AAPR This stands for "Average Annual Percentage Rate" - also known as the mortgage comparison rate or true rate. The
AAPR (Average Annual Percentage Rate) is also known as the mortgage
comparison rate or true rate. It is a "fictional" figure, and is used
to compare the actual rate of a loan, taking into account the nominal
interest rate per annum, the compounding frequency and upfront and
ongoing fees, as outlined in the Consumer Credit Code.
ABA Australian Bankers' Association. The Australian Bankers’ Association (ABA) is the national organisation of licensed banks in Australia.
The
ABA is funded by its 23 Member banks ranging from traditional retail,
trading bank-style organisations to regional banks, foreign and
wholesale banks and contributions to its operational expenditure are
based on individual member bank liabilities in Australia.
ABIO Australian
Banking Industry Ombudsman. The ABIO exists as a means through which
customers can make complaints about a bank, and have them dealt with
independently of the particular bank. The Banking Ombudsman, also
known as the Banking and Financial Services Ombudsman (BFSO), is a free
and independent dispute resolution service. The Banking Ombudsman
considers complaints about banks and their affiliates operating in
Australia.
The Banking Ombudsman is able to investigate disputes
and make decisions that are binding on the financial services provider.
As far as investigations are concerned, the Banking Ombudsman is bound
by his terms of reference.
Accelerated approval This
is a means by which you can have your loan approved quickly and without
some of the usual checks a more expensive option than standard.
Accelerated repayment Allows the borrower pay off more of the loan than the minimum set out in the loan agreement.
Account fee Fee charge by lenders for the cost of setting up and maintaining mortgages.
Accountant The
accountant is the professional whose role it is to examine and record
the income and expenditure of a business. According the the Macquarie
Dictionary, accounting is the theory and system of setting up and
looking after the books of a business, so that its financial position
can be examined and the owners can find out how well it is doing.
An accountant is like a doctor for the business. The accountant
"keeps a finger on the pulse" of a business, and lets the business
owner know what to do to maintain the health of the business. Anyone
who is considering embarking on any type of business venture, or
investment strategy, should consult an accountant before making any
binding decisions.
Accrued interest Interest earned, but yet to be paid or charged.
Additional Payments Extra loan repayments made, above the minimum repayment amount, and paid during the loan term.
Adjustments Apportionment
of rates and charges, whereby the vendor pays the rates etc., and the
purchaser bears the cost of them beyond the settlement date. The
Statement Of Adjustments is the document that sets out the rates and
any other charges that have to be apportioned as between the vendor and
the purchaser.
The Statement Of Adjustments will show the full
purchase price, the amount of deposit deducted from the full purchase
price, and then the balance owing. The amount due for the full year's
council rates, and amounts due for water rates and body corporate fees,
if applicable, are also stated. If penalty interest has been incurred,
this too will be stated.
It is a standard contractual
requirement that the vendor must pay the full year's rates, and then
the purchaser is required to reimburse the vendor for the amount paid
for the period from settlement to the end of the rating year.
Affordability A
measurement made on the basis of an index which is the ratio of average
household disposable income to the income required to meet payments of
a typical dwelling. The higher the figure, the more affordable
property..
Agent The law of agency is a
branch of the law of Contract. Basically "agency" is a relationship
whereby one person, known as the "principal", authorizes another
person, called the "agent", to act on behalf of the principal. The
agent is appointed by the principal for the purpose of bringing a third
person into a contractual relationship with the principal.
All-in-one facility Facility
that allows the borrower to deposit all funds into the loan account,
and then draw on those funds for smaller expenses. In all in one
facility allows you to combine your home loan with your normal personal
accounts, such as savings account, cheque account, and credit card
account. An all in one facility provides one of the best mortgage
strategies available, if managed properly.
Amortisation Period Time
over which the loan is to be repaid at the agreed rate. Amortisation
is the payment of debt in regular, periodic instalments of principal
and interest, as opposed to interest only payments. Amortisation can
also be described as the process of reducing principal and interest, in
equal instalment payments, at specific intervals over a set period of
time. Over time, the interest portion of the loan decreases as the
loan balance decreases, in the amount applied to the principal
increases, so that the loan is paid off in the specified term.
Annual percentage rate The
advertised rate of interest per annum. The annual percentage rate is a
figure that states the total yearly cost of a mortgage, as expressed by
the actual rate of interest paid.
The annual percentage rate
includes the base rate of interest, and any other add-on loan fees,
costs and charges. Because it also incorporates other costs and
charges, the annual percentage rate will be higher than the rate of
interest quoted by the lender for the mortgage product, to which it
relates. However, it does give a more accurate indication of the true
cost of the loan.
Borrowers should be in mind the fact that most
home loans do not run for their full term, as the majority of home
loans are paid out before they have run their full term. This may
result in the effective annual percentage rate being higher than the
quoted annual percentage rate, because the loan fees and charges are
spread out over fewer years.
Application fee The
fee a lender may charge for setting up a loan approval for a home
buyer. While some lenders do not charge application fees, they usually
charge higher interest rates.
The application fee is a fee charged by the lender in order to cover the initial costs of processing a home loan application.
The
application fee may include the cost of obtaining a property valuation,
a credit report, and other costs associated with a home loan
application process. In some cases, these fees may be charged
separately, and the application fee charged as a stand-alone fee.
Appraisal "Appraisal"
is just another term for valuation, but is used instead of the word
"valuation" because estate agents are not permitted to provide true
valuations on real estate. Only an accredited valuer can provide a
genuine property "valuation".
