Are you having trouble decoding your LMI for your BC? Our article ‘The A to Z of Industry Jargon for Loans and Property’ should help you decode this.
All you need to do is read through the blog to uncover industry speak for your home loan and your property.
Amortisation period – How long it would take you to pay off your mortgage loan.
Appraisal – An estimated market value of a property in the current market.
Appreciation – An increase in the value of property over time.
Auction – The process of selling a property. The sale process is held in a public forum conducted by a qualified auctioneer at the request of the real estate agent and the property owners. The property is sold to the highest bidder, provided it reaches the reserve price set.
Bank valuation – The bank’s estimate of a property’s worth.
Body corporate (BC) – Can also be referred to as a strata or owners’ corporation. It is a legal entity created to manage and oversee the common areas and shared facilities of a multi-unit property or development. It is commonly found in apartment complexes, townhouses, and other community-titled properties.
Bridging finance – Used if you need to sell a property before you can purchase another. Bridging finance can be used as a short-term loan that can help finance the purchase of a new property while you sell the current one.
Buyer’s advocate/agent – A real estate professional who represents the buyer. They will help secure the right property at the lowest price for their individual purchasers. This includes negotiating with the vendor or their agent.
Capital gains and capital gains tax (CGT) – Capital gains are the profits made on the sale of a capital asset, such as a house, if it is not your principal place of residence (PPR). Capital Gains Tax (CGT) is the tax you pay on the profit made from selling the property.
Caveat – This is a legal claim of interest held over a property. A title search on any property will alert you to the fact a party other than the owner has an interest held over the property. All parties with an interest over the property must agree to sell the property.
Commission – A fee or payment, negotiated and set by the seller and the agent, usually calculated as a percentage, that will be paid to an agent for their services to sell a property.
Conveyancer – A specialised solicitor. They are a licensed professional in property law who ensures you meet all the legal obligations involved in your property transaction, including the settlement and title transfer process.
Contract of sale – An agreement for the sale of property. It will outline the terms and conditions of sale. The name of this will differ state-by-state.
Construction loan – Are loans designed for people who are intending to pay a builder to construct their home. A construction loan lets you access funds as the building work progresses. This is important because builders usually require progressive payments to be made at specific stages of the building work.
Cooling off period – Time given to a buyer after the exchange of contracts. During this nominated time frame, they can consider the property purchase and potentially withdraw their offer without legal repercussions. The period is only for properties sold by private treaty, not auction, and is usually five business days. The process varies by state.
Counteroffer – During negotiation, this is a ‘new’ offer you make after your previous offer has been rejected.
Depreciation – An assets reduction in value over time.
Drawdown – Once your home loan is approved, your lender won’t simply pay the cash into your bank account for a property purchase. They will release the funds to the seller on the day of settlement. The release of these funds is known as ‘drawdown’.
Expressions of Interest or EOI – When an agent asks buyers to register their interest on a home.
Equity – The value accrued on an asset over and above the debt owing on that asset.
Eviction – The removal of a tenant from a rental property.
Extra repayments – Your home loan agreement will let you know the minimum repayments you need to pay each month. Payments made over and above this amount are referred to as ‘extra repayments.’
Exchange of contracts – This is the legally binding part. The two contracts are drawn up and signed by each party, then exchanged too each party. The buyer and the seller. This is the time when a deposit is paid.
Fittings – Or ‘chattels’. These are items in a home that can be removed without damaging the property. Washing machines, fridges, pot plants etc fall under this category.
Fixtures – Screwed down or ‘fixed’ to a property. Fixtures are included in the property sale unless outlined as excluded in the contract. They can include built-ins cabinetry, carpets, and dishwashers.
Guarantor – The person liable to pay your loan if you default on the mortgage.
Interest – The amount paid by a borrower to the bank or lender, that is over and above the main amount borrowed (the ‘principal’ amount). Interest rates can be fixed, variable or a combination of the two.
