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Getting a home loan is tough, but one of the biggest challenges when seeking out this new financial venture can be the sheer amount of jargon that comes with it. This list utilises our four most utilised products as a guide for a simple glossary that aims to make your home loan journey a little less rigorous.
Australian Bankers’ Association. The ABA is the national organisation of licensed banks in Australia.
The option to make higher repayments to pay off the loan faster.
To agree to the terms of an offer or contract.
Account keeping fees are charged to cover or partially cover the lender’s internal costs of administering the account.
The amount of loan interest that has already occurred but not yet due for payment.
The process of allocating expenses (Council, rates, water rates) on settlement day that the seller has paid for but not used.
When a property is sold, the vendor (seller) is normally entitled to all income (eg. rent) and is responsible for all expenses (eg. council rates, water rates, etc) up until the date of settlement, which normally takes place four to eight weeks after the exchange of contracts. Settlement is the day on which you finalise payment and take possession of the property.
The purchaser, meanwhile, is entitled to all income and is responsible for all expenses from the date of settlement onwards. Therefore, prior to settlement, the balance of the purchase price of the property needs to be ‘adjusted’ to allow for expenses that have been paid in advance or will be owing at the date of settlement.
Items for adjustment
Adjustment items typically include council rates, water rates and strata levies – but may include other charges. Adjustments are calculated by applying a daily rate to each of the relevant items, with the balance of the purchase price adjusted depending on whether the items are paid in advance or are unpaid at the date of settlement.
Let’s consider two examples of adjustments made to the purchase price of a property, based on a settlement date of 1 June.
Example: Council rates paid in advance
The vendor has paid the quarterly council rates of $455.00 for the April – June quarter (ie. up to 30 June) so the purchaser owes the vendor for 1 month of the quarterly bill.
To calculate the adjustment, a daily rate must first be established. From 1 April to 30 June there are 91 days, which is equal to $5 per day ($455 / 91). Therefore, the purchaser owes the vendor $150 (30 days x $5) for council rates applicable to the month of June. The purchase price of the property will therefore need to be increased by that amount.
If you’re buying a home and would like to know more about adjustments, contact your legal representative. Your solicitor or conveyancer is responsible for identifying and making adjustments prior to settlement.
A person or body authorised to act on behalf of a client in the sale, purchase or management of property.
A block of land created out of a larger area.
A Periodically issued document displaying the overall balance of an account, as well as the amount(s) deposited to/withdrawn from said account up to the issuance date of the statement.
Legal term for when a person or business entity is unable to pay their debts. Bankruptcy involves the debtor’s assets being liquidated – allowing the lender some form of repayment while forgiving all previous debt. Bankruptcy is reflected in credit records and can negatively affect the individual or business for years after.
Short for “business activity statement”, a BAS statement is a form submitted to the Australian Taxation Office by businesses registered for GST. A BAS keeps records of goods and services tax, Pay as You Go instalment (PAYG), Pay as You Go withholding tax and other taxes.
A representative of several banks and/or lenders, that works with and on behalf of a client in order to secure the best loan for their purposes. Brokers assess a client’s financial situation, weigh up the most viable mortgage solutions from the institutions they represent, apply for the mortgage with the clearance of the client, and assist the borrower in any further negotiations or financial decisions relating to their mortgage.
An individual or board who own a business entity or enterprise with a goal to make profit from successful operations of a company.
Credit Status is re-evaluated during the refinancing process. Your credit status is an accounting report showing what you own and what you owe. It reflects your general financial responsibility, as well as your potential risk to prospective lenders. Also called a “credit profile”.
The value of an asset, minus any liabilities on that asset. Can be leveraged to acquire more assets, granting more equity.
There are a variety of financial agreements. Financial Agreements consist of a legally binding contract stipulating a mutually beneficial arrangement between two (or more) parties for a specific purpose. These agreements commonly take the form of mortgages and other loans.
