The lending market is full of jargon which can make an already stressful process even more so. We decided to make a list of some of the common terms you'll need to know when buying a property with a short explanation of each.
Conditional Approval
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This is an offer from a bank or lender which is conditional on you, the borrower, meeting certain conditions. These conditions can include things like: getting a valuation on the property you want to buy, providing evidence of income or deposit - generally anything that you will tick the box for but haven't yet. Conditional approvals are great to let you know how much you can borrow and let you know everything you need to provide to secure lending.
Conveyancing
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Conveyancing is the process of legally transferring ownership of property from one party to another. This is what is undertaken by your lawyer as part of the purchasing process, and includes things like dealing with the lender on mortgage documentation, managing the settling process, dealing with seller's lawyer and exchange of funds and keys.
Cross Securitisation
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Also known as cross collatoralisation, this is where a lender uses security from one or more loans to secure another loan. Cross securitisation has both benefits and risks - so before securing lending across more than one property, speak to your lawyer and a financial adviser so that you understand the ins and outs.
Debt Consolidation
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Debt consolidation is a form of debt refinancing that entails taking out one loan to pay off many others. This may occur in mortgage lending when you use your mortgage to pay off a hire purchase or personal loan.
Equity
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Your equity is the value of property you own. Remember that if a lender holds the property as security for a loan, you only own the value of the property minus the value of the loan.
Freehold / fee simple
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This is a form of ownership whereby the owner owns the land and any buildings on that land entirely.
Leasehold
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A Leasehold is a type of ownership where you own a building on a piece of land, but not the land itself. You might be charged a rental by the land owner (or freeholder, or landlord) for the right to use the land.
LIM report
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LIM stands for Land Information Memorandum, which is a report on the property prepared by the local council. It contains information such as rates, stormwater and sewerage drainage, any amendments to the property and information on it's risk of subsidance or level of flood risk.
Loan Structure
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Loan structure refers to how your loan is structured in terms of fixed or floating interest rates, and any loan splits you may have. For example, you may have 50% of your loan fixed for 3 years at 5% interest, and the other 50% of it fixed for just 1 year at 4.5%. Loan structure is very important for balancing the cost of repayments against the uncertainty of interest rates in the long term. Loans can be restructured multiple times over the life of the loan.
Low Equity Premium/Fee (LEP/LEF)
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The Low Equity premium or fee is an increase in interest rate over the standard rates, or a once off fee charged when opening the loan which is charged to loans which have an LVR over 80% (your deposit is less than 20% of the value of the property). Some lenders will charge the premium, which is added to your interest rate/s, while others will charge the once-off fee. Talk to one of our advisers about how this may affect you.
Payments/Repayments
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Repayments are payments you make on your loan. When you set up a loan on a fixed term, monthly repayments for that term will be fixed, and you'll be notified before settling the loan. Generally you can also make additional repayments - though lenders may limit the level of additional payments you can make.
Principle
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The principle of a loan is the total amount that you borrow. When a loan says that it is "principle and interest" it means that your payments are paying back some of that principle as well as the interest.
Refinance
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Refinancing is where you take your loan from one lender to another. There are any number of reasons why you might do this, and the reasons change over time as lenders change their rules around lending. Refinancing can be a good way to get yourself the best possible deal, but it also comes with costs so it's not a decision to be made lightly. Refinancing is something we know a lot about, so if you're considering it - get in touch.
Revolving Credit
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A revolving credit loan, or a "flexi" is a loan which has a floating interest rate and no restriction on repayment. Using revolving credit can be a great way to pay off a portion of your loan quickly while minimising interest. Speak to one of our advisers about how you can include revolving credit in your loan.
Unconditional Approval
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Unconditional approval is approval from the lender for your loan which is just that - unconditional. An unconditional approval is exactly what you want, because it means you have secured finance for your property purchase.
Unit title
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A unit title provides ownership of part of a building (usually an apartment in an apartment building) and any accessory units such as car parks or storage areas, as well as an undivided share of ownership of the common areas like lifts, the lobby area, driveways and gardens. When you hold a unit title you are automatically enrolled in the body corporate, which consists of all owners of units within that building. Generally you pay a fee as part of the body corporate, which goes towards general building maintenance, insurance and management costs, for example.
