As a first-time home builder it’s important to start the process with confidence and certainty. But in order to do this, you need to understand the language that the industry uses.
The property lexicon is chock full of building and finance jargon, and learning how to decipher it will be one of the keys to your success.
Our A-Z glossary for first-timers is a great place to start, and is a great refresher for everyone else.
Capped Rate Loan: As the name suggests this type of loan comes with a cap on the interest rate. The cap prevents interest on the loan from rising above a specified rate.
Capital Gains Tax: A tax levied on the profit from the sale of a property.
Certificate of Compliance: A document that’s issued when your property complies with government regulations.
Conditional Approval: The first step along the road to getting your home loan approved. Conditional approval means that your loan application has been approved subject to given terms and conditions. This is a really useful pre-purchase exercise that gives you an indication of how much you’ll be able to borrow.
Conveyancing Fees: Conveyancing is the branch of law concerned with the preparation of documents for the transferring of property from one owner to another. Fees are charged for services such as reviewing the contract of sale, supplying a cost disclosure statement, drawing up a transfer of land, and much more.
Comparison Rate: A handy tool designed to help consumers identify the true (actual) cost of a loan. It factors in the interest rate, fees and charges and comes up with a single rate that can be used to compare loans from different lenders.
Commencement Date of the Eligible Transaction: When buying an existing home: the date when a contract is made. When building a new one: the date when laying the foundations commences.
Construction Loan: See BICOE (Construction Loan)
Covenant: To agree by lease, deed, or any other legal contract. A fancy way of saying legal agreement.
Early Repayment Adjustment:A fee imposed by your lender if you decide to end your fixed rate home loan early and move to another rate, repay the loan off early, or make a lump sum payment.
Economic Costs (or Break Costs): A fee which is payable if you switch your home loan from a fixed to a variable rate (during the fixed rate period).
Equity: The value built up in a home that represents the current market value of the property, less any remaining mortgage payments. In short: the part of your home that actually belongs to you and not your lender.
Establishment Fee: A fee charged by financial lenders to cover the cost of setting up your home loan. It is charged at the commencement of the loan, when the money is deposited into your nominated account.
Honeymoon Rate: Sometimes known as introductory mortgages, a honeymoon rate is much lower than the lender’s other home loan products (and the prevailing market rate). However, this generous rate only lasts for a pre-defined period of time.
Lenders’ Mortgage Insurance: A one-off payment that covers your lender in case you can’t make your repayments. However, this insurance payment is only required if you sign up for a home loan with a deposit of less than 20 per cent of your homes sales price.
Line of Credit: A transaction account which gives you a credit limit that you can draw down at any time. It’s similar to a credit card, except you don’t have to make set repayments on the principal.
Loan to Valuation Ratio: Your loan amount divided by the value of your property. To calculate it, divide your loan amount by the value of your property then multiply it by 100 to get a percentage.
Loan Origination Fees: An add-on charge that lenders impose on home mortgage borrowers. It is a one-off flat fee that is payable at closing and usually ranges from 0.5 percent to 1 percent of the total amount of the loan.
Lump Sum Payment: An unscheduled extra repayment made to your home loan.
Off the Plan: Buying property off-the-plan means purchasing a place that is yet to be built. You can view design and building plans, but there’s no physical property to see or inspect.
100% Offset: See Mortgage Offset Account.
Qualifying Ratios: Calculations used to obtain an overall picture of a borrower’s monthly debt to income ratios. There are two types of ratios used for mortgage qualification purposes. ‘Housing ratio’ (your expected monthly housing expenses divided by your monthly income) and ‘debt ratio’ (your total monthly debt divided by your monthly income).
Security: A tradeable financial asset that’s used to secure your loan (e.g. land).
Settlement Costs: Also known as closing costs, these are all the extra costs that go hand in hand with closing a property sale. These include: loan application fees, appraisal fees, inspections fees, transfer taxes, attorney fees etc.
Strata Title: A form of ownership created for multi-level apartment blocks and subdivisions with shared areas.
Stamp Duty: A tax you pay to your state or territory government when you buy a property. See our stamp duty calculator.
Split Loans: When you split your loan into more than one loan account. For example, one could part could be on a fixed rate, with the remainder on a variable rate.
Sunset Clause: A clause in the contract of sale that refers to the maximum time in which the developer has to finish the build. If your property is not finished by this time you’re legally entitled to break your contract and get your deposit back.
Unencumbered Value: Unencumbered property is property that’s not subject to any claims by creditors. Its unencumbered value is: the amount for which it might reasonably sell for on the current market.
Variation: Changes to an off the plan development which are caused by things like council planning requirements.
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