{"id":1079,"date":"2023-03-16T10:59:43","date_gmt":"2023-03-15T23:59:43","guid":{"rendered":"https:\/\/ghfs.com.au\/?page_id=1079"},"modified":"2024-04-18T13:07:34","modified_gmt":"2024-04-18T03:07:34","slug":"terminology","status":"publish","type":"page","link":"https:\/\/ghfs.com.au\/terminology\/","title":{"rendered":"Terminology"},"content":{"rendered":"
HOME<\/a> > RESOURCES<\/a> > GLOSSARY<\/a><\/p>\n\n<\/div>\n\n\n This is a guide only, general in nature and not intended to constitute advice.<\/em><\/p>\n\n\n\n Agents Commission<\/strong><\/p>\n\n\n\n The fee paid to the real estate agent for selling the property.<\/p>\n\n\n\n Amortisation Period<\/strong><\/strong><\/p>\n\n\n\n It\u2019s the agreed length of time that a borrower has to repay a loan. For home loans, the timeframe is usually around 25 to 30 years. It\u2019s set during the application and approval process. The loan balance declines by the amount of the scheduled payment, plus the amount of any extra payment.<\/p>\n\n\n\n For example, a loan balance will reduce quicker if the owner is paying \u2018Principal and Interest\u2019 rather than just \u2018Interest only\u2019. Often an amortisation schedule is drafted to showcase how a loan is repaid over the length of the term.<\/p>\n\n\n\n Application<\/strong><\/strong><\/p>\n\n\n\n A formal request for a loan that includes the information about the potential borrower, the property and the requested loan. The application form will include information about the potential borrower\u2019s capacity to repay the loan. The information provided will help the lender decide on whether to grant the loan to the potential borrower. The lender may also ask for additional information to help them make a decision.<\/p>\n\n\n\n Application fee<\/strong> – also referred to as an Establishment Fee<\/strong><\/p>\n\n\n\n The fees a bank or lender charges to set up the loan when you apply. It\u2019s generally to cover the lender\u2019s internal costs. It may or may not cover other costs such as a property valuation or credit report, and it may or may not be refundable if the lender declines the loan. In some cases, lenders will offer to waive the application fee.<\/p>\n\n\n\n Appraised Value<\/strong><\/strong><\/p>\n\n\n\n Estimate of the value of a property being used as security for a home loan. Used by lenders in calculating the loan parameters.<\/p>\n\n\n\n Appreciation<\/strong><\/strong><\/p>\n\n\n\n This is where the value of the property increases. For example, if you purchased a property for $400,000 10 years ago and the property is now valued at $900,000, the property has appreciated in value by $500,000 during those 10 years.<\/p>\n\n\n\n Approval<\/strong><\/strong><\/p>\n\n\n\n There are three types of approvals when it comes to a mortgage approval process. Pre-approval, conditional approval and unconditional approval.<\/p>\n\n\n\n Approval in Principle – <\/strong>also referred to as <\/strong>Pre-Approval<\/strong> Arrears<\/strong><\/p>\n\n\n\n If a loan is described as being \u2018in arrears\u2019 it means the borrower hasn\u2019t kept up with their required payments and there is an outstanding or overdue amount.<\/p>\n\n\n\n Assets<\/strong><\/p>\n\n\n\n Assets come in many shapes and forms, cash, property, superannuation, shares or goods owned. Depending on whether you are borrowing in a personal or business capacity, assets will help provide collateral against the borrowings.<\/p>\n\n\n\n For example, in a standard home loan, the home (house or apartment) is the asset that the lender will lend against. In a business loan, the assets might be the stock and machinery.<\/p>\n\n\n\n Auction<\/strong><\/p>\n\n\n\n This is a sales process whereby the item\/property is sold to the highest bidder. Auction laws may vary from state to state so discuss the legal requirements with your agent. One of the biggest considerations about buying a property at auction is signing a 66W and waiving your cooling off period. If you don’t have pre-approval, you’re taking a risk by bidding.<\/p>\n\n\n\n Basis Point<\/strong><\/strong><\/p>\n\n\n\n A unit of measure used to describe the percentage change in value. One basis point equals 0.01% e.g. 25 basis points is the same as 0.25%<\/p>\n\n\n\n Basic Variable Rate Loan BID (Best Interest Duty Act)<\/strong><\/strong><\/p>\n\n\n\n A federal law that ensures mortgage brokers act in the best interest of the client. Interestingly the same law does not apply to Banks and other lenders!<\/strong><\/strong><\/p>\n\n\n\n Body Corporate<\/strong><\/p>\n\n\n\n This can also be referred to as an Owners Corporation or a Community Corporation. It’s a legal entity established to manage a Strata Scheme, which includes managing the building and common property (e.g. elevators or rooftop gardens in apartment buildings) or areas (e.g. shared driveways or private roads). There are usually periodical fees that must be paid.