Arrears Amount overdue on an account. Arrears
is the term used to describe money which has not been paid on time. For
example, if a borrower has not made the last two mortgage payments,
then that borrower is said to be “in arrears” with the mortgage
payments.
Similarly, where money is payable at the end of the
year, rather than at the beginning, it is referred to as being money
“due in arrears”, rather than money due in advance”.
Assets The
items a person or company owns and which are worth money in the open
market. Assets include real estate and other items that can be sold
anything from which a person may derive a benefit.
Assets are
any property or resources which have a monetary value. Assets include
cash on hand in cheque accounts and savings accounts, stock, bonds and
other securities, real estate, income producing property, and business
equipment.
Intangible assets include goodwill (the value of the
company's name in the market), patents and other intellectual property
that are owned by a company and given financial value in the company's
balance sheet. At call An account from which money can be withdrawn immediately.
ATM Automatic
Teller Machine. Most bank customers are familiar with electronic
banking through the use of automatic teller machines. Automatic teller
machines are accessed with a plastic card that automatically debits or
credits a nominated account whenever cash is withdrawn or deposited.
Auction An
auction is a form of sale where potential purchasers make competing
offers or "bids", with the person offering the highest bid being
declared as the purchaser. Unfortunately, the auction concept is
falling into disrepute with regard to the sale of real estate. This is
because many of those who promote real estate auctions tend to resort
to tricks and deceptions in order to make the concept work.
Balance Sheet Statement of assets, liabilities and net worth for an individual or a business.
The balance sheet is a financial statement that lists the company's assets and liabilities as at a specified date.
The
balance sheet presents a company's financial position by listing what
the company owns (including cash, infantry, planned, equipment, and
accounts receivable), and what the company owes (liabilities such as
short-term and long-term debt, and the accounts payable).
The difference between assets and liabilities is known as equity or book value.
Balloon payment Large loan repayment to clear a debt.
A
balloon payment is where a lump sum, usually representing the balance
of the loan principal, is paid before the end of the term.
Similarly, a balloon mortgage is where the balance of the loan principal is paid as a lump sum at the end of the term.
Bank cheque Cheque
purchased from a bank, usually on a cash basis, and regarded as being
almost as acceptable as cash in a sale transaction.
Bankruptcy Situation
where a debtor is unable to repay debts, and his/her estate placed into
the hands of a receiver who has the responsibility for its
distribution.
Basic/Standard variable Variable home loan at an attractive rate, but without all of the features of a loan at the standard variable rate.
Bearer A
person who holds a document. In the case of a cheque, it is the person
presenting the cheque (may or may not be the owner of the cheque).
Body Corporate A
body corporate comes into existence when a plan of subdivision,
allowing the creation of a body corporate, is registered at the Land
Titles Office. Owners of the Lots specified on the plant of subdivision
become members of the body corporate.
Bond Money paid by the tenant and held by the Residential Bond Authority as security against damage or rent default by the tenant.
Breach of contract This occurs where a party fails comply with the terms/conditions of a contract.
Break Costs Costs
payable by a borrower where a loan is paid in full before the end of
the term of the loan. Generally applies to fixed loans.
Bridging Finance Finance
used to "bridge" the gap between the purchase of a new property, and
receipt of funds from the sale of purchaser's existing property.
Building inspection Inspection
carried out by a purchaser (usually by engaging a professional building
inspection service) to discover any defects in a building which may
affect the preparedness of the purchaser to buy the property at the
asking price.
Building society An institution which takes deposits and provides loans just like a bank, but without the Reserve Bank oversight given to banks.
Buyer's Agents The
buyer's agent is simply an estate agent who "spots" properties for
people who cannot afford the time to seek out a suitable property in
person. Unfortunately, the term is also used to describe estate agents
who falsely pretend to provide a service in terms of "negotiating" on
behalf of inexperienced purchasers.
Capitalising interest When interest that has accrued is added to the total debt rather than being paid when due.
Capital gain Profit
realised from the sale of an asset, when it is sold for a higher market
price than the owner initially paid for it. (See Capital gains tax
below).
Capital gains tax Liability to pay
tax on the Capital gain (See Capital gain above) made on the sale of an
asset. Usually a taxpayer's principal place of residence is exempt from
capital gains tax. Capital growth The difference between the value of an asset when purchased, and its current value.
Capped Loan A loan where there is a ceiling on the interest rate.
Caveat A
caveat prevents the Registrar Of Titles from registering another
interest against the title without first giving notice to the person
who lodged the caveat. Generally speaking, once a caveat has been
lodged against a property, nothing else can be lodged against the
property without the consent of the person who lodged the caveat.
Caveat emptor 'Let the buyer beware' - the principle that puts the onus on buyers to be satisfied with any item before buying.
Certificate of Occupancy As
the name implies, the Certificate of Occupancy certifies that a home
can be lived in. It is a requirement of most local government or shire
councils that an occupancy certificate be issued prior to the purchaser
of a home taking occupation.
Certificate of Title A
simple explanation: Imagine a huge book kept at the Land Titles Office,
in which every block of land in the State of Victoria has its own page.
Of course, such a book would have many volumes and many pages (folios).
If you wanted to identify a particular block of land, you would find
out its volume and folio number, and use these numbers to look up the
relevant page. To find out who owns the land, you would simply turn
over the page, and see whose name was last added to the page. This
person is the owner.
