When buying a property it is important to make sure that you fully understand the in’s & out’s and sometimes you may feel that you’re exhausted from trying to keep up in a conversation with your mortgage broker.
Here is your ‘need to know’ mortgage glossary;
Principle: The amount of money you borrow from the lender when you take out a loan.
Interest: The fee the lender charges you for the use of their money.
Loan to value ratio (LVR): The relationship between the loan amount borrowed and the value of the property. Typically a lender will want you to contribute a 20% deposit and they will provide 80% of the value to complete the purchase. If you have less than 20% they usually require that you take out lender’s mortgage insurance (LMI).
Lender’s mortgage insurance (LMI): A one-off insurance payment which protects your mortgage lender against your default.
Offset account: A transaction account that can be linked to your home or investment loan. The credit balance of your transaction account is offset daily against your outstanding loan balance, reducing the interest payable on that loan.
Redraw facility: If you have a variable-rate loan and you make extra repayments, you can withdraw the additional money. These are common on home loans. However, an offset account can provide the same financial benefit with more flexibility.
Direct salary crediting: You can arrange to have your loan paid directly from your salary. This is convenient and can assist budgeting.
Family guarantee: This is generally available to first home buyers and allows a family member to offer their property as additional security to your loan. If your family member already has a mortgage against their property, your lender may take a second mortgage.
Capital gains: The financial or monetary gain obtained when an asset is sold for more than its original price.
Capital gains tax: A federal tax on the monetary gain made on the sale of an asset bought after September 1985. The tax does not apply to the gains made on the sale of an owner-occupied residence, so it generally applies only to
Passed in: A property is ‘passed in’ at auction if the highest bid fails to meet the reserve price set by the seller.
Re-amortise: To recalculate the minimum repayment required to repay the outstanding balance of a loan over the remaining period. This generally happens when:
- The loan term is extended or
- The loan amount has significantly increased or decreased compared to the original loan amount.
Redraw facility: A component of a variable rate loan which enables a borrower to make extra repayments on the loan but later redraw this money if needed.
Settlement: There are generally two types of settlement that happen with most property purchases:
- Settlement of the property is when the balance of the purchase price is paid to the seller. The buyer receives the keys and becomes the legal owner of the property.
- Settlement of a loan coincides with settlement of the property. It’s when the lender transfers the borrowed funds to the seller or the seller’s mortgage holder.
Split loan: Generally a loan that is part variable and part fixed, but it can also be a loan with multiple variable parts. Borrowers wanting to use equity in a property to invest in the share market may make “multiple variable splits” to better track the return on their investment.
Stamp duty: A State Government tax based on the purchase price of the property. It’s also payable on mortgages in some states. Each state and territory has different rules and calculations. To estimate the amount of stamp duty you may have to pay, use our stamp duty calculator.
Please comment below if there are any terms you would like to see added here or that you think could benefit others by defining.
I look forward to reading your comments,
Dylan