<\/p>\n\n\n\n Borrowing Capacity<\/strong><\/p>\n\n\n\n The amount of money you can borrow based on your income, liabilities and monthly living expenses.<\/p>\n\n\n\n Break Costs<\/strong> – also referred to as Early Repayment Fees or Economic Costs<\/strong><\/strong><\/p>\n\n\n\n Refers to a penalty charge incurred for paying out a loan balance on a fixed term loan before the term has expired. For example, if you originally secured a fixed interest rate home loan for 3 years and you decide to payout the loan before the end of the 3 years, the lender will charge a penalty fee for \u2018breaking\u2019 the term.<\/p>\n\n\n\n Each lender calculates their break cost differently, so you need to review your credit contract or contact the lender to find out your break costs. Break costs calculations take into consideration how much If you are considering selling your property, you should find out if a break cost applies as they can be a large economic cost for the borrower.<\/p>\n\n\n\n Bridging Loan<\/strong> – also referred to as Relocation Loan.<\/strong><\/p>\n\n\n\n A loan where you can borrow for a new home before you sell your current home. This is usually a temporary facility.<\/p>\n\n\n\n Bridging Finance<\/strong><\/strong><\/p>\n\n\n\n Bridging finance is exactly that, it\u2019s a bridge between two loans. Usually used when a property owner has found a new home to buy, but they haven\u2019t sold their existing home yet. A bridging loan is only a short-term solution as the interest rates are usually much higher than a standard home loan and the lender will only lend you the money for short amount of time. You\u2019re also paying two home loans at the same time, so you don\u2019t want that to continue for too long. <\/p>\n\n\n\n Budget<\/strong> Building Inspection<\/strong><\/p>\n\n\n\n An inspection carried out prior to the purchase of a property to make sure the building is structurally sound and to assess the condition of the property. Often combined with a pest inspection and referred to as a \u2018Pest and Building\u2019, the inspection is carried out by a qualified inspector and costs for a standard report are around $500. Contracts of sale can be made subject to the satisfactory building inspection if you haven\u2019t been able to organise one before paying your holding deposit.<\/p>\n\n\n\n Building insurance<\/strong> Building Society<\/strong><\/p>\n\n\n\n A financial institution owned by its customers or \u201cmembers\u201d. It offers banking and other financial services, particularly focussing on mortgage lending.<\/p>\n\n\n\n Capital Gain<\/strong><\/p>\n\n\n\n Profit from selling an asset at a higher market price than it cost<\/p>\n\n\n\n Capital gains Tax (CGT)<\/strong><\/p>\n\n\n\n Capital Gains Tax or CGT is a federal tax on the monetary gain made on the sale of an asset. The tax does not apply to the gains made on the sale of an owner-occupied residence, so it generally applies only to investment properties. Speak to your accountant prior to selling to see if this tax affects you.<\/p>\n\n\n\n Capital Growth<\/strong><\/p>\n\n\n\n When you buy a property and it increases in value over time. Capital growth is the difference between the purchase price and what it is now worth.<\/p>\n\n\n\n Capped Loan<\/strong><\/strong><\/p>\n\n\n\n A capped home loan is a loan with a cap on the interest rate. Different to a variable interest rate, the cap prevents the interest rate from rising above a certain specified rate. The borrower can still benefit from any decrease in the interest rate however they generally start at a higher rate than a standard variable interest rate. <\/p>\n\n\n\n Caveat<\/strong><\/strong><\/p>\n\n\n\n A caveat lodged upon a land or property title indicates that a party, that is not the owner, claims some right over or interest in the property.<\/p>\n\n\n\n Caveat Emptor<\/strong><\/strong><\/p>\n\n\n\n Latin for \u2018let the buyer beware\u2019. In other words, the buyer has the responsibility to examine the goods being purchased.<\/p>\n\n\n\n Certificate of Title<\/strong><\/strong><\/p>\n\n\n\n A document with all information relevant to a particular property or piece of land. A current edition of a Certificate of Title will normally detail title information including the name\/s of the owner\/s, the lot\/plan numbers and other registered interests on the title such as mortgages, easements and covenants.<\/p>\n\n\n\n A lender usually holds this document as security. Once the loan is fully repaid, the Certificate of Title is returned to the borrower.<\/p>\n\n\n\n Chattels<\/strong><\/strong><\/p>\n\n\n\n Chattels are items of personal property, such as clothing, appliances and furniture. In real estate terms chattels are usually movable items which may be included in the sale, such as furniture.