In this blog, we look into the common terms you may hear when buying a property and applying for a loan and what they mean.
Common terms you may hear when buying a property and applying for a loan, explained:
BROKERS
Mortgage Brokers (or finance brokers) are widely used by Australians to help find the most suitable home loan by offering you a variety of loan options and help manage the process through to settlement. It is always wise to shop around for your broker, as some may charge you directly, however usually the broker will receive commission from lenders for arranging the loan.
CERTIFICATE OF TITLE
The document in which displays the ownership of/interest in land included in the contract for sale. You will find a description of the land, proprietorship and any registered interests such as mortgages, charges and caveats. It also shows any restrictive covenants and easements which affect the estate or interest of the property.
COMPARISON RATE
An overall, single percentage rate figure that will help you to compare the true cost of a loan between lenders. This percentage takes the interest rate and any fees/charges included into account.
CONTRACT OF SALE
The written agreement detailing the terms and condition of the sale of a property. It is usually prepared by the vendors' solicitor or conveyancer then exchanged with the purchasers' solicitor once both parties have signed.
CONVEYANCING
The legal process where the ownership of a property is transferred from one party to another.
COOLING OFF PERIOD
A period of time, usually between 24 hours and 14 days, where the potential purchaser can decide not to continue with a contract. 5 days is a standard cooling off period in NSW. Otherwise, a contract is normally unconditional which means it will exchange with no cooling off period.
CREDIT REPORT
A report that shows an individuals' credit history, usually kept by a credit reporting agency. Banks and financial organisations refer to credit reports when considering applications for loans and credit cards. Should a person have a poor credit report, it will serve very difficult for them to be approved for a loan or credit card.
DEPOSIT (usually 5, 10 or 20% of the sale price)
The deposit is required to be paid on exchange of contracts. The deposit is held in the Real Estate Agents' Trust Account until settlement where it is then dispersed to the vendor.
EQUITY
Equity basically means the amount of financial value there is left over or above from what is owing on a loan. It relates to the value of the property vs. the loan.
FIRST HOME OWNER GRANT
The First Home Owner Grant scheme was established to assist eligible first home owners to purchase a new home or build their home by offering a grant. The grant amount is determined by the date of the eligible transaction. This is the date of the contract to purchase a new home or contract to build a home. For an owner builder, the eligible date is when the building work commences.
FIXED INTEREST RATE
Fixed interest rate loans lock your monthly interest repayments at a set rate for a period (typically one, three or five years), after which they will revert to the standard variable rate. They can be a good choice for buyers for buyers who want certainty around interest payments, but beware of break costs or prepayment fees if you try to change your loan or want to make additional repayments.
MORTGAGE
A legal document between a borrower and a lender. A mortgage gives the lender a conditional right to the property that is held as security for the repayment of the money that has been left.
NEGATIVE GEARING
Borrowing money to invest where the return from the investment is less than the borrowing costs. For example, the rental income from your investment property is less than the interest payments on the loan used to purchase the property.
OFF-THE-PLAN
Buying a property off-the-plan means signing a contract to purchase an apartment that has not yet been built. You will be able to view building and design plans but there is no physical property to inspect.
STAMP DUTY
When you buy a property in Australia, you are generally required to pay stamp duty to the state as a tax. The amount of the stamp duty is based on the final purchase price of the property. Stamp duty exemptions and concessions may apply in some circumstances. Check with your solicitor or conveyancer to see if you are eligible.
VARIABLE INTEREST RATE
If your loan has a variable interest rate, the interest charged on the outstanding balance of your loan may increase or decrease in line with the official cash rate set by the Reserve Bank of Australia. Lenders may also change your regular loan repayment amount based on changes in the interest rate. Lenders do not have to track changes in the cash rate and you should make allowances for high-than expected increases.
If you need help searching for, evaluating or negotiating property, call me today for a confidential discussion on (+61) 2 99601066 or +61 419 200 018 or enquire today for more information about how PK Property Search & Negotiators can secure your next home for the lowest possible purchase price. Also don't forget to check out our 2 minute video tutorials on our PK TV page and/or subscribe to my Monthly Market Update for my thoughts and comments about what's happening in Sydney's property market, tips and tricks to use and much more!