Glossary Helpful explanations
From 'Borrowing Capacity' to 'Certificate of Title', this glossary will help you navigate harder to understand terminology when managing finances.
The amount of money available for you borrow, based on your current financial state as determined by a financial institution. This calculation takes into account your income, living arrangements and expenses, other loan repayments and any other regular recurring payments you make. Use our Borrowing power calculator.
If you wish to purchase a property at auction, it’s important to be aware of a few key points:
- there is generally no cooling off period;
- the contract is usually unconditional with the exception of varying the settlement date; and
- 10% deposit is generally required on the fall of the hammer. A lesser amount may be negotiated with the vendor prior to the auction.
It is always best to apply for a pre-approval prior to the auction so that if you are the successful bidder you already have most of the legwork done.
If you already have a home, in all likelihood you’re intending to fund the purchase of your new home with the sale of your existing one. But what if the perfect new property pops up before you complete your sale?
A bridging loan can be used to ensure that dream listing doesn’t pass you by and lets you purchase the new property before selling your current home. You can choose to make monthly interest payments or have the interest capitalised to your loan during the bridging period, keeping your costs at a minimum while you sell your existing home.
In South Australia, buildings insurance is the responsibility of the purchaser of a property once a contract of sale is in place. Speak to your insurance company or agent to organise a policy as you will generally need one in place if you are financing your home.
Certificate of Title
This document details the land dimensions and ownership details, and whether there are any encumbrances over the property. An encumbrance is a registered interest and can take the form of a mortgage, caveat, or easement.
- Transfer - is a document registered with the Land Titles Office that confirms a change of ownership. The change of ownership is noted on the Certificate of Title.
A comparison rate is the most important rate to consider and the best way to compare different loan offers as it takes into account standard fees and charges. A lower rate isn’t necessarily cheaper if it comes with higher fees. All financial institutions must provide a comparison rate alongside any loan rate they offer. The standardised amount and term for home loans is a loan of $150,000 for 25 years. Check the disclaimers and terms and conditions of your chosen financial provider to ensure that you are choosing the right loan for your needs.
Contract of Sale
A legally enforceable written agreement between individuals or entities. In real estate, a contract is entered into when contracts are exchanged and the deposit is paid.
- “Under contract” / Contingencies / “Subject to”
If a property is described as being under contract, it means that the vendor and the buyer have agreed on a price for the property and signed a contract. But that contract is still subject to conditions and could fall through before the sale is completed
To put this another way, when you place an offer on a house, it is subject to specific requirements. For example, the offer may be subject to your ability to obtain home loan approval, to the satisfactory completion of a building inspection, or to the sale of your current home (if you are moving). If your home loan application is declined, if the building inspection reveals serious issues with the property, or if the sale of your current property falls through, you are well within your rights to withdraw from the deal.
Therefore it is important to not sign an unconditional contract until you are 100% certain that everything is in order, otherwise you run the risk of forfeiting your deposit and more.
A 'cooling-off period' may also apply after contracts are exchanged. This refers to the period of time during which you may cancel the purchase contract, although you may still lose a portion of your deposit. The cooling-off period is generally not available for properties purchased at auction.
A person qualified and licensed to handle all documentation for the sale and purchase of a property. You will generally need a conveyancer or solicitor if you are purchasing property.
The difference between what you owe on a home loan and what your property is currently worth.
For example, if your property is worth $300,000 and you owe $210,000 you have $90,000 equity in your home.
First Home Owner Grant
The First Home Owner Grant (FHOG) is paid by the State Government to eligible first home owners to assist with the purchase or construction of a brand new residential property, including a house, flat, unit, townhouse or apartment that meets local planning standards anywhere in South Australia.
The payment is made only after an application has been submitted to and approved by RevenueSA or a financial institution authorised by RevenueSA to process applications.For eligibility criteria please visit ReveueSA’s website.
Currently the South Australian Government’s First Home Owners Grant is only available for people who are buying or building a new residential property.
Credit Union SA’s $5,000 First Home Buyer’s Grant is available when you borrow at least $250,000 to purchase or build a first home with a loan to value ratio (LVR) over 80%. All loans that are eligible for the First Home Buyers Grant will be subject to pay Lenders’ Mortgage Insurance.
Lending criteria, fees and conditions apply. Offer is current as at 23/04/2018 and is subject to change. To be eligible, applicants must not have previously owned residential property in Australia. Available to natural persons only (i.e. not a trustee or a company).