Vendor
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The person or entity selling a property.
Chattels
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Chattels are items in a property that are usually removable but are included in the sale of the property. Chattels will be listed in the sale and purchase agreement and can include things like spa pools, TVs and TV aerials, carpets, light fittings.
Conditional Offer
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An offer on a property that depends on other factors, e.g. getting your loan approved ("conditional on finance"), a satisfactory builder’s report or getting a satisfactory valuation. You or the seller can list as many conditions as you want, and it's important that you do so to protect yourself whether you are buying or selling.
Covenant
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A Covenant is a legal restriction on a property that must by obeyed by the owner. For example, this could include protecting a native tree, or restrict the type, location or nature of structures that can be built on the property. Covenants are included in the title of a property.
Crosslease
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This is where two or more parties share ownership of a plot of land. Generally cross leases are used for flats where you will own exclusive rights to your flat (and yard), and other parts of the land, such as a driveway, are considered common property across all parties.
Easement
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An easement is a right agreed between a landowner and another party to use a property for a particular purpose, and can be registered against the property’s title. Examples of easements commonly used are for utility companies burying cables or for establishing a right-of-way. An easement does not confer ownership of the land, simply the right to use it.
Fixed Interest Rate
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This is an interest rate that will not change for the period set when structuring the loan. Lenders will often offer different fixed rates for different periods, i.e. a fixed rate offered for 6 months may be different to a rate offered for 5 years.
Floating Interest Rate
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This is an interest rate that may change over time. A floating rate is generally higher than a fixed rate, and is not locked in for any period of time (except the date of maturity).
Interest Only
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This is a type of loan repayment where you only pay the interest portion of your loan. This means that the balance of the loan remains the same over time, rather than reducing (as it would with a Principle & Interest repayment type). Interest only can be a useful tool for keeping repayments to a minimum - talk to one of our advisers about how you might be able to utilise it.
Loan Repayment Term
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This is the time period within which your loan will be repaid. When applying for a home loan, you'll be able to set a period of up to 30 years.
Loan to Value Ratio (LVR)
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The Loan to Value ratio, or LVR, is the proportion of the value of your property compared to the amount of lending owing against it. For example, a home worth 100,000 with lending of 80,000 against it would have an LVR ratio of 80%, because 80,000 / 100,000 x 100 = 80%.
Mortgage break fees
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A Mortgage break fee is a fee charged to a customer if they decide to break out of a fixed rate term. This fee will only be charged if market fixed interest rates are lower than they were when you settled the fixed rate, and it represents a cost to the lender because of the lost interest incurred from the breaking of the rate.
Preapproval
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A preapproval is an approval from a lender for lending before you've identified a property. Preapprovals can be a good way of knowing how much a bank will lend you before you start looking - but they are always conditional on the lender accepting the property as security. Lenders have specific rules around what type of property they will accept and under what criteria, but that's OK - you won't lose your preapproval by picking a property - it just means to get full approval you'll need to find a different one.
Principle & Interest (P&I)
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Principle and Interest is a loan repayment type. It means that the repayments you make include a portion of interest and a portion of the loan's principle (see "principle").
Refix
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Refixing is the process of refixing your loan that is coming to the end of it's fixed interest rate term. This is generally a simple process but an important one - this is your opportunity to lock in a great rate so don't waste it! Enlisting an adviser to do this for you is a great way of making sure your rate is negotiated to be the best it can.
Tender
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When a property is sold by tender, prospective buyers (the tenderers) submit confidential written offers to the agent or vendor before a set closing deadline.Tenders are submitted in a sealed envelope, so the licensee and other tenderers do not know what buyers are offering. The tenders are usually opened after the tender has closed and in the presence of the vendor. The vendor’s lawyer may also be present.
Unconditional offer
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An unconditional offer is one which a buyer makes to a vendor for their property which is not subject to any conditions. Generally an unconditional offer is made after conditions from a conditional offer have been met by the vendor.
Valuations
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A valuation is a process to determine the value of a given property. A valuation is done by a registered independent valuer. Generally, if a lender requires a valuation, it must be done by a valuer who is on their listed panel of valuers for it to be used by the lender.
