Buying a property can be an exciting experience but sometimes the language around mortgages and investment property can sound like double dutch. YBI’s plain-speaking guide to mortgages will give you the lowdown on all the lingo.
Amortisation period: Ever wondered what the legal name for the term of your loan is? Well, now you know. The amortisation period is the agreed amount of time a borrower has to pay off their debt. It is set out when a loan is applied for and approved. For example, a 25-year term.
Appraised value: This is the value a property is estimated to be worth.
Breach of contract: When someone breaks the conditions set out in a contract it menas they have breached the terms
Break costs: This is the penalty charges for ‘breaking’ or ending a fixed term loan before the agreed date. This is important to look into if you think you are likely to pay off your loan early.
Bridging finance: This is a type of loan a buyer may use when they purchase a new property and their old property is still on the market awaiting a sale. They use ‘bridging finance’ to bridge the gap. Higher interest rates usually apply.
Capital gains: You’ve bought an investment property and then sold it for 3x its original cost. That’s a capital gain. It’s the capital (money) gained from selling an asset for more than its original price). Capital gains are subject to capital gains tax (unless you are selling an owner-occupied property which is excepted).
Capital gains tax: A federal tax on the monetary gain made on the sale of an asset bought after September 1985.
Capped loan: This is a loan where the interest rates cannot exceed a set value. However, unlike fixed rate loans, if interest rates fall, the rate change will not apply.
Caveat: When a caveat is lodged on a piece of land or a property title it means a third party that is not the owner claims some right over it – examples would be an easement allowing access.
Certificate of Title: This is a record of all the pertinent information for a property, including owner details, lot or plan details and any registered caveat. This document is usually held by the lender until the loan is paid out.
Chattels: A property’s chattels are all personal items such as furnishings, appliances etc, that may or may not be included as part of a property sale.
Contract of Sale: A written agreement outlining the terms and conditions for the purchase or sale of a property.
Conveyancing: The legal process for the transfer of ownership of real estate.
Cover note: An insurer will supply a cover note to guarantee cover before a formal policy is implemented.
Deed: Another word for title. It’s a legal document that states all information regarding the ownership of a property or piece of land.
Default: When you default on a mortgage or loan agreement you have failed to make a minimum loan repayment. Defaulting on a loan can have severe consequences.
Deposit bond: A guarantee from your financial institution that a deposit will be paid to a seller. The buyer must still pay the full purchase price of the property, including the amount of the deposit, at settlement.
Disbursements: Miscellaneous fees and charges incurred during the conveyancing process, including search fees and charges paid to government authorities.
Discharge fees: An administration fee to cover the costs of terminating a loan account.
Discharge of Mortgage: WOOHOO! You’ve finally paid off your mortgage. Now your lender will provide a signed document stating your loan has been paid in full.
Easement: A right to use a part of land owned by another person or organisation, for example to access another property.
Encumbrance: An outstanding liability or charge on a property.
Exit or early repayment fees: While we all dream of paying off our mortgage early, remember to look out for loan conditions such as exit fees or early repayment fees which penalise borrowers for paying off a loan before the end of its term.
Fittings: These are the items in a property such as carpets, light fixtures, cooktops and stoves that are not intended to be removed from a property when its’s sold.
Fixed rate: An interest rate that applies to a loan for a set time period The rate of interest and payments remain the same for this fixed agreed time period, regardless of any interest rate variations in the home loan market.
Freehold: Complete ownership of a property and the land that it’s built on.
Guarantor: A person or organisation that agrees to be responsible for the payment of a loan – if the actual borrower defaults or is unable to pay.
Home equity: The equity in your home is the amount of property you actually own at any given time in a home loan. It’s the current property value less the amount still owed on the mortgage. Your equity will increase as you pay off your loan or as the property market rises.
Instalment: The regular payment that a borrower agrees to make to a lender.
Interest: This is the amount charged by a lender for the money borrowed.
Interest rate: The percentage of the loan amount, used to calculate the interest to be paid for a loan.
Lender’s Mortgage Insurance (LMI): Usually a requirement if the amount borrowed for a property is over 80 per cent of its value as the loan is deemed to be risky. LMI covers the lender if a borrower defaults on a loan and the sale of the property doesn’t cover the outstanding debt. Only the lender is covered by this insurance.
LVR: The LVR or Loan to Value ratio is the percentage of the loan amount compared to the value of that property. So if a house is worth $200,000, and the mortgage is $100,000, then the LVR is 50%.
Maturity: The date when a debt loan must be paid out in full.
Mortgage Protection Insurance: Borrowers should consider this insurance as it covers loan repayments if a borrower become sick, injured or redundant and unable to work.
Passed in: If a property is ‘passed in’ at auction it means the highest bid did not meet the reserve price set by the seller.
Principal: The amount owing on a loan, on which interest must be paid.
Redraw facility: A component of a variable rate loan which allows a borrower to make extra repayments on the loan which can be drawn out later if needed.
Refinance: You can sometimes negotiate a better deal for your home loan if you switch mortgage providers. By switching to a new mortgage provider you ‘refinance’ your loan on the same property at a new rate.
Security: No, not a night club bouncer, but rather an asset that a borrower gives a lender the rights to should the borrower fail to pay their loan as agreed.
Settlement: This occurs when the balance of the purchase price is paid to the seller and the buyer becomes the new legal owner of the property and receives the keys.
Stamp duty: A tax imposed by the state government on the purchase price of a property.
Each state and territory has different laws regarding the payment of stamp duty..
Term: The duration of a loan, or a specific period within that loan. This is usually written in months for example, 300 months equals 25 years.
Title deed: A document outlining the legal description and ownership of a property.
Valuation: the value given to a property attributable to a professional valuer (such as a bank or property valuation expert)
Variable rate: An interest rate set by the reserve bank that moves up or down depending on the market.
Variation: A change to any part of a loan contract.
Zoning: The allowable uses of land as set out by local councils or planning authorities. Eg. residential, commercial, mixed use.