Speaking Finance Vocab: What Does Finance Language Really Mean?

We all know that professionals in their field use language that people not in the field must go home and google after their appointments. And, while we try our very best at Wilson Financial to speak in plain English, we know some complicated terms slip out. So here is a little glossary of the trickier terms you can hear in lending, banking, and broader finance.

1. Amortisation Schedule
This is a technical blueprint showing exactly how each repayment is divided between principal and interest over time. It is useful for seeing how slow, or fast, real progress happens in the early years of a loan.

2. Break Funding Costs
A penalty charged when exiting a fixed-rate loan early. It’s not a ‘fee’ in the usual sense. It compensates the bank for losses on the wholesale funding they locked in for your loan.

3. Loan-to-Value Ratio (LVR)
Your loan-to-value ratio dictates your risk to a bank, by assessing the total loan amount vs the value of the asset it is secured against. A higher percentage LVR will often come with higher fees and increased interest rates.

4. Debt-to-Income Ratio (DTI)
A borrower’s DTI ratio is the measure of income vs their combined debt level. A person who has a DTI of 5 has debt value 5 times more than their gross taxable income. Eg. $500,000 loan to $100,000 salary. Things that impact DTI can include loans such as home, car, personal, credit cards and even your HECS/HELP.

5. Lenders Mortgage Insurance (LMI)
If your Loan-to-Value Ratio exceeds the banks risk appetite (typically 80%), they will charge an upfront fee to insure the funds provided in case you default on your loan. This covers the banks perceived risk whilst still allowing you to borrow more with less deposit.

6. Macroprudential Tightening
Regulatory intervention designed to cool riskier lending. Usually arrives in the form of:
     - Higher assessment rates
     - Caps on investor lending
     - Debt to income limits
Essentially, when you hear this term think ‘stricter gatekeeping is coming’.

7. Repricing Events
A lender-initiated change to interest rates unrelated to a reserve bank move. Can be portfolio-wide or target specific borrower/lending segments.

8. Serviceability Buffer
The stress-test margin added to the current rate when assessing a loan application. In practice: if the buffer is high, borrowing power drops significantly.

9. Non-ADI (Authorised Deposit-taking Institutions) Lending Sector
This is what non-bank lenders operating outside strict banking regulations are called. These are not inherently risky, but are more sensitive to market conditions, meaning rates may move more sharply.