Refers to the actual sum that you have borrowed or otherwise, the body of the loan. In contrast, the additional part you need to pay when you borrow money is the interest, which acts as a fee that is calculated as a percentage, usually against the original sum of the loan until the end of the term.

Redraw facility

Where you can access additional payments you’ve made previously on a loan.

Refinancing

When you acquire a new loan (with a new lender) to take over an older one for the same asset.

Repricing

When your existing lender agrees to lower the rate on your existing loan without needing to refinance to another product or lender.

Rental yield

A measure of the percentage of income return you earn from your property.

Reserve Bank of New Zealand (RBNZ)

Its duty is to contribute to the financial stability in New Zealand, and is influenced by things like employment and overall New Zealander welfare. The RBNZ creates the daily cash rate which will affect the direction of the interest you pay on your property.

Residential property

A dwelling that is either occupied by tenants or inhabited by a person, group of people or family who may own the property and is generally used for non-business purposes.

Reverse mortgage

When retirees unlock the equity in their home and borrow against the value of their home and repay the loan when they sell their property.

Secured loans

You provide collateral (such as the car or property) as security against the loan in case you can’t afford your repayments. Lenders typically offer lower rates for secured loans (vs an unsecured loan) because there is less of a risk to them.

Split loan

You’re able to fix part of your loan, while leaving the rest variable.

Standard variable rate loans (SVR)

Usually with a variety of features, including making extra repayments and redraw advance repayments, this type of loan is suitable for both investment and personal purposes.

Strata fees

When collective owners of a building pay a fee, usually quarterly, into an account that pays for the overall maintenance and other expenses related to the building.

Unsecured loans

No additional security (e.g. your car or property) is provided against the loan. Instead the lender will rely on your credit score when they decide whether or not to approve you for the loan. Interest rates can be higher than a secured loan and you might not be able to borrow as much.

Vacant land loan

A sum of money that you borrow to pay for a block of land that you intend on building on in the near or distant future.

Variable rate loan

As the name suggests, the interest rate can change over the life of the loan. This gives you flexibility, but can also leave you open to rate rises. These loans offer more flexible features like unlimited additional repayments, redraw, and offset accounts.