|
Feel like you are being kept in the dark by
some of the financial jargon that is used? This is a list
of some of the common terms you may come across.
a b c d e f g h i j k l m n o p q r s t u v w x y z
A
| AAPR: |
The Average Annual
Percentage Rate, also known as the “True Rate”,
is used as a tool to assess the average interest
payable on a mortgage over a seven-year period. This
assessment also includes upfront fees, ongoing fees,
and the interest payable on that mortgage over the
seven years. |
Additional or Accelerated
Payments: |
This facility allows you to make
greater payments than specified on a loan. |
| Account fee: |
Many banks/lenders charge one
off and, in some cases, ongoing account keeping fees
for mortgages. |
| All-in one: |
All-in-one loans are usually variable
and enable you to deposit all your income into the
loan account. You are then able to draw on that money
for day-to-day expenses. The purpose of this is to
reduce the interest payable because the excess spare
funds act as payments. |
| Amortisation period: |
This is the term or length of time
of the loan as agreed upon. |
| Application fees: |
Not all banks/lenders charge an
application fee so it is worth checking if the lender
you choose is one that charges a fee. In some cases,
lenders who do not charge a fee offer a higher interest
rate. Your mortgage consultant will explains all
this to you. |
| Appraisal: |
Is a written report of the estimates
value of a property. A qualified appraiser, usually
employed by the bank/lender, conducts the valuation. |
| Appreciation: |
Is an increase in the value of
a property as a result of inflation and market conditions. |
| Assets: |
An asset is anything you own that
is worth money, including any savings, stocks or
funds. |
back to top
B
| Basic or
'no frills' loans: |
Generally tend to be cheaper than
variable loans, however these loans tend to be
less flexible and offer fewer features, such as
redraw facilities or no extra payments can be made. |
| Beneficiary: |
The beneficiary is the person that is selected
to receive the income from a trust, estate, or
a deed of trust. |
| Break Costs: |
If you have a fixed rate loan contract and you
wish to break the contract before the period expires,
you may incur a break fee. |
| Bridging finance: |
This type of finance is used for times when
finance is needed to buy a new house while waiting
for the old one to sell and usually has higher
interest rates. |
| Building inspection: |
It is encouraged to carry out a building inspection
prior to purchasing a house to make sure the house
is structurally sound. |
back to top
C
| Capital
gain: |
Is
a term that refers to the financial gain obtained
when you sell something for more than you paid
for it. Usually, the profit you receive from selling
the asset incurs capital gains tax, except on the
sale of a home that remains exempt from this tax.
|
| Capital gain tax: |
A federal tax on the monetary gain
made on the sale of an asset (excluding your own
residence) bought and sold after September 1985. |
| Capital growth: |
The difference
between the price you pay for an asset and the
price you receive when you sell it or the valuation
placed on that asset. |
| Capped loan: |
A loan where
the interest rate is not allowed to exceed a set
level for a period of time, but unlike fixed rate
loans, is allowed to drop. |
| Caveat: |
Is Latin for
beware and is a warning on a property’s title
that stipulates that a third party has some rights
or interest in the property. |
| Caveat emptor: |
'Let the buyer beware' - the principle
that puts the onus on buyers to be satisfied with
any item before buying. |
| Certificate of Eligibility: |
A document that is issued by the
federal government confirming a veteran’s eligibility
for a Department of Veteran mortgage. |
| Certificate of Title: |
A statement that identifies who
owns the land and includes details of mortgages,
easements, dimensions of the land and whether there
are any obstructions on it. |
| Chattels: |
Refers to personal property. There
are two types of chattels; real chattels which are
buildings and fixtures, personal chattels which are
clothing and furniture. |
| Combination or Split
loan: |
This is exactly as it sounds. It
is a combination of the several of loans on offer
and may have a portion variable, fixed or a line
of credit. |
| Comparison rate |
As of July 2003 all lenders and
brokers must provide a ‘comparison rate’,
by law. A Comparison Rate reveals the cost of a loan,
allowing you to compare ‘apples with apples’ when
choosing a loan. The Comparison Rate takes into consideration
the costs associated with setting up a loan including
the interest rate, the loan approval fee and any
other up-front or ongoing fees. It excludes government
fees and charges, because they are standard across
all loans. |
| Construction loan: |
If you are building a property,
a construction loan allows you to draw money as required
to assist with building costs. |
| Consumer Credit Code: |
is an Act of Parliament that governs
the involvement between borrowers and lenders. Credit
providers such as banks, building societies etc,
must tell you what your rights and obligations are
in any credit arrangement. They are required by law
to truthfully disclose all relevant information about
your arrangement in a written contract, including
interest rates, fees, commissions and other information
which in the past was often hidden. |
| Contract of Sale: |
This is a written statement that
is legally binding and outlines the terms and conditions
of the sale of property between purchaser and seller. |
| Conveyancing: |
is the legal process for transferring
a real estate ownership from one owner to another.
