Katy Holliday - 19 Nov, 2021
Let’s uncomplicate the terminology and jargon when it comes to home loans and banking terms. Check out our A to Z home loan glossary, consisting of a list of definitions for common financial terms you need to know.
This refers to the amount of interest accumulated on your home loan that has not yet been paid to the lender.
The APR is the annual cost of the loan and includes all fees and interest. Like an interest rate, it’s expressed as a percentage, but it gives you a more accurate reflection of the cost of your loan and a basis for comparing offers.
This is the cost to hire a professional appraiser to evaluate the worth of a property.
This is an estimated value of your property in the existing market and is usually conducted by a real estate agent. Agents often provide different estimates, so it’s important to seek at least three appraisals for a clearer picture of the worth of your property before listing it on the market.
This refers to a rise in the value of a real estate property over time.
Any amount that is overdue after the payment due date.
A short-term home loan with an initial period of low or interest-only repayments, which requires the borrower to pay off the balance as a lump sum at the end of the term.
A large repayment made towards the end of a loan term to clear debt.
When a debtor who is unable to pay their existing debts has their finances taken over by a trustee. This can result in selling off of assets and often has a negative impact on credit rating.
The owners corporation or body corporate is made up of all the owners in the strata scheme and common property, who elect a council to oversee the management and upkeep of the building.
Early repayment costs or break costs apply when you payout or switch out of a fixed rate
loan before the end of the agreed term. The exact fee will depend on your lender, the current interest rates and the length remaining on your fixed rate term.
This is a temporary, short term loan (usually 12 months) typically used when transitioning between buying a new property and selling an existing property, without having to wait to sell first.
When constructing a new home or undertaking renovations, developers, builders and renovators must adhere to state government and local council rules and regulations regarding the quality and standards of the build and its design.
An increase in the value of an asset, which comes into effect when it is sold and a profit is made.
When translated from Latin, this phrase means ‘let the buyer beware’. This means, the onus is on the buyer to do their own due diligence as the owner has no legal obligation to disclose information regarding the condition of the property and land.
This is a formal record of a property, which details the title, current ownership, any registered encumbrances and the lot or plan details. Once you pay off your home loan in full, your lender will hand the certificate of title over to you.
Chattels refers to any personal property items that can be moved. This includes furniture, washing machines, fridges and more. It’s important to go over the contract closely to understand what is included in the sale.
This combines the interest rate and most ongoing and upfront fees and charges that will be made over the loan term, and is expressed as a percentage. It is particularly useful for comparing loans between lenders. Some fees and waivers are not included, such as an early repayment or redraw fee.
This is a letter provided by a lender that indicates the amount of finance they will likely allow you to borrow, following an assessment of your financial situation and a credit check. This is what you need to take with you if planning to bid at an auction.
The contract of sale is a written agreement that outlines the terms and conditions for both the buyer and seller to agree to for the purchase or sale of a property. It includes the sale price and any special conditions.
This is the process of transferring property ownership from the seller’s name to the buyer’s name. With a lot of legal work involved, it’s best performed by a licensed conveyancer or solicitor to ensure all outstanding bills and issues are sorted before settling.
This describes a short period of time from when a contract is signed until you can no longer withdraw from the sale without incurring major financial and legal repercussions. This mandatory condition of sale is typically between two and five days in most states and territories, although some states do not require a mandatory cooling-off period.
Simply put, this is the money you borrow from a lender with a formal agreement outlining when to pay it back and how much interest you may have to pay.
This report is issued by an authorised credit reporting agency and shows the applicant’s credit history. With your permission, lenders access this information to help decide whether it’s safe to lend you money. Each application you make for finance is recorded on the file, and the lender can see the company, type of finance, the amount and date.
This is when you miss the due date for a home loan repayment or bill. Missing a home loan repayment means you have defaulted on your loan, no matter why it happened. There can be penalty fees attached to late payments, and a default can be listed on your credit report. This can impact your credit score and make it more difficult for you to get credit in the future.
This is the initial down payment you make when you sign and exchange contracts with the seller when agreeing to purchase their property. The deposit amount is typically between 5-20% of the total purchase price and the exact amount is influenced by a range of factors, including the lender’s requirements and whether the sale is by private treaty or auction.
This is a reduction in the value of your property, usually due to wear and tear.
An electronic funds transfer from one bank account to another. This can be set up to automatically make your regular home loan repayments.
When a conveyancer or legal representative acts on your behalf there are various costs they need to pay, including certificates, land tax and search fees. These costs are usually charged in your final invoice.
An outstanding charge or liability on a property.
The difference between the current market value of your property and the remaining amount you owe on the home loan. For example, if your property is worth $700,000 and the outstanding mortgage debt is $300,000, your equity is $400,000.
Some lenders charge a fee to cover the cost of setting up your home loan.
To pay off your home loan balance sooner regular additional payments can be made to reduce the term of the loan over time and the interest payable. Not all home loan types allow for free extra repayments and some might have annual limits, so it’s best to discuss your options with your lender.
This is a state or territory government funded grant used to help subsidise some of the costs of buying a first home. Eligibility and the amount of funds available depends on a number of factors, including the state you live in. Ultimately, it’s only available to buyers that have not previously owned property in Australia.
Items that are not intended to be removed from a property when it is sold. This can include, but is not limited to, carpets, lights, a letter box, a stove or other appliances.
This is a set interest rate that is locked in for a borrower for a predetermined period of time, regardless of any interest rate rises in the market. The fixed rate term is generally between one and ten years, and at the end of the period the loan will revert back to a variable interest rate, unless previously negotiated with the lender.