Lease – This is a legally binding contract or rental agreement between lessor (owner) and lessee (renter). The lessee can occupy the lessor’s property for a set time in exchange for payment under agreed terms. This is referred to as a tenancy agreement.
Lender’s Mortgage Insurance or LMI. This is a non-refundable amount – a one-off fee added to your home loan where you are wanting to borrow more than 80% of the home’s value. It protects the lender against higher risk borrowers.
Loan to Value Ratio or LVR. This is your loan amount relative to the value of your home. For example, a $500,000 home loan secured against a property that is worth $1,000,000 = 50% LVR. The higher the LVR, the higher the risk for the lender (which is why when LVR is 80 percent or more, you will be charged Lender’s Mortgage Insurance).
Minimum repayment amount – This is the minimum amount you need to repay on your home loan each month. The details will be in your home loan contract.
Mortgage or Home Loan – An agreement between a lender and a borrower/property owner where the property is used as collateral or security for an amount borrowed to purchase it. Mortgage protection insurance – Insurance paid by the borrower to protect the lender if they find themselves in a situation where they are unable to make their repayments.
Negative gearing – When expenses (including interest repayments) associated with an investment property are higher than the earnings from the property. The property is then referred to ‘negatively geared’ and can reduce tax liability in Australia.
Off market – Property sold without advertising to the market.
Offset account – This is an account linked to your home loan. The money in your offset account is ‘offset’ against your home loan balance. For instance, if your loan amount is $400,000 and you deposit $50,000 into your offset account, you will only be charged interest on $350,000 instead of the full $400,000. An offset is not available on all loans and it is best to check with you broker.
Pre-approval or Conditional approval. This is when a lender has agreed to loan a borrower a particular amount in principle, but nothing has proceeded to final approval. Pre-approval CAN allow you to know how much you have to bid or offer on a home. It is still best to check with your broker and present them the property that is going to auction.
Private treaty – Associated with the sale of a property. The seller sets their price and begins negotiating with potential buyers (usually through the agent). Cooling off periods are part of private treaty sales unless the buyer removes this condition to secure the property.
Property manager – A person or firm who manages, including inspections, the property, on behalf of its owner.
Redraw facility – This is where you can access the extra repayments you have made on your home loan. (Not available on all home loans). An example may be: Your minimum monthly repayment is $1000 and in one month you paid back $1500. So, $500 extra. Later, you may be able to withdraw the extra $500 that you paid. Having a redraw facility may help you reduce your interest payments. They are not available on all home loans and may work slightly differently depending on the lender.
Reserve – The minimum price a vendor has agreed to accept during an auction. This can be adjusted during the auction process.
Seller’s market – A situation in which supply is scarce and demand for property is high. This generally means prices remain higher.
Settlement date – The date when the property sale is finalised, and the buyer/s become the official owner/s of the property.
Stamp duty – A government tax applied to transfers of property and mortgages. This is calculated as a percentage of the contract value and will vary from state to state. Discounts are available for certain parties, including first-home buyers.
Title – A property title holds an entity of legal information about a piece of property. This will include details about the land and who owns it or has a mortgage on it.
Trust account – A separate bank account managed by a real estate agent where funds (like deposits and rental income) are held on behalf of another party.
Unconditional offer – An offer for property not subject to any other conditions (like building and pest inspections or finance). The buyer accepts the property unconditionally. Auction sales are all unconditional.
Under offer – When both parties have agreed on the purchase price and the applicable terms and conditions of the contract, however, the contract has not yet been finalised. This means the property is ‘under offer’. Once the conditions have been met, the property is unconditional and then sold. Normally, when a property is under offer no other offers can be made or accepted.
Valuation – This differs from a property appraisal in that it is a legally binding report of a property’s market value, undertaken by an accredited valuer. This is usually done in situations where a definitive value is needed.
Vendor bid – A bid that is set by the auctioneer on behalf of the vendor during an auction, to establish a fair starting price.
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