Glossary 27-10

Application fee: The fee charged by the lender to set up your loan.

Appreciation: When the value of a property increases from its original value usually due to changes in the market.

Bridging loan: A loan enabling you to ‘bridge’ the gap between the selling of a current property and buying of a new one, without paying two mortgages at the same time.

Capital Gains Tax (CGT): Tax applied to any capital gains on your investment property when you sell it.

Capital growth: The increase in the value of property over time.

Contract of sale: A written legal agreement outlining the terms and conditions relating to the sale/purchase of the property which must be signed by both parties.

Conveyancer: A qualified person who is licensed to handle all the legal change-of-ownership documentation involved in selling and purchasing property.

Conveyancing: The legal process of change-of-ownership from the seller to the buyer.

Cooling off period: A short period of time after the exchange of contracts when you can decide not to withdraw from the contract.

Credit file: A file recording an individual’s current, and fully repaid debts. The lender will need permission to obtain the credit file of a borrower.

Default: Failure to meet debt repayments on time.

Drawdown: The transfer of finance from the lender to the borrower at settlement.

Equity: The difference between the current value of your property and your outstanding balance.

FHOG (First Home Owners Grant): A government-funded scheme aimed at first home buyers to help them into their own home.

Fixed rate: An interest rate that remains the same for an agreed term regardless of fluctuations in the market.

Formal approval: When the lender formally approves your loan application.

LMI (Lenders Mortgage Insurance): Independent insurance protecting the lender in the event that you cannot meet your repayments. LMI must be paid if you want to borrow more than 80% of the property’s value.

Low Doc Loan: Low Doc loans provide a path to home ownership for those who have insufficient financial records and paperwork, such as those who are self-employed.

Negative gearing: When you invest more on a property than you receive from it.

Offset account: A transaction account linked to a home loan account to help reduce the interest rates.

Positive gearing: When the income from your investment property is greater than the expenses.

Pre-approval: An assessment providing you with a estimate of how much you can borrow, so you have a realistic price range to work with before formal approval.

Refinance: The process of replacing an existing debt obligation with another debt obligation, usually under a different lender and different terms.

Settlement: The exchanging of documents between you and the previous owner of the property, finalising the purchase and ownership.

Split loan: Split loans give you the security of locking in a portion of your loan with a fixed rate, whilst having the flexibility to make unlimited additional repayments at a variable rate.

Stamp Duty: An external cost levied by the government payable by the purchaser of real estate. This cost is calculated on the sale price and varies from state to state.

Valuation: A professional written assessment of the value of the property.

Variable rate: An interest rate which is dependent on market interest rates; interest rates rise and fall parallel to the market.