Demystifying real estate jargon

 

Whether you’re a first-time homebuyer, a seasoned investor, or simply curious about the nuances of property transactions, the terminology used in the real estate industry can often seem like a foreign language, leaving many feeling overwhelmed and confused.

This guide to some of the most frequently used terms has been designed to help you speak the language more fluently.

Credit score

Sometimes called credit rating, a credit score is a figure (between zero and 1,000 or 1,200), based on an individual’s borrowing and repayment history. Lenders use this score as a major factor in deciding whether a home loan will be approved.

Comparison rate

Based on the home loan interest rate, a comparison rate includes the loan’s ongoing fees and charges, thus giving the borrower a more accurate idea of costs.

Pre-approval

Also called conditional approval, this is a preliminary green light from a lender showing a borrower’s maximum borrowing capacity. However, the loan will still need to receive full or final approval once a property has been selected.

Lender’s Mortgage Insurance (LMI)

A ****non-refundable, one-off fee that lenders require from riskier borrowers without a 20% loan deposit. 

Loan to Value Ratio (LVR

A borrower’s loan deposit compared to the value of the property they wish to purchase. This is calculated as a percentage.

Fixed & variable loans

Fixed loans offer the same interest rates throughout their legacy, regardless of the changes to the national cash rate, whereas variable loans will alter according to such changes. 

Guarantor

A family member or friend who agrees to pay a borrower’s loan if they default.

Offset account

An ****everyday savings account linked to a home loan, with its balance offset against the loan amount. These accounts are designed to potentially reduce the interest paid on the loan.

Conveyancer

A legal professional who specialises in real estate.

Stamp duty

A ****tax borrowers pay when purchasing a home, with the final percentage figure based on the price paid for the property.

Settlement

The day the borrower becomes the legal owner of a home with the remaining sale price disbursed from the lender.

Body corporate (corp)

Sometimes known as owner’s corporation, body corp is a group of owners in a townhouse or apartment complex or building, who are financially responsible for managing common areas such as gardens.

Redraw facility

Similar to offset accounts, the funds in this facility are offset against the loan balance which can equal lower interest rates. Plus, the facility allows borrowers to make extra payments and redraw them in the future.

Equity

The difference between the market value of a property and the home loan balance still owing.

 

Refinance

When borrowers switch their home loan to another lender or stay with the same lender but change loans.