Certification The
planning authority "certifies" a plan of subdivision when it is
satisfied that the plan is in compliance with the all requirements.
Upon certification the plan of subdivision is lodged at the Land Titles
Office.
Chattels Fixtures & Chattels: Fixtures
are things that are permanently attached to the land so as to become
part of the land. Chattels are things that are not part of the land.
When land is sold, all fixtures (the house, and things permanently
attached to the house) will pass to the Purchaser as part of the land.
Collateral An
asset (such as a car or a home) which the borrower must give to the
lender if the loan is not repaid. In a home loan, the home itself is
usually the main collateral.
Combination loans Also
known as "cocktail loans or "split" loans. Different types of loans
combined to form one loan product. For example, the loan may have a
portion variable, fixed or even a portion as a line of credit.
Commission Commission
is the way in which estate agents are paid for their services, and is
probably the most unfair and unethical form of payment imaginable. Real
estate commissions have been described as a form of "wealth tax" levied
by estate agents.
Common property This is
the land on a plan of subdivision that does not form any of the lots,
but is the subject of shared ownership by the Lot owners as members of
the body corporate. Common property may take the form of land, air
space, space below the ground or buildings.
Company Share Scheme This
was the first type of "unit" development. While it appears to be
similar to a strata unit development, is really quite different.
Comparison rate The
comparison rate is a standard to be used in advertising material. It is
used to compare the actual rate of a loan, taking into account nominal
interest rate per annum, the compounding frequency and upfront and
ongoing fees.
Compound interest This is interest that is paid on the accumulated interest as well as the principal amount of a loan.
Conditioning Conditioning
the vendor is the term used to describe the process where an estate
agent strives to convince the vendor to lower the asking price on a
property so that the estate agent can secure a sale.
Conditions Conditions
are the "rules" of the contract. They tell the parties who is
responsible for what, the dates by which things must be done, and what
will happen if things are not done as agreed.
Conflict of Interests A
conflict of interests occurs when a person who has a duty to act in the
interests of a client also has a duty to act against the interests of
that same client. A conflict of interests also occurs when a person who
has a duty to act in the interests of a client is in a position where
he/she may be tempted by money or some other motive to act against the
interests of that same client.
Construction loan This
is a loan for the purpose of building a dwelling. Funds are usually
drawn down on a staged basis, upon completion of each building stage.
Consumer Credit Code The
Uniform Consumer Credit Code (UCCC) was passed by the Commonwealth
government, with identical legislation passed by most states, to
provide uniform consumer credit law throughout Australia. The Code
governs the relationship between borrowers and lenders.
Contract of Sale The
Contract of Sale is the term used to describe the document prepared by
a lawyer, and used to formalise the sale of real estate. However, the
word "Contract" has more than one meaning: 1. Contract can mean an
agreement; or 2. Contract can mean the document that sets out the
agreement.
Contract Note This is another
nasty device used by estate agents (see also the "Exclusive Sale
Authority"). The name of the document is the first trick - Contract
Note. To most people the term "Contract Note" suggests that the
document is something less than a Contract, and that a real Contract
will be drawn up later. In fact a "Contract Note" is a full contract,
but the terms and conditions are hidden.
Conveyancer The
Legal Practice Act 1996 states, at Section 326: "conveyancer" means a
person, other than a current (legal) practitioner or registered (legal)
practitioner, who carries on a business in the course of which
conveyancing work is carried out directly or indirectly for fee or
reward;". Conveyancers attend to the clerical work associated with
conveyancing matters, but are prohibited from performing legal work or
giving legal advice.
Conveyancing Work The
Legal Practice Act 1996 states, at Section 326: "conveyancing work"
means work, other than legal work, carried out in connection with the
transfer...of...interest in land. In effect, "conveyancing work" is
confined to the clerical tasks associated with arranging for the
transfer of ownership from one person to another.
Conveyancing Kits In
their promotional material, conveyancing kit-writers don't emphasise
that those who use the kit will still have to pay for rate and planning
certificates, title searches, postage, transport to settlement, etc.
There is also an assumption that kit-users have plenty of spare time,
and that their time is of no value. Otherwise, the amount of time
needed for reading and learning about conveyancing has to be taken into
account.
Cooling Off In certain
circumstances, the Purchaser of real estate is permitted to cancel the
Contract and walk away from it all together, within 3 days of having
signed it. Covenant A covenant is a way in which the use of one
person's land can be controlled by another, and is commonly to protect
the "amenity" or value of an area. A developer, for example, could
prevent the building of front fences, the parking of heavy vehicles or
the building of low-quality homes in a new estate by placing a special
condition in the Contract of Sale, requiring the Purchaser to register
a restrictive covenant on the Purchaser's new title.
Cover note A
temporary insurance policy, designed to be issued at short notice to
provide cover between the time the cover note is issued, and the issue
of a full insurance policy.
Credit Limit This
is the maximum amount a borrower can use on a credit facility. For
example, the maximum amount that can be used on a credit card.
Credit unions Also
known as credit co-operatives, these are finance groups owned and
controlled by the people who use it. Usually based on common employment
e.g. VTU Credit Union or Victoria Police Credit Co-Operative.
Creditor The party to whom the debtor owes money.
Crossed cheque A
bank cheque or personal cheque with two parallel vertical lines across
it to specify that the cheque must be paid into an account and cannot
be cashed. Usually includes the words "Not Negotiable" written or
printed between the two parallel lines.
