Learn to speak the mortgage lingo…
Purchasing a property for the first time is very exciting, but also quite daunting at the same time. From signing the contract of sale, to talking with solicitors, accumulating all the various supporting documents your mortgage broker would like, to understanding the mortgage lingo. What do all these terms mean, and what does this mean to you?
We thought it would be beneficial for our clients to have a list of terms you may come across during the process of purchasing a home. Please find below some terms and their meanings, listed in alphabetical order:
Accelerated payment: The option to make higher payments, to assist in paying off the loan faster.
Accrued interest: Interest accounted for but not yet due for payment.
Add securities: An asset that guarantees the lender their loan until the loan is repaid in full. Usually the property is offered to obtain the loan.
Amortisation period: The period of time one has to repay a loan at the arranged terms.
Application fees: Fees charged to cover or partially cover the lender’s costs of processing a loan approval for a home buyer.
Appraised value: The estimate of the value of a property being used as security for the loan.
Arrears: An amount that is overdue.
Balloon payment: A large loan repayment to clear a debt.
Banker’s opinion: A communication from one bank to another to advise on a customer’s reliability or credit worthiness.
Bridging finance: A short-term loan that covering the time gap between the purchase of a new property and the sale of an old property.
Capital gain: The monetary gain obtained when you sell an asset for more than you paid for it.
Capital gains tax: A Federal tax on the monetary gain made on the sale of an asset bought and sold after September 1985
Capped loan: A loan where the interest rate is not permitted to exceed a certain level for a period of time but, unlike fixed rate loans, is allowed to drop.
Caveat: A warning. An entry made in a land registry or court to prevent a certain step being taken.
Caveat emptor: Latin for “let the buyer beware”.
Certificate of title: A document that details the title or ownership details of property, and whether there are any encumbrances on the title. Not all states and territories have these.
Comparison rate: A nominal rate per year calculated based on certain fees and charges together with the compounding frequency as outlined in the consumer credit code.
Direct debit: The regular electronic transfer of funds from a borrower’s bank account to the lender.
Discharge fees: Fee that must be paid to a lender when a loan is repaid early.
Disposable income: The income that remains after all recurring payments are made.
Draw down: The transfer of available loan funds to the borrower.
Encumbrance: a liability.
Equity: The property value less the amount owed on the mortgage.
Fixed rate: An interest rate that stays the same for the duration of a loan term.
Guarantor: An individual or entity that agrees to repay a loan if the borrower defaults.
Home equity: The property value less the amount owed on the mortgage.
Interest only loan: A loan where the interest is paid initially. The principal is then paid in the latter portion of the loan term.
Lender’s Mortgage Insurance (LMI): Insurance that covers the lender from monetary loss should a borrower not be able to or doesn’t repay the loan.
LVR: Abbreviation for “Loan to Value ratio”; it is the percentage obtained when the loan amount is divided by the property value.
Maturity: The pre-arranged date when a loan must be fully repaid.
Maximum loan amount: The largest amount of money a borrower is permitted to borrow. This amount is determined by the borrower’s credit, disposable income, and pre-existing debts.
Mortgagee: The lender of the funds used to purchase a home.
Mortgagor: The individual or entity that owns the property used to obtain a loan.
Portability: Allows the borrower to exchange the property that is used to obtain an existing loan.
Principal: The base amount of the loan on which interest is paid.
Redraw: When the borrower draws on prepaid funds.
Refinance: Replacing the loan for a piece of property with a new loan, either from the same institution or a different one.
Security: An asset used as collateral to obtain a loan.
Settlement: When payment arrangements are finalized and property ownership officially transfers to the buyer.
Split loan: A loan that includes both a variable portion and a fixed portion.
Term: The length of a loan or of a certain portion of the loan.
Title deed: Paperwork stating the ownership and legal description of piece of property.
Valuation: A professional evaluation of the value of a property.
Variable rate: An interest rate that will fluctuate based on the behavior of the market.
Variation: Any change that is made to the loan contract.
Zoning: Description of the way a portion of land is allowed to be used.