This can be a costly process and is applicable to
all States with the exception of South Australia
where Torrens Title is used instead. |
back to top
D
| Deed: |
A legal document stating
an agreement or obligation regarding a property. |
| Deferred establish
fee: |
Is a fee that is charged when you
pay out your loan within a short period of time,
usually up to four years. |
| Default: |
When you fail to meet the mortgage
repayment on time. |
| Deposit bonds: |
Banks and lenders provide deposit
bonds as a guarantor that the full payment will be
made by the due date. Deposit bonds are used when
cash is not readily available for the deposit. |
| Depreciation: |
A decline in the value of a property
or an asset. |
| Direct debit: |
A system where funds are electronically
debited from your nominated bank/building society
account. |
| Discharge fees: |
This is a fee that is charged when
closing a loan account. |
| Disposable income: |
Any income that is left over after
all expenses and bills have been paid. |
| Draw down: |
This provides access to available
loan funds and usually refers to lines of credit. |
back to top
E
| Easement: |
A right to use a part
of land that is owned by someone else. |
| Encumbrance: |
An outstanding charge on a property. |
| Equity: |
Is the percentage, or the amount,
of your home that you actually own. Equity increases
as the mortgage decreases and equity is affected
by market values and also home improvements. |
| Establishment fees: |
This is a fee that is paid to the
bank/lender at the point of setting up the loan.
Also known as Application Fee. |
| Exchange of Contract: |
This occurs when the vendor and
buyer give each other the necessary legal documents
(usually occurs via solicitor or conveyancer) and
commence the settlement process. |
| Exit fees: |
These fees are incurred when a
loan is paid off earlier than the agreed upon term
and this fee usually applies to fixed interest rate
loans. |
back to top
F
| First Home
Owners Grant: |
The Federal Government
introduced the FHOG on 1 July 2000. Although it was
initially established to assist counterbalance the
increased cost of building a home due to the GST,
it also applies to buying an established home. The
amount of the grant is a non-means tested flat rate
of $7,000. |
| Fittings: |
These are items that can be removed
without causing damage to a property. |
| Fixed rate: |
This applies to mortgages where
the interest rate is fixed and is not affected by
inflation, or deflation, and is for an agreed period
of time. Most fixed rate loans can be taken out over
a 1, 2, 3, 4, 5, 7, or 10-year period and the interest
rate offered to you at the time of applying for the
loan will remain ‘fixed’. |
| Fixtures: |
These are items that are likely
to cause damage to a property if removed. It pays
to check what the sale contract specifies. |
back to top
G
| Gazumping: |
Many buyers have been
extremely frustrated with a practice known as gazumping.
This is when the seller verbally agrees on a price
for a property but then later advises you that someone
else wants to buy the home and has offered more money.
In some occasions you are given the chance to match
or better the increased offer. In most cases, the
home is sold for the increased price without you
even knowing about it. |
| Guarantor: |
This is when someone agrees to
be responsible for the payment of another person’s
debts should they default on their repayments. |
back to top
H
| Home Equity
Loan: |
This is a loan that
assesses the amount of home equity you have and based
on that, offers a line of credit that can be used
to invest in a property or to renovate for example.
These loans are not suitable for everyone, so talk
to your mortgage consultant. |
| Honeymoon Rate: |
Also known as ‘Introductory
Rate’, this is when lenders offer a very cheap
interest rate, usually for a one year period. |
back to top
I
| Interest: |
This is what lenders
charge you for the use of their money. |
| Interest only loan: |
This type of loan is short term,
one to five years, where only the interest is paid
during the agreed term. |
| Interest Rate: |
The rate at which interest is applied. |
| Introductory Loan: |
See our glossary item ‘Honeymoon
Rate’. |
| Investment property: |
The owner does not live in an investment
property and the property is purchased simply for
earning a return on the investment, which can be
in the form of capital gain or rent. |
back to top
J
| Joint Tenants: |
This is when there
are two or more purchasers to the one property and
each purchaser owns an equal share in the property.
Upon the death of one owner, their share automatically
is transferred to the remaining owners. |
back to top
L
| Lender: |
As the name suggests,
a lender is a bank, building society, credit union
or a specialised home lender that lends money. |
| Line of credit: |
Line of Credit also known as an
equity home loan, is when the lender assigns you
a credit limit secured against your property, and
when you need cash you draw against that limit, usually
by writing a cheque or using a special debit card.