Current Market Value The
current market value of a property is determined according the
following standard: The price at which a willing but not anxious vendor
would sell, and at which a willing but now anxious purchaser would buy.
Theoretically, if someone bought the property at current market value
as an investment, then decided to sell it again, they should be able to
find someone else who is prepared to pay the same price in the same
market, and so on.
Daily interest Interest that is calculated on a daily basis, varying in accordance with the account balance as at the end of each day.
Debtor The borrower the party who owes money to the creditor.
Default Occurs where the borrower fails to meet payments by the agreed due date.
Default rate This is the rate to which a loan reverts or automatically adjusts to at the end of any fixed period.
Deposit A
deposit is an amount of money, usually 10%, paid by the purchaser to
secure the contract of sale. Generally, if the purchaser repudiates the
contract, the deposit will be forfeited.
Deposit bond A
deposit bond is a form of guarantee, usually provided by an insurance
company, that a purchaser will pay the full deposit when it becomes due
(i.e. at settlement, or upon rescission of the contract).
Disbursements Disbursements
are the out-of-pocket costs associated with a matter, as opposed to the
legal costs charged for the service being provided. For example, in a
conveyancing matter the legal costs include checking of the contract
and preparation of documents. Disbursements include the amount paid to
the Land Titles Office for the title search, and amounts paid to rating
authorities for certificates.
Discharge fee See 'mortgage discharge fee' below. Disposable income This
is the part of a person's income that is not committed to on-going
living expenses, and is available spending on non-essentials or for
saving.
Down payment Similar to a deposit. Usually paid when the sale agreement is made, with the balance due at a later dated.
Draw down The
term used to describe the issuing of funds from the lender for the
purposes for which they have been borrowed. Also used to describe
access to loan funds, e.g. in a line of credit where the funds are
available as needed.
DSR Debt Service
Ratio. This is the amount of a borrower's income which will support
loan repayments It is usually expressed as a percentage, with the
majority of lenders setting a maximum DSR of between 30% to 33%.
Early termination charges These are costs a borrower may be required to pay upon the early repayment of the loan.
Easement An
easement is a right that allows one person's land to dominate another
person's land by exercising some right of the dominated land. The land
that benefits from the easement is called the dominant land, while the
land affected by the easement is called the servient land. EFTPOS Electronic
Funds Transfer Point of Sale. A facility that allows cardholders to
access funds held in an account at the point of sale (i.e. shop or
supermarket checkout) to pay for goods or to withdraw cash.
Encumbrances This
is the term used to describe a claim that one person has against
another person's land. It is important to remember that an encumbrance
is against the land and NOT the owner of the land. This means that if
the land changes hands, the new owner takes both the land AND
encumbrances attached to it.
Equity This
is the term used to describe that part of the property that can be
identified as belonging to the borrower. Equity represents the value of
the property after debts secured by the property are paid.
Equity loan This is a loan secured by the borrower's equity in the asset offered as security.
Establishment fees Term
used to describe the fees charged by lenders to cover the costs
associated with the arranging of a new mortgages and the preparation of
loan documents.
Estate Agent See Agent above.
Exclusive Sale Authority This
is the document by which an estate agent is able to exclusively secure
the Vendor, the property being sold, and all persons who enquire about
the property for a set period of time, and then indefinitely until the
Vendor cancels in writing. Devised by estate agents, and distributed
through the Real Estate Institute of Victoria, it is one of the most
complex and deceptive documents a consumer will ever encounter.
Exit fees See 'break costs' above.
FID Financial Institutions Duty. This is a government tax levied on the receipts of financial institutions.
Fidelity Insurance Fidelity
insurance protects the clients of professionals against theft or
misappropriation of funds by the professional person or an employee
while the client's funds are under the control of the professional
person. Simply put, if your lawyer had a secret gambling problem and
took the proceeds of your property sale to a casino and lost it, there
would be little point in trying to sue the now bankrupt lawyer.
Fiduciary Relationship A
fiduciary relationship is one where a professional representative owes
the highest duty to the client, and must always act in the utmost good
faith. The law requires that the professional representative must never
allow his/her own interests conflict with those of the client.
Finance - "Subject To Finance" Signing
"subject to finance" simply means that the Purchaser is not yet sure as
to whether their home loan has been approved by the bank, and wants to
be able to cancel the Contract if the bank fails to approve their loan
application.
Financial planner Also known
as "Financial Advisers", financial planners find out about a client's
needs and circumstances, and provide plans and recommendations to
assist and benefit the client.
First Home Owner's Grant This is a government grant $7000 payable to purchasers who are buying their first home. Conditions and qualifications apply.
Fixed interest This is where the interest rate on a loan is fixed for an agreed period of time.
Fixtures & Chattels Fixtures
are things that are permanently attached to the land so as to become
part of the land. Chattels are things that are not part of the land.
When land is sold, all fixtures (the house, and things permanently
attached to the house) will pass to the Purchaser as part of the land.
If a chattel is to be included in the sale, it must be specifically
listed in the Contract. If a fixture is to be removed from the property
by the Vendor and therefore not included in the sale, then this must be
specifically mentioned in the Contract.
Flat interest rate Interest calculated on the original amount of the loan for the full term of the loan.
Fraud Fraud
is the gaining of an advantage by improper or unfair means. At present,
fraud is a major problem in the real estate industry.
Frozen account This
is where an account is rendered inoperative, and no activity permitted.
