Buying a home for the first time can be an absolute minefield, especially when people start throwing out jargon like you are meant to know what it means.
There are plenty of terms and jargon that you’ll come across when purchasing your first home and it is good to be across the basics so that you have some idea of what you are looking at in terms of purchasing and loans.
If you’re the person who just sits there and nods their head, hoping you’re not saying yes to an unconditional contract, we’ve outlined some of the most used terms that you need to know.
Real estate jargon
Some of the more basic and commonly used terms you’ll hear will be used when describing the property or the purchase details.
These are generally good to know and will help you when speaking to agents, brokers or the bank.
- PPOR – This simply means your principal place of residence, that is, where you’ll live. If you are asked if you’re