On 1 July 2000, Australia introduced the First Home Owner Grant scheme in order to offset the effect of GST on home ownership. It is a national scheme in Australia, funded by states and territories and administered under their own legislation. The Grant consists of a one-off payment for $10,000-$20,000 depending on the home the grant is for and when the occupant applies for it.
A self-employed person who works for multiple entities on a per day/job basis, rather that regular ongoing tenure as an employee of a corporate entity.
“Debt” collectively refers to money that a borrower owes to one or more parties. “Good” debt is debt that either generates income regularly (rental/commercial properties), creates potential for regular income (education), or will be sold later at a considerable return on the original investment cost (land, resale property). “Bad” debt is debt that generates no income and has little or no potential for return at a later date, such as homes, cars, clothes etc.
A feature that allows the borrower to keep the same home loan product but change the associated property. This feature can save the time and cost of refinancing, but still comes with its own costs and fees.
An additional amount charged on a loan, covering the borrower’s use of an asset. Interest is generally a percentage of the principal and charged or expressed annual (per annum). Interest rates are subject to change based on economic flux.
A loan secured from a bank or other lender for the purpose of purchasing an investment property, typical in the form of resale, rental, or commercial real estate or land.
This term is extremely new in the world of home loans, real estate and investment. The “Investor Edge” scheme is an innovation created by Guardian National Mortgage. In order to take advantage of the Investor Edge scheme, customers need to have a Principal Home Loan and an Investment Home Loan. Investor Edge allows the client to apply the discounts on your investment home loan to your principal home loan, drastically lowering the interest rate on your home loan. The Investor Edge scheme also includes a 100% Offset Account, lowering your interest rate even further.
If a borrower wants to borrow 80% of more of a property’s value, a one-time up-front payment is charged called Lender’s Mortgage Insurance, or LMI. LMI is a payment designed to protect the lender should the borrower be unable to make their repayments. This fee can be waived using a Guarantor Loan.
A mortgage type which doesn’t rely on conventional loan documentation to secure a home loan. Most freelancers and business owners use these loans, which only require proof of income, such as a bank or BAS statement. Interest rates are generally higher on these loans.
A home loan or investment home loan. These loans typically come with a percentage of interest at varying rates.
An Offset account is an account designed specifically to lower interest on a principal home loan. They come in two forms. Balance Offset Accounts offset interest on a home loan by a percentage of the balance in the account, up to 100%. Interest Offset Accounts offset the interest on your principal home loan by the interest on your offset account.
A system offered by the Australian Taxation Office for making regular payments towards your expected end of year income tax liability.
A grouping of financial assets such as stocks, bonds, commodities, currencies and funds.
The amount of money borrowed in a Mortgage without the interest added. A loan of $700,000 with 3.88% interest would have $700,000 in principal, while the interest would be $27,160.
A loan secured from the bank or other lender for the purpose of purchasing a residential property.
An overarching product coupled with your home loan. General comes with an additional annual fee but grants certain fee waivers on your home loan. Often includes interest rate discounts, up to four credit cards with no annual fee, and free or discounted offset and savings accounts.
A property in the form of either residential, commercial or industrial buildings – even raw land. Real estate is often bought with a view to either live in it or profit from it. This is called Investment. Real estate is often bought with the help of a “Principal” or “Investment” home loan, depending on the purpose of the purchase.
Refinancing happens when an individual or a business reviews an interest, payment schedule and/or terms of a previous financial agreement. Residential borrowers may consider refinancing due to fluctuating interest rates. Business investors may seek refinance on commercial properties.
The act of a lender or bank granting a loan to a borrower for the purpose of purchasing a residential home, more commonly referred to as a “home loan” or “mortgage”.
A type of real estate property bought with the intention of the buyer living in said property.
Heard a term or purchase that wasn’t covered here, or would you like further information on one of these terms? Guardian National Mortgage is here to help. Simply contact us using our contact page here or call us on 1300 LOAN STAR or email at .