Accounts are often frozen a short time prior to settlement of a
borrower's sale if the borrower has a redraw facility. This allows the
lender to determine a "payout figure", which will not change through
activity on the loan account. (See also "payout figure" below).
Garnishee The
legal process by which a creditor is able to arrange for the diversion
of funds. Often used where a debtor's employer can be required to pay
part of the debtor's salary to the creditor.
Gearing This
is the term used to describe the ratio of a borrower's contribution to
an investment purchase, and borrowed funds for investment purposes.
Where a property is 'highly geared' it has a high ratio of borrowed
funds compared to ownership. (See also "negative gearing" below.)
General Law Land This
is land that is not under the operation of the Transfer of Land Act.
Ownership of general law land is determined by examination of the
"chain of title", a collection of documents showing that the land has
been transferred from one person to another over many years. A chain of
title must show every dealing associated with the land for the past 30
years, if good title is to be established. These days, the purchase of
any general law land must be converted so that the land is brought
under the operation of the Transfer of Land Act.
GiroPost Australia Post banking facility.
GST A
Federal Government tax on sales of all goods and services, set at 10
per cent. The tax is levied against the supplier of the goods or
service, but is paid by consumers in the form of higher prices. A
purchase contract may contain a condition that requires a purchaser to
add an amount equal to the GST to the purchase price.
Guarantee In
the context of a home loan, a guarantee is the promise made by a person
who will guarantee the lender that the home loan will be repaid. The
person giving the guarantee (known as the "guarantor") is legally
responsible for the repayment of the loan. If required by the lender to
do so, the guarantor must honour the guarantee by repaying the loan in
full on behalf of the borrower.
Guarantor The
person who provides a formal guarantee to a lender, that the guarantor
will repay the borrower's debt if the lender cannot secure payment from
the borrower. If required to repay the loan on the borrower's behalf,
the guarantor may stand in the shoes of the lender in order to sue the
borrower and recover the funds paid on the borrower's behalf.
Home equity loan A loan account that gives the borrower access to a revolving line of credit.
Henderson Poverty Line The
Henderson Poverty Line (HPL) was developed by Professor Ronald F.
Henderson as an attempt to estimate poverty in Melbourne on the basis
of a two adult, two child family set at an income equal to the value of
the basic wage plus child endowment (family allowance) payments.
Honeymoon rate This is a reduced loan rate, usually offered for period of 12 months before reverting to the standard rate. House & Land Packages A
house and land package is where a home is sold together with the land
on which it is to be built. Usually, the process of purchasing a house
and land package involves the selection of a display home, and matching
it with a block of land from an estate being developed by the vendor.
Housing Affordability Index Ratio of average disposable income to income needed to make payments on a typical residential property.
Independent Legal Advice When
a person needs legal advice it is important that the person providing
that advice not only knows the law and how to apply it, but is also in
a position to provide that advice without bias. The lawyer must always
be totally "independent" of the matter. In other words, the lawyer
should never be personally involved in the matter, and should not be
acting for, or advising anyone else who is involved in the matter or
who stands to gain anything from it. See "Legal advice" below.
Instructions This
is the term used by lawyers to describe what the client wants done.
However, it goes beyond this. Taking instructions is not just a matter
of doing as the client directs. The proper taking of instructions
requires the lawyer to use his or her legal knowledge and skills to
ensure that the client is in a position to make the best decision. This
is part of the lawyer's fiduciary duty. After finding out what the
client wishes to do, the lawyer will advise the client as to the
legalities involved, and the options available to the client as the
client pursues his/her goal.
A client is entitled, not only to
make the final decision, but also to be in a position to make the best
possible decision, based on the best possible advice.
Only after
the lawyer has listened, considered, advised, and then been told which
direction the client wishes to take, can the lawyer regard him/herself
as having been properly instructed.
Interest This
is the cost of the home loan. Interest is the charge the lender makes
in return for allowing the borrower to have the use of the borrower's
funds for the period of the loan.
Interest only loan A
short-term loan, often used by investors. Allows for payment of the
interest payable on the loan, without the loan itself being repaid. The
borrower pays the full amount of the loan principal at the end of the
agreed term.
Introductory loan Similar to "honeymoon rate' above.
Investment loan Loan used to purchase an investment property. Often in the form of an "interest only" loan (see above).
Legal Advice The
giving of good legal advice involves the obtaining of an understanding
of what the client wants to achieve, the checking of relevant
documents, having a sound understanding of relevant principles of law
or researching finer points of law, and then explaining to the client
what options are available.
Lender Term
used to describe a bank, building society, credit union, or other
lending institution which derives loan moneys deposits. May also be
used to refer to a specialised home lender which provides borrowers
with access to funds raised on the professional money markets.
Lender's mortgage insurance - LMI Insurance
premium charged to the borrower, but by way of a one off payment for
the protection of the lender, allowing the lender to recover any unpaid
loan principal in the event of the borrower's default. The borrower's
debt is transferred to the Mortgage Insurer.
Letter of offer Insurance
premium charged to the borrower, but by way of a one off payment for
the protection of the lender, allowing the lender to recover any unpaid
loan principal in the event of the borrower's default. The borrower's
debt is transferred to the Mortgage Insurer.
Licence Agreement Sometimes
a purchaser may wish to occupy the property before settlement; or a
vendor may wish to continue to occupy the property beyond settlement. A
Licence Agreement is a simple contract whereby one party grants another
party the right to occupy the property. The difference between a
licence and a lease is that the lease is a form of "ownership" of the
property for a period of time, and the lessee is entitled to remain in
occupation for the period of the lease. The licence, on the other hand,
can be revoked at any time. If the licence is revoked, the occupier
must leave the property and rely on whatever remedies are provided for
in the licence.