As you pay back the loan (the terms of repayment
vary), the money becomes available to you to use
again. |
| Loan To Value Ratio: |
This is a tool
used to measure the strength of a loan. The formula
used to calculate the loan to value ratio (LVR)
is as follows,
Mortgage
Property Price X 100 = LVR
For example, if a house is worth
$320,000 and the mortgage for the property is $220,000,
then the LVR equals 68.75% |
back to top
M
| Maturity: |
This is the date by
which the loan must be paid in full. |
| Maximum loan amount: |
After assessing your disposable
income, deposit and the purchase price of a property,
you will be advised of the maximum amount you can
borrow. |
| Minimum repayment: |
This is the least amount you are
required to pay each month on your loan. |
| Mortgage insurance: |
If you are borrowing more than
80% of the property value the bank/lender will most
likely request that mortgage insurance is taken out.
It is important to note that this form of insurance
protects the lender and not you, the borrower. |
| Mortgage offset account: |
This is a savings account that
runs in conjunction with a home loan where the interest
earned on that account is applied to the interest
that is paid on the loan. By doing this, you are
depositing extra money on to the mortgage, which
you can access when needed, and reduce the interest
that is charged on your mortgage |
| Mortgage protection
insurance: |
Also know an income protection
insurance, this insurance is often recommended as
it covers you if you are unable to meet repayments
due to serious illness or redundancy |
back to top
O
| Overcapitalising: |
This occurs when you
spend more money on your home than you are likely
to get back if you sell the property. |
back to top
P
| Portability: |
This option allows
you to keep your existing home loan if you move house,
without having to refinance. |
| Prepayment: |
A payment made before the due date
of the loan or in addition to the minimum repayment.
This can sometimes incur a penalty fee so be sure
to check the terms and conditions of the loan. |
| Principal: |
This is the capital sum borrowed. |
| Principal & interest
loan: |
This is a loan where both the interest
and the principal is to be repaid. |
back to top
R
| Re-amortise: |
This is when you recalculate
the minimum repayments and is usually done if the
loan amount has changed significantly. |
| Redraw facility: |
This feature allows you to make
extra payments on your mortgage and then borrow from
that money if needed. Redrawing may extend the life
of the loan and increase your repayments. |
| Refinance: |
Occurs when you replace or extend
an existing mortgage by arranging for a new mortgage,
with the same or different lender. |
| Reserve Bank: |
Is the body that is responsible
for the maintenance Australia’s financial system,
and for setting the official short-term interest
rates on which many variable-rate home loans are
based. |
| Reserve price: |
This is the minimum price a seller
is willing to accept at an auction. |
back to top
S
| Searches: |
Research that is undertaken
by solicitors to confirm information about the property
or the purchaser, prior to settlement. |
| Serviceability: |
A borrower’s ability to make
repayments (service) on the loan when payments are
due. |
| Settlement: |
The date where the balance of the
contract price is paid and the property officially
becomes the buyers. |
| Split loan: |
A loan that consists of part fixed
rate and part variable rate. |
| Standard Variable: |
A variable loan that has extensive
features, which is unlike a basic variable. |
| Stamp Duty: |
This State Government tax is paid
by the purchaser and is calculated as a percentage
of the purchase price. |
| Strata title: |
Strata title has enabled the subdivision
of land and buildings into lots and common property.
The
"lots" are the units or other areas owned
by owners. Apart from the unit there can be areas
like laundries, car spaces, garages, marinas which
form part of the lot. The common property is everything
that does not form part of a lot and is owned by
the owners corporation (all the owners collectively). |
back to top
T
| Tenants
in common: |
two or more purchasers
owning the one property in any share proportion they
choose. When a tenant in common dies, their share
in the property passes in accordance with their will.
Unlike joint tenants where the share passes to the
other owners or joint tenants. |
| Term: |
Also known as the life of the loan
and refers to the length of time for which the loan
is to be repaid. |
| Title deed: |
This legal document advises of
ownership of a property. |
| Torrens Title: |
Torrens Title is the most common
form of property title in Australia. All previous
and current owners are listed on the one deed, as
are all previous mortgages etc. Also know as "RPA" standing
for "Real Property Act", the legislation
that governs the operation of Torrens Title |
| Transfer: |
This document confirms a properties
change of ownership with the Land Titles Office. |
back to top
U
| Unencumbered: |
This is a property
that has no outstanding charges, liabilities or restrictions
on it. |
back to top
V
| Valuation: |
A report undertaken
by a registered valuer that stipulates the value
of a property. Often there is a fee that the bank/lender
may charge for this service. |
| Variable rate: |
This is a rate that increases or
decreases depending on money market interest rates. |
| Variation: |
This term refers to any changes
made in a loan contract. |
| Vendor: |
The party that is selling the property. |
back to top
Y
| Yield: |
Income that is earned
from a property that is typically expressed as a
percentage of the value of the investment. |
back to top
Z
| Zoning: |
This is a statutory
explanation that provides an account of the uses
of a property as determined by local council and
planning authorities. |
back to top
|
|
