Cheat sheet

Let's cut through some of the jargon for you.  If you are buying a property and setting up a home loan, chances are you will come across a lot of these terms. Starting at the basics right through....

Application  What you submit to the bank will all your supporting documents to have your loan assessed. 

 

Conveyancer  Looks after the the preparation, execution, verification and lodgement of numerous legal documents required when you buy a property.  You need to use a conveyancer (or solicitor) when buying a property.  

Deposit  A deposit is the amount of money, usually 10%, paid by the purchaser when buying a property and signing a contract. This includes when buying at auction. 

First Home Owners Grant (FHOG) Established to assist first home buyers with the costs associated with buying.  Currently only applies when buying a new property.  You must occupy your property for a continuous period of 6 months within 12 months of settling on your new home.  

Full doc loan Most common type of loan application where borrowers provide proof of income when applying, usually taxation returns, payslips and/or group certificates.

Honeymoon rate These loans often have the lowest interest rates in the market usually for the first year.  After the honeymoon period, the interest rate often reverts to a higher variable rate

Interest Only Interest only loans require the borrower to only meet the interest repayments, without  contributing to repayment of the principal loan balance.  Interest only periods can be anywhere from 1 to 10 years.  Favoured by investors for tax purposes.

Lenders Mortgage Insurance (LMI) Protects the lender against loss if a borrower defaults on the loan and the property is sold for less than the outstanding balance of the loan.  LMI is usually added to loans when you have less than a 20% deposit.

Owner Occupier If you buy a property to live in it, you are called an 'owner occupier'. 

Offset Account A transaction or savings account linked to your home loan which earns an equivalent rate of interest as your loan.  The balance of this account is offset against the amount owing on your loan – meaning you pay interest on the difference only.

Investor Anyone who purchases a property to rent out rather than to live in. 

Loan to Value Ratio The loan amount expressed as a percentage of the purchase price plus all costs, such as stamp duty. 

Packaged Loan Designed as a ‘one stop shop’ for borrowers.  For an annual fee, borrowers can have multiple loans with easy access to money through ATM’s and the internet and often a fee free credit card.  Usually no application fees.

Preapproval This determines the size of the mortgage you qualify for, and therefore, decides the price range for the homes you can look at.  A must when thinking about buying.  Set up before you make any offers or sign a contract.  

Principle & Interest These repayments cover both interest as well as contributing to reducing the original loan balance.  Recommended for anyone who lives in their home.

Redraw A redraw facility enables you to withdraw any extra funds you have sitting in your loan that you have paid in excess of your set repayment.  Easily accessed online.  

Section 32 Is the means by which the vendor (seller) provides a prospective purchaser with information about the property being sold.   Provided by the agent on behalf on the vendor.   

Settlement When all of the parties involved in a sale of real estate meet together and exchange documents and cheques to complete the matter.

Split loan The loan balance is split between a variable and fixed rate.

Stamp duty This is a government charge that you must pay when buying a property. The amount of stamp duty is based upon the purchase price of the property you are buying. First Home Buyers currently do not pay stamp duty up to $600k.   

 

Variable rate If you have a variable rate, this means that your repayments will change when there are any interest rate movements.  Your repayments can increase or decrease.  You need to be comfortable with this if you have a variable rate. 

Help!

Bernadette Leahy holds a Diploma in Financial Service (Finance/Mortgage Broking Management) and is a

 MFAA Authorised Member.

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Bernadette Leahy is a Credit Representative (CR No: 399004)

of Buyers Choice Licencing ACN 626 172 281

(Australian Credit Licence No. 509484)

Mortgages, Home Loan