<\/p>\n\n\n\n Co-Borrower<\/strong><\/strong><\/p>\n\n\n\n When two people sign a loan they are co-borrowers. Both parties are then jointly and separately liable for repaying the full amount owing.<\/p>\n\n\n\n Common Property<\/strong><\/strong><\/p>\n\n\n\n A part of the property that is for the use of all tenants or owners<\/p>\n\n\n\n Community title (specific to NSW)<\/strong> Company title Comparison Rate<\/strong><\/p>\n\n\n\n A rate that includes both the interest rate and most fees and charges payable during the life of the loan, expressed as a single percentage figure. This helps you compare interest rates across various lenders and loans with their fees incorporated into the rate. For example, a bank with a great interest rate but a $2,000 establishment fee might be a worse choice than the bank with a slightly higher intrest rate an $100 upfront fee. It usually covers upfront and ongoing maintenance fees but doesn\u2019t cover costs such as package, offset, redraw or early repayment fees.<\/p>\n\n\n\n Construction \u2013 also referred to as building loan<\/strong><\/strong><\/p>\n\n\n\n A loan designed for building a new home or major renovations that allows borrowers to draw down funds to pay builders and tradespeople as the building project progresses.<\/p>\n\n\n\n Conditional Approval<\/strong><\/strong><\/p>\n\n\n\n Conditional approval is generally used when you are approved but there are some outstanding items that the lender wants before granting unconditional approval. For example, you might still need to provide updated payslips.<\/p>\n\n\n\n Contract of Sale<\/strong><\/p>\n\n\n\n A written agreement outlining the terms and conditions of a property sale. Once signed this is a legally binding agreement. This contract needs to be prepared before the property goes on the market.<\/p>\n\n\n\n Once you\u2019ve found a property that you want to buy, ask the Real Estate agent for a copy.<\/p>\n\n\n\n The contract should include:<\/p>\n\n\n\n Contract Variation<\/strong> Conveyancer<\/strong><\/p>\n\n\n\n Licensed conveyancer or conveyancing solicitor are professionally qualified to advise in legal matters involved in the buying or selling of property or businesses. You should speak to your conveyancer before you look for a property or before you decide to put your property on the market.<\/p>\n\n\n\n Conveyancing<\/strong><\/p>\n\n\n\n Legal process of transferring ownership of a property from one person or legal entity to another. This is usually undertaken by a solicitor or licensed conveyancer.<\/p>\n\n\n\n Cooling-Off Period<\/strong><\/strong><\/p>\n\n\n\n The amount of time either the buyer or seller has to change their mind in a private sale. This may not apply if a property is bought or sold at auction or if a 66W certificate is signed.<\/p>\n\n\n\n Credit<\/strong><\/strong><\/p>\n\n\n\n Credit is when you want to borrow money for a purchase and enter into an agreement to pay it back. There are many types of credit available for a variety of uses including credit cards, personal loans, car loans and mortgages.<\/p>\n\n\n\n Credit Limit<\/strong> \u2013 also referred to as ‘Facility Limit’.<\/strong><\/p>\n\n\n\n The maximum amount that can be borrowed under the current loan contract.<\/p>\n\n\n\n Creditor<\/strong><\/strong><\/p>\n\n\n\n A person or organisation who is owed money.<\/p>\n\n\n\n Credit Report<\/strong> – also referred to as credit reference<\/strong><\/strong><\/p>\n\n\n\n This is a report prepared by an authorised credit reporting agency that shows the credit history of a borrower. For example, applied for other loans and been rejected? It will be in here. Defaulted on loan or credit card repayments in the past? It will be in here. A lender will use this report as part of their assessment for a home loan approval.<\/p>\n\n\n\n Credit Union<\/strong><\/strong><\/p>\n\n\n\n Similar to a building society, a credit union operates similarly to a bank, but is owned and controlled by people who use its services.<\/p>\n\n\n\n Cross Collateralise<\/strong><\/p>\n\n\n\n A term used when a loan uses multiple (at least 2) properties to secure a loan. The additional property(s) provides the lender with a lower loan to value ratio (LVR) on the loan. For instance, a loan of $300,000 against Property A valued $350,000 results in a LVR of 85.7%. If we cross collateralise Property B valued at $300,000 (with $100,00 owing), then the prevailing LVR is now 61.5% (total debt divided by total value of securities).<\/p>\n\n\n\n Daily interest<\/strong> Debit Card<\/strong><\/p>\n\n\n\n A bank access card used to make withdrawals from current funds in a bank account.<\/p>\n\n\n\n Debt<\/strong><\/p>\n\n\n\n Money that is owed or due by the customer.