Common Mortgage Lingo, Made Simple Just For You
Navigating the home buying process can feel like learning a new language.
Here's a breakdown of common mortgage lingo you'll encounter, simplified to help you feel like the expert from the start of your house hunt to the moment you get the keys.
Expression of Interest: Think of this as swiping right on a house. You show initial interest without commitment by filling out an 'expression of interest form' that outlines your offer.
Pre-Approval: This is a lender’s initial assessment to determine if you qualify for a loan and the amount you can borrow, setting your budget before you find a property.
Credit Score: This crucial number shows lenders your reliability with finances. A higher score improves your chances of securing a favourable loan.
Contract of Sale: The main document in any property transaction, detailing the sale terms and the agreed price between you and the seller.
Conveyancer/Solicitor: These legal professionals handle the paperwork, ensuring the property transfers from the seller to you smoothly.
Loan to Value Ratio (LVR): This percentage represents the amount you’re borrowing against the property's value. It influences the need for Lenders Mortgage Insurance (LMI) if it's above 80%.
Lenders Mortgage Insurance (LMI): If your deposit is less than 20% of your purchase price, you’ll likely need to pay LMI. It protects the lender (not you) if you can't pay back the loan. You can find more information about LMI in our blog here.
Stamp Duty: A state tax on property purchases, varying by location and property price, and represents a significant part of upfront costs.
Owner Occupier vs. Investment Loan: The purpose of the property affects your loan type, with different rates and conditions for properties you live in versus those you rent out.
Borrowing Capacity: This indicates how much the lender believes you can afford to borrow, based on your income, debts, and other financial commitments.
Servicing: This is how lenders assess your ability to handle and repay the loan, looking at your total income versus your expenditures.
Guarantor: A guarantor is someone who agrees to back your loan, offering extra security to the lender and often helping you secure better loan terms. You can find more information about Guarantors in our blog here.
Principal & Interest Repayments: These are the standard type of loan repayments, where you pay down both the interest and the principal (the original amount borrowed) over time.
Interest-Only Repayments: For a set period, you pay only the interest on the loan. This can reduce your monthly outgoings in the short term but doesn’t decrease the principal of the loan that you borrowed. This is popular with Investors.
Refinance: Switching your existing loan for a new one to improve terms or adjust your borrowing amount.
Finance Due Date: The deadline by which your loan needs to be Unconditionally Approved and ready for the settlement.
Contract Conditions: These are specific requirements listed in your contract that must be fulfilled for the property sale to go through.
Unconditional Approval: When the lender has thoroughly checked your finances and gives the final approval for your mortgage. It means all conditions have been met and you're all set to proceed with purchasing your property to prepare for settlement.
Settlement: The big day when the property officially becomes yours. The final step in the home buying process where ownership of the property is transferred from the seller to you, the buyer, and you officially become a homeowner. Your loan opens after this date and your loan repayments commence.
Depreciation: Relevant for property investors, this is the reduction in value of the property over time, which can provide tax benefits.
Equity: The part of your property that you truly own - essentially, the market value of your home minus any remaining loan balance. You can sometimes borrow against your equity for things like renovations, car purchases, other property purchases or Investments.
Need more insights or have questions about terms not covered here?
Reach out—we’re here to help make your home buying journey clear and successful.
Your Broker,
Tara