Line of credit Borrowing
arrangement by which the borrower may access any amount up to a
specified limit, with the value of the borrower's property as security
for the loan.
Listing This is the term
used to describe the arrangement between a Vendor and an estate agent,
whereby the agent is appointed to act on behalf of the Vendor to sell
real estate. Estate agents rely on a contract called the Exclusive Sale
Authority to bind the vendor, the property and all enquirers, to the
agent. This document is so heavily biased in favour of the estate agent
that obtaining a listing with it is almost as good as "money in the
bank" for the agent. (See also "Exclusive Sale Authority")
Loan-to-value ratio Often
referred to simply as the LVR, this is the ratio derived from the
amount being borrowed, as against the valuation of the security
(usually the property being purchased).
Lot A
lot is simply a separately identifiable piece of land, part of a
building, or air space, that is created when a plan of subdivision is
registered.
Low docs loans Low document
loans do not require the support of pay slips, tax returns, etc. and
are often used by self-employed borrowers. These loans are well suited
to borrowers who have substantial equity and serviceability capacity,
but are unable to provide traditional forms of income verification.
Because proof of income is not requied, the amount of paperwork is
significantly reduced.
Margin Term used to describe the difference between the lender's interest indicator rate and the rate actually charged to borrowers.
Maturity This is the date a debt or investment matures, and is to be paid in full.
Mortgage A
mortgage is basically a scheme or an arrangement whereby one person
borrows money from another, and promises to pay the money back in
return for offering land as security for the loan. The offer of land as
security becomes an interest in the land for the lender. The land
itself becomes encumbered by the mortgage.
Mortgage broker An
individual or an organisation who provides consumers with access to a
variety of loan products offered by a panel of lenders. The role of the
mortgage broker is to assist the customer to select the most
appropriate loan for the borrower's purpose, and to assist the borrower
in his/her dealings with the lender.
Mortgage comparison rate See "comparison rate" above.
Mortgage discharge fee Fee charged by a lender for the administrative services associated with the finalization of a loan.
Mortgage document The mortgage document is the means by which the lender’s rights or “interest” in the property is registered on title.
Mortgage insurance Insurance
premium charged to the borrower, by way of a one off payment, for the
protection of the lender. It allows the lender to recover any unpaid
loan principal in the event of the borrower's default. The borrower's
debt is transferred to the mortgage insurer. Mortgage intermediaries Term used to describe mortgage managers who are positioned between the lenders and the mortgage originators.
Mortgage manager Term
used to describe the company responsible for managing a loan. The
mortgage manager liaises with the panel lenders, and co-ordinates the
mortgage originators.
Mortgage offset account This
is a savings account associated with a home loan, the contents of which
are paid into the borrower's home loan, thereby reducing the amount to
be repaid. A 100% offset is achieved where the interest rates earned
and paid are the same. A partial offset occurs where the interest rate
earned on the offset account is only a portion of the rate paid on the
home loan.
Mortgage originator This is the
term used to describe a wholesale lender whose role it is to source
securitised funds that are then provided to consumers through loan
brokers in the form of loan products.
Mortgage protection insurance Unlike
"mortgage insurance" (see above), mortgage protection insurance is
cover that protects the borrower by meeting repayments in the event of
the borrower's death, illness or loss of employment.
Mortgage registration fee This
is a fee paid to the Land Titles Office for registration of the
mortgage. The mortgage is usually registered by the lender or the
lender's solicitors together with the Transfer of Land after
settlement.
Mortgage stamp duty This is a
state government tax, determined by reference to the amount of the
mortgage. It is usually paid on the borrower's behalf to the State
Revenue Office by the lender, and deducted from the loan funds.
Mortgagee The mortgagee is the person to whom a mortgage is given the lender.
Mortgagor The mortgagor is the person who gives a mortgage over their property as security for a loan the borrower.
Negative gearing The
term used to describe the situation where an investor buys the right
property in the right location, and then has the tenant and the taxman
partially fund the repayments. The investor sits back and counts the
profit from the appreciating property value. The property is purchased
using borrowed funds, and the interest payable on the borrowings
exceeds the income produced by the asset (after expenses), resulting in
a negative cash flow.
Negotiation Negotiation
involves conferring or discussing matters with another person, with a
view to reaching some form of compromise or agreement. To be effective
as a negotiator, your representative must be well informed about the
rules and laws associated with the matter under negotiation, and must
have precise instructions as to their capacity to negotiate on your
behalf.
Non-conforming loans Term used to
describe loan products designed for borrowers who do not meet the
criteria for regular lending due to impaired credit history,
insufficient income or business start up finance.
Off The Plan This
term describes the sale of land that does not yet exist as a separate
"Lot". The land is described as a proposed Lot only. The Vendor of an
"off the plan" lot is obliged to complete the subdivision process or
building of units, and to have the Lots individually created through
registration of the plan of subdivision.
Offer For
the average consumer, the term offer has a simple and straight-forward
meaning. However, when applied to the law of Contract, it has a very
specific meaning. The confusion between these two meanings is often
manipulated, and used against consumers.
Ombudsman (Banking) See ABIO (above)
Ongoing fees Any fees charged in association with the loan on a regular basis over the life of the loan.