<\/p>\n\n\n\n Debt consolidation<\/strong> Deferred payment<\/strong> Debt serving ratio (DSR)<\/strong> Default<\/strong> Deposit<\/strong><\/p>\n\n\n\n Money that you will be contributing from your own funds towards the purchase of your property. In some cases, part or all of this money may need to be genuine savings.<\/p>\n\n\n\n Deposit Bond<\/strong> – also referred to as Deposit Guarantee<\/strong><\/p>\n\n\n\n A Deposit Bond is a form of guarantee that may be accepted by vendors in lieu of cash when purchasers must pay deposit monies on signing the contract of sale. The purchaser can obtain a deposit bond from a financial or insurance company.<\/p>\n\n\n\n Depreciation<\/strong> Discharge<\/strong> Drawdown<\/strong> <\/p>\n\n\n\n The amount of loan funds that are provided at the time of settlement by the lender for the purchase of your property. For example, you may have pre-approval to borrow $600,000, but you find a home for $550,000 and only need to drawdown $450,000 to complete the purchase.<\/p>\n\n\n\n Drawdown Date<\/strong><\/strong><\/p>\n\n\n\n The date you use your loan funds for the first time<\/p>\n\n\n\n Establishment Fee <\/strong>\u2013 also referred to as Application Fee<\/strong><\/p>\n\n\n\n Another name for an application fee, it is the amount you pay your lender when applying for a home loan.<\/p>\n\n\n\n Exchange of Contracts<\/strong><\/p>\n\n\n\n Prior to settlement where the purchaser and vendor enter a binding contract for sale, each party signs a copy of the contract, the purchaser pays the deposit and the parties exchange those contracts with each other.<\/p>\n\n\n\n Extra Repayments Facility<\/strong> Equity<\/strong><\/strong><\/p>\n\n\n\n The amount of an asset that is owned, that is, the value of the asset less any loans that are against it. For instance, if your home is valued at $400,000 and you owe $300,000 on your loan, then your equity is $100,000.<\/p>\n\n\n\n Equity loan<\/strong> Facility Limit<\/strong> – also referred to as Credit Limit<\/strong><\/strong><\/p>\n\n\n\n The maximum loan amount that a borrower can access under their home loan contract.<\/p>\n\n\n\n Family Equity – <\/strong>also referred to as Family Guarantee, Family Pledge or Guarantor Home Loans<\/strong><\/p>\n\n\n\n A family member(s) (the guarantor) allows the equity in their own property to be used as additional security for the borrower\u2019s loan. The idea is to lower the loan to value ratio and avoid paying lender’s mortgage insurance. The equity in the guarantor’s property is not used as cash to buy a property. The primary security for the mortgage will be the borrower\u2019s property. The lender will also take a mortgage over the guarantor\u2019s property. Some lenders offer limited liability guarantees.<\/p>\n\n\n\n
Pre-approval is generally used when you are approved in principal for a loan amount but don\u2019t have a specific property in mind. Pre-approvals are valid for 3 months, so even if you\u2019re not ready to buy today, you can secure your finance in preparation. Keep in mind that only when a loan is confirmed as unconditional, the lender can still back out of the deal.<\/p>\n\n\n\n
<\/strong>A loan with an interest rate that changes and can vary.<\/strong><\/strong><\/p>\n\n\n\n
A plan of your income and expenditure<\/p>\n\n\n\n
Insurance cover for your property in the event of a fire or flood, etc.<\/p>\n\n\n\n
A property title where several dwellings are erected on an estate and the owners own their property and land on freehold title, but have shared access to community facilities e.g. swimming pool, barbecue area, tennis court, etc. All property owners pay levies for upkeep of the community facilities.<\/p>\n\n\n\n
<\/strong>A type of ownership for a unit\/flat\/apartment in a building that is owned by a company. A purchaser buys particular shares in the company which gives the purchaser the right to occupy a specific unit\/flat\/apartment. Lenders are generally not enthusiastic about lending on company title properties.<\/p>\n\n\n\n\n
Changing your original contract.<\/p>\n\n\n\n
Interest calculated on a daily basis, typically in a variable loan.<\/p>\n\n\n\n
Merging several debts together so you only have one account to pay.<\/p>\n\n\n\n
When you agree with the lender that you can pay the loan instalment at a later date.<\/p>\n\n\n\n
A lender will measure your ability to pay the loan instalments using the DSR.<\/p>\n\n\n\n
If you have missed a loan payment.<\/p>\n\n\n\n
The decrease in value over time of a property, due to wear and tear, etc.<\/p>\n\n\n\n
Removing a lender\u2019s name from your property title when refinancing with another lender.<\/p>\n\n\n\n
The total amount of additional payments you can pay each year on a fixed loan.<\/p>\n\n\n\n
Using the equity in your home to secure a loan for another purpose.<\/p>\n\n\n\n