Common Mortgage Terms you Need to Know When Buying Property
The importance of the financial and legal aspects of buying and selling property is no secret, but it can be hard to grasp some of the jargon thrown around in the process. Some terms can throw a lot of confusion, but with an understanding of these, you can talk the talk with agents and ready yourself for one of the biggest purchases you will ever make.
Application fees are a one-off fee charged by your lender to cover the costs associated with setting up your mortgage. Application fees vary from $150 – $1000, will differ between each lender and loan. Some may charge application fees for some loan products but not others, and some may refund your application fee on settlement.
When someone refers to your ‘assets’, they are referring to all the items you own that have a monetary value. For example your property, car, furniture etc.
Conveyancing is the legal branch of work that deals with the transfer of property ownership from one person to another.
A caveat is a notice found on the certificate of title of a property, outlining that someone (known as the caveator) other than the owner has an interest in the property. If there is a caveat on the title of a property, then the caveator must be notified when a property transaction takes place.
Certificate of Currency
A Certificate of Currency is issued by an insurer to confirm an insurance policy is effective and valid. Your lender may ask for a certificate of currency to ensure your property is adequately insured.
Debt Servicing Ratio (DSR)
Can you afford your mortgage? A lender uses the debt servicing ratio to calculate if you can. Using a number of factors, the lender works out how much of your income will be available to make mortgage repayments.
Equity is the difference between the value of the property and the amount still owed to the lender. As you pay your home loan off and your property value increases or remains stable, your equity will start to build. Equity could be used to renovate or even use as a deposit for an investment property.
An offset account is a mortgage feature. The balance of this accessible account ‘offsets’ the principal loan and interest are then calculated on the principal minus the offset account balance.
The settlement is the process where property ownership is legally transferred from seller to buyer.
Capital gains tax
Capital gains tax is the tax payable on the profit made when selling an investment property. Unlike stamp duty which falls under state legislation, this tax is a federal government tax.
Fixtures are parts of a property that are permanently attached to the structure or land. Fixtures are usually included in the contract of sale and include things like blinds and carpet.
Stamp duty is a tax applied to certain transactions, including property transactions. The tax payable is calculated as a percentage of the contract value. Stamp duty falls under state legislation, so rates vary between states. Stamp duty is paid by the buyer, but there are a number of circumstances were buyers are exempt from paying stamp duty.
A strata title is a form of ownership where an individual owns part of a property with joint rights to common areas. Strata title properties include apartments, units and townhouses.
Torrens title is the ownership of land by registration. In Australia, property ownership is managed under the Torrens system where the transfer of property titles is registered with the Titles Office. A Torrens title property is one where the purchaser owns both the house and the land that it is on.
At Mortgage House, we are no stranger to the homeowner’s journey. It’s a long (but rewarding) one.
It’s normal to feel overwhelmed when getting started with a mortgage, that’s why we have dedicated Lending Specialists to guide you through every part of the process. Contact us to get started today!