Do you have trouble translating money jargon? Finance expert Mark Bouris explains some good-to-know financial terms.

Offset account

An offset account is a deposit account linked to your mortgage that earns the same rate as you are paying on the mortgage. Say you have a $300,000 mortgage and put $10,000 cash into the linked offset account.

The bank will net the balance of the credit account against that of the debit account and charge you interest for the month on $290,000. The benefit of the offset account is that it’s an interest savings on your home loan interest, which is tax free.

Negative gearing

Negative gearing is related to the expenses associated with holding an investment asset, such as a rental property. Costs such as interest, property maintenance and real estate fees can be offset against rental income to reduce your tax payable. With negative gearing, the expenses more than offset the income, thereby reducing the individual’s taxable income.

Comparison rate

This rate represents the true cost of the home loan and needs to be disclosed in home loan advertising. It includes all reasonable costs associated with the mortgage such as establishment fees, monthly fees, annual fees and discharge costs, and the rate will be typically higher than the actual interest rate on the loan.

Capital gains tax

Capital gains tax (CGT) is tax that has to be paid on a capital gain. A capital gain is when you buy an asset and you sell it for profit. CGT is payable at your income tax rate, however, concessions are available depending on how long the asset has been held.

Bonus rate

A bonus rate is the rate that banks often advertise in order to entice customers to sign up for deposit accounts. Bonus rates typically last for four to six months and are the equivalent of a honeymoon rate, which is usually offered on a home loan.

Break cost

This is the cost associated with breaking a fixed-rate home loan if rates drop and you want to move to a variable or lower fixed rate. Banks charge a break cost because they depend on you to make payments based on the initial fixed interest rate, so this is how they compensate for the reduced return.

Balloon payment (at the end of a car lease)

When you take out a lease, it will typically be set up over a three to five year lease term. At the end of the term, the car will still have a residual value. The balloon payment is reflective of this value. So if it’s a $15,000 balloon payment, it can be made either out of pocket, or via the sale or trade of the car.