Generally, fixtures are items that are part of the property and remain when the house is being sold. If it has to be unscrewed or taken off a wall to remove it, then it shouldn’t be taken. If a seller wants to remove fixtures, it must be stated in the contract and damage made good by the seller.
This is a third party who agrees to provide property as an asset for additional security on your home loan. Usually a guarantor is an immediate family member. If you fail to fulfill any defaults on the loan, the guarantor is legally required to compensate the lender.
This is a sum of money that buyers pay to the seller to secure the purchase of a property. Typically, this is 0.25% of the purchase price, but it can be negotiated. This payment is usually made prior to signing the contract and establishes the seriousness of the buyer.
This is when a lender offers a reduced interest rate at the commencement of a new loan. Often referred to as the “honeymoon period”, once this term ends (usually 12 months) your loan reverts to the standard variable rate.
Much like fixtures, inclusions are items that are fixed to the property and are normally included in the sale. This can be items such as pergolas, built-in playground equipment, built-in barbeques, stoves, lighting fixtures and blinds.
This is when interest is charged at the beginning of a set period, rather than at the end. In some cases, it could mean you are charged the first year’s interest at the first month of a loan. This is usually an option with fixed rate loans, for investment reasons.
This is a loan type where just the interest is paid for a set period, and there are no repayments made on the principal. The interest only period is usually between one and five years. After this time, the borrower has the option to renegotiate another interest only period or commence paying the principal and the interest.
The equal ownership of property between two or more people. If one party dies, their shares in the property are passed to the survivor(s).
Land tax varies by state and is charged on any land that is valued above a certain threshold. This includes vacant land or land that has an existing dwelling.
When you borrow more than 80% of the value of a property, or have a deposit of less than 20%, you will be required to pay lenders mortgage insurance. LMI is a one-off payment in the form of insurance used to protect only the lender in the case that the borrower has trouble maintaining mortgage repayments.
This is the percentage of your property’s value that is borrowed. For example, if you are buying a property worth $600,000 with $300,000 borrowed, this means you have an LVR of 50%.
This is when you make additional one-off payments that help to pay off the loan sooner.
The minimum or maximum amount of finance a lender will offer is based on your income, deposit and the purchase price of the property you want to buy. Some lenders will have a minimum amount they are willing to lend for mortgages.
This works as a savings account linked to a home loan, which can be used to reduce the interest amount you pay on your home loan and help pay it off sooner. Interest is not paid on the money you keep in the linked account, and the balance in your offset is deducted from your home loan balance.
For instance, if you have a $400,000 mortgage and have $20,000 in your offset account, interest is calculated on the balance of $380,000. You can have a 100% mortgage offset account or a partial offset.
A written contract setting out the terms in which the buyer agrees to purchase. If accepted and signed by the seller, it forms a legally binding contract.
A loan that lets you borrow money to make a big purchase or to consolidate debts. Personal loans can be secured or unsecured.
A pre-approval or approved in principle letter confirms the amount the applicant can borrow from the lender. This is a good indication of your potential borrowing power. The amount is conditional upon the property and the lender confirming your income and other information provided in the application. It’s different from conditional approval, which is the highest level of pre-approval in that your information is already validated and assessed.
A loan in which the monthly repayments include paying off both the principal and interest.
This allows borrowers to withdraw any extra payments made on the home loan. This can be done for any purpose, at any time, and is handy in case of an emergency where you might need cash. This is usually only allowed if the borrower is far enough ahead on loan payments, and is not an available feature on every loan.
The process of taking out a new home loan to pay out an existing mortgage. While this can be with the same lender, it often involves switching to another bank to get a better deal on interest rates or features.
If you’re ahead on your home loan, you can opt to take a break from your scheduled mortgage repayments. This is essentially a period of no payments for an agreed upon term.
The minimum price a seller will accept for their property to be sold during an auction. If the reserve price is met, the seller will commit to the sale. The auctioneer will usually announce that the property is ‘on the market’ when this price is reached, and then the property is sold to the highest bidder.
An asset used to secure the loan. If you cannot repay the loan, you have given permission to the lender to take possession of the asset. When getting finance to buy a property, it is usually the property itself that is used to secure the loan.
The settlement of a property is when the balance of the purchase price is paid to the seller. The buyer then becomes the legal owner of the property. This is also usually when the settlement of a loan occurs, and the lender transfers the borrowed funds to the seller and the buyer commences home loan repayments.
A state government tax that you must pay when you buy a property. This differs from state to state, and first home buyers may receive a discount. Want to know more? Check out eChoice’s Stamp Duty Calculator to estimate how much stamp duty you may have to pay.
This form of ownership for townhouses, units, apartments or villas means you hold a title to your particular unit. With a strata plan, you also own a small percentage of the entire property and common areas. It also entitles the owner to be a member of the body corporate.
A joint ownership of a property could be equal or unequal in percentage. Unlike joint tenancy, the shares do not automatically pass to the other owners in event of death, but are passed on in their Will.
A formal document that discloses the legal description and ownership of a property.
A document registered with the Titles Office confirming a change of ownership. The change of ownership is noted on the Certificate of Title.
Confirmation that the lender has approved your full home loan application and that you can borrow the money.
When you apply for a loan that doesn’t require the details of an asset to be used as collateral for the loan. There is a higher risk to the lender, which can mean a higher interest rate for the borrower.
A professional opinion regarding the value of a property, conducted by a third party or by a lender’s valuer. This is required by the lender to determine if the property is true to the selling price.
A home loan interest rate that goes up or down according to the movement of market interest rates.
Also commonly referred to as the seller, this is the party who offers the property for sale.
Words by Katy Holliday
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