Overcapitalising Term
used to describe the situation where a property owner spends more money
in improving a the property than can be recovered upon sale.
Overdraft Prearranged limit to which an account holder can access funds in excess of the account balance.
Payout figure This
is a figure provided by a borrower's lender to confirm the amount of
sale proceeds to be applied to repayment of the borrower's mortgage
upon the sale of the security property. Usually, the lender will
"freeze" the borrower's loan account, to ensure that the payout figure
will not be changed through the use of any redraw facility.
Penalty Interest Condition
4 of Table A, Schedule 7 of the Transfer of Land Act provides for the
payment of penalty interest if either party delays the payment of
money. The most common form of delay is the postponement of settlement.
Plan of Subdivision Basically, the plan of
subdivision is a map of a large area of land that has been divided into
small blocks of land or "Lots". The plan shows the dimensions of each
Lot, and its location in relation to every other Lot in the
subdivision. Each Lot is separately numbered. When the plan of
subdivision is registered, each lot is identified in terms of its Lot
number and the number of the plan of subdivision. Each Lot is
registered by way of a Certificate of Title bearing distinct Volume and
Folio numbers to identify the title, and the title itself records the
Lot and Plan Number of the Lot it represents.
Portability A loan facility that provides for the substitution of one security property for another in relation to an existing loan.
Payee The person to whom payment is to be made. E.g. the person to whom a cheque is payable.
Pre-Approval If
you’re thinking of buying a home, then obtaining pre-approval for a
mortgage is a good idea. This determines the size of the mortgage you
qualify for, and therefore, decides the price range for the homes you
can look at.
Pre-Contract Legal Advice Advice
provided by a qualified lawyer prior to the signing of a Contract to
buy or sell real estate. By obtaining pre-contract legal advice a
consumer is able to consider what matters should be investigated before
deciding to buy, what responsibilities have to be fulfilled before
selling, and what special conditions may have to be inserted into a
Contract to protect his/her interests. See also "Independent Legal
Advice" above.
Price Ranges Also called a
"buyer enquiry range" this is a trick that involves the invention of
two figures: one much lower that the vendor intends to accept, and the
other much higher than the vendor expects the property to make.
Purchasers are expected to make offers somewhere in between the two
false figures. Any form of marketing that involves "invented" figures
is fraudulent. The Northern Territory government recently wrote to all
estate agents in that State, warning them that price ranges and buyer
enquiry ranges amount to misleading and deceptive conduct.
Principal Term
used to describe the actual amount of money borrowed. The term is used
to distinguish this component of a repayment from the "interest"
component. (See "interest" above).
Principal and interest loan The
most common form of home loan, where both the principal and the
interest are repaid during the term of the loan. (Compare with
"interest only" loan above.)
Professional Indemnity Insurance Professional
indemnity insurance is held by a professional person to ensure that any
claims of professional negligence made against the professional person
can be met. To put it another way, there is not much point in suing a
professional person if they do not have enough money to pay for your
loss - so professional indemnity insurance comes in to cover the cost.
Rates This
is the term used to describe amounts payable to the local council and
the water authority for services provided to a property. Rates are
adjusted on a pro-rata basis, together with any other outgoings that
are payable as a consequence of land ownership.
Real Estate Institute Of Victoria The
Real Estate Institute of Victoria is the professional body representing
real estate agents in the State of Victoria. Known as the R.E.I.V., it
also acts as a lobby group to protect and further the interests of real
estate agents.
Real property This is
another term for real estate, or land. It is used to distinguish land
(which is permanent in nature) with personal property (which is not
permanent and can be destroyed).
Rebate Term
used to describe a situation where money paid is refunded as a form of
incentive. E.g. where a vendor pays a rebate of $3,000 if the purchaser
can settle prior to a specified date.
Redraw facility A
facility which allows the borrower to make mortgage repayments beyond
those required in the loan agreement, and "redraw" them as needed.
Refinancing This
is the term used to describe the situation where a borrower decides to
change lender or loan product by repaying the existing loan and then
obtaining another.
Registrable Documents These
are the documents, usually collected at settlement in return for the
payment of the balance of the purchaser price, that are lodged at the
Land Titles Office to transfer ownership of the property to the
purchaser. They must be property signed or endorsed so as to allow
registration.
Requisitions On Title These
are a series of questions formally served on the Vendor of a property
by the Purchaser, by which the Purchaser discovers any issues relating
to "title" (i.e. the right or capacity of the Vendor to legally sell
the property). Requisitions often include a variety of other questions
that are not related to "title", and can run to many pages. Many
lawyers now replace the right to submit requisitions on title with
warranties in the Contract of Sale.
Reserve Bank The
Reserve Bank of Australia is responsible for independently maintaining
Australia's financial system, and for setting the official short-term
interest rates on which many variable-rate home loans are based.
Residential Investment Loan A
loan obtained for the purpose of purchasing real estate for investment
purposes (for example, to be rented out) rather than for owner-occupier
purposes.
Retirement Villages While most
people understand the term "Retirement Village" as meaning a form of
unit accommodation, it often comes as a surprise to find that there are
different ways of "owning" or "occupying" a retirement unit.
Securitisation This
is the term used to describe the process of taking a pool of various
assets, such as different home loan products, and converting them into
a tradable security such a bond which investors can then purchase and
trade.
Security This is the term used to
describe an asset that is put forward by a borrower on the basis that
the lender will be able to sell the asset or convert it to the lender's
use in the event that the borrower fails to repay the loan in full.
Serviceability This is the term used to describe the borrower's ability to make regular repayments of an agreed amount.
Settlement Settlement
is the term used to describe the moment when all of the parties
involved in a sale of real estate meet together and exchange documents
and cheques to complete the matter. Often there are four parties at
settlement: the Vendor, the Vendor's Mortgagee, the Purchaser and the
Purchaser's Mortgagee. Usually each of these is represented by a lawyer
or other representative.
Signatory Term used to describe a person who has authority to operate an account.
Solicitor The
terms "solicitor" or "legal practitioner" or "barrister" are just other
terms used to describe a lawyer. The term "barrister" is used to
describe a lawyer who appears in court on behalf of clients. Barristers
usually avoid accepting clients direct, and prefer to act on behalf of
lawyers in a form of "sub-contacting" capacity. Many law firms
described their lawyers as "Barristers & Solicitors". In the State
of Victoria, all lawyers can describe themselves as "barrister and
solicitor", and all are equally entitled to represent their clients in
court. We prefer the term "lawyer" because it is readily understood by
everyone as meaning a person whose role it is to advise and assist
clients in matters of law.
Solicitors mortgages These are mortgages offered through solicitors firms, utilising funds offered by clients for this purpose.
Solicitor supervision The
Legal Practice Act prohibits unqualified people from giving legal
advice or performing legal work. This means that conveyancers are not
permitted to offer any form of legal services to their clients, even
though conveyancing matters essentially involve legal issues.
Because
most consumers would be reluctant to use conveyancers if they knew that
their conveyancer could not perform the legal work associated with a
conveyancing matter, the concept of "solicitor supervision" has been
developed to make conveyancers appear more credible.
Split loan See "Combination loans" above
Stamp duty This
is a government charge incurred by the Purchaser of real estate, and
payable to the State Revenue Office prior to lodging of the Transfer of
Land at the Land Titles Office. It is usually paid by the Purchaser's
lender after settlement, with funds retained from the loan moneys. If
there is no lender involved, a cheque will be obtained from the
Purchaser and paid to the State Revenue Office by the Purchaser's
lawyer.
Stamping and lodging This is the
term used to describe the process of taking the registrable documents
(obtained at settlement) to the State Revenue Office, payable stamp
duty and having the Transfer of Land "stamped" to show that stamp duty
has been paid, and then lodging the documents at the Land Titles Office
for registration.
Standard variable home loan As
compared with a "basic variable" loan (see above), a standard variable
home loan, usually includes a suite of features, and is charged at the
standard variable rate.
Standard variable rate This is the rate a lender will apply to its 'premium' home loan product. Statement of Adjustments This
document sets out the way in which rates and other outgoings have been
apportioned as at the day of settlement. It shows the purchase price,
the deposit paid, the amount of rates paid for the rating period and
the proportion of those rates to be paid by the Purchaser for the
period beyond the settlement date.
Strata Title This
is the term used to describe a title where there is a building on land.
The title covers not only depth and width, but also the height between
upper and lower boundaries. Stratum Title In
a stratum subdivision the building is subdivided into lots, with common
land, i.e. driveways, stairwells, gardens being owned by a service
company and appearing on the subdivision as an additional lot. Stratum
units are regarded as unattractive because of difficulties and
complexities involving the operation of the company, Corporations Law
obligations, and a reluctance on the part of lenders to accept them as
security.
Studio Apartments A studio
apartment is the term used to describe a small unit, usually comprising
one open-plan room. Care should be taken when considering the purchase
of a studio apartment!
Subject To Finance Where
the purchaser had not yet received formal home loan approval, and wants
to be able to end the contract in the event that the home loan is
rejected, the contract can be made "subject to finance". This means
that a condition is added to the contract that allows a fixed period of
time, by which the home loan must be approved. If the home loan is not
approved, then the purchase may elect to end the contract. Purchasers
should always ensure that the finance condition is drafted by their
lawyer, or at least with advice from their lawyer. It is often the case
that estate agents draft finance conditions such that the purchaser
can't help but breach the terms, and risk losing the deposit.
Term The term of the loan is the period over which the loan is to be repaid.
Transaction fees These
are fees charged by the lender on particular transactions, such as
withdrawals, transfers, deposits etc., usually on an item by item
basis.
Transfer of Land This is the
document by which the Vendor and the Purchaser direct the Registrar of
Titles to transfer ownership of the property from the Vendor to the
Purchaser. It may also direct the Registrar to include a covenant or
other encumbrance on title.
UCCC See "Consumer Credit Code" above. Valuation See "Valuer" below.
Valuer A
valuer is a professional person whose role it is to determine the
current market value of a property. Valuers are tertiary trained, and
accredited by the Australian Property Institute (API).
Variable interest rate An interest rate that varies in accordance with the rates in the marketplace.
Vendor finance Vendor
finance (also known as a “wrap”) is where the owner of a property
offers to finance the purchase of that property. The person who buys
the property does not gain legal ownership of the property until the
final installment on the property has been paid.
Vendor terms Vendor terms may be used to describe a terms contract, but may also be used to describe vendor finance.
Vendor terms contract A
vendor terms contract arises in two ways. The first is where the
contract provides for occupation or possession of the property by the
purchaser before settlement has been effected (i.e. before the balance
of the purchase price has been paid).
Yield Term
used to describe the income derived from real estate, ordinarily
expressed as a percentage of the value or cost of the investment.