For home loan applications to be approved, you must have at least 5% of the purchase price from genuine savings. Genuine savings are defined as a demonstrated savings pattern established over a minimum period of 3 months in the name of at least one borrower prior to the loan application being received, including:
- funds held or accumulated in savings accounts for 3 months or more
- equity or redraw in existing loans
- term deposits or shares held for 3 months or more
Genuine savings does not include:
- gifts or inheritance
- First Home Owner Grant
- proposed savings plans
- sale of assets (other than real estate) e.g. motor vehicles
- the proceeds of a personal loan or credit card
- rebates or incentives
- funds held in a business or company’s account
Often called a 'Family Guarantee loan', involves using the equity in another person’s property, usually a parent, as security to purchase a house of your own. Guarantor loans are suitable for scenarios where the borrower doesn’t have enough deposit to avoid Lenders Mortgage Insurance.
Interest Rates and Variable vs Fixed
An interest rate is the rate of interest that a bank or other financial institution (the lender) sets on the cost of lending you money. There are two main types of interest rates to be aware of: variable and fixed.
A variable interest rate is one that can move up or down at any time.
A fixed interest rate on the other hand, is one that will remain the same over an agreed term. Unlike a variable interest rate loan, where minimum repayments vary according to the interest rate, the repayments for a fixed interest loan will always stay the same over the agreed period.
- Honeymoon and introductory rates
Honeymoon rates or introductory rates, offer a lower interest rate for an introductory period, usually the first 1-3 years of the loan. Once this introductory period ends, the interest rate usually reverts to a higher rate.
LMI (Lender’s mortgage insurance)
LMI is an insurance premium payable by you (the borrower) to insure against losses in the event you are not able to repay the loan and the lender is not able to recover the debt in full. You can choose to add the LMI premium to your loan (called capitalisation) so that you don’t have to pay it upfront.
LVR (Loan to value ratio)
Loan to value ratio (LVR) is the loan amount as a percentage of the total value of the property. For example if you are borrowing $270,000 to purchase a house valued at $300,000 then your LVR is 90%. The maximum LVR that you can borrow up to depends on several factors including the type of loan, the loan amount that you’re applying for and your capacity to make repayments.
Credit Union SA requires Lenders’ Mortgage Insurance (LMI) for all home loans where the LVR exceeds 80%.
An offset account is used as a means of reducing interest costs on a loan. This is done by linking your home loan account to the offset account. Any balance in this linked account offsets the loan principal on your mortgage and means that subsequent interest payments will be less.
For example, if your home loan is $300,000 and you have an offset account with $15,000 in it, then you are only charged interest on $285,000 of the loan, rather than on the full amount. Credit Union SA offers a 100% offset account, whereas some institutions do not.
Off the plan
When you buy a property from the plans only and not the finished building (common when purchasing an apartment or house from a development). The purchaser will not be able to inspect the property or see the standard of finishes, the practical layout, the size and dimensions or the outlook.
Owner-Occupied vs Investment Home Loans
When you're buying or building a home or apartment you intend to live in, it's called an owner-occupied property. This includes holiday homes that you don’t rent out and purchases of land on which you intend to build a dwelling to live in. When you're applying for a home loan to help you buy a property, you'll need to specify whether you're applying for an owner-occupied loan or an investment loan. This distinction can change the interest rate options and loan features available to you.
When you're buying or building a home or apartment and plan on renting it to tenants or re-selling it in the near future, it's considered an investment property. When you're applying for a home loan to help you buy a property, you'll need to specify whether you're intending to live in the property (owner-occupied loan) or whether you intend to rent it out or re-sell it (investment loan). This distinction can change the interest rate options and loan features available to you.
When a lender advises you in writing how much they will lend you. It is conditional upon the property you wish to purchase being acceptable security, and your lender confirming your income and other information provided in your application as correct.
The completion of the sale transaction. Final payments are made at settlement in exchange for the relevant documents. You can then take ownership of your new property from settlement.
At a basic level, stamp duty is a tax imposed on purchases. When buying real estate, it is paid by the purchaser. Stamp Duty varies between different states in Australia. However, it is generally based on the greater of two factors – the market value of the property or the price paid (including any GST) for the property.
A report as often required by the lender detailing a professional opinion of the property’s value. In most cases they will be arranged as part of your loan application
A party who offers a property for sale.
This is general advice only and doesn’t take into account your objectives, financial situation or needs. Conditions, fees and lending criteria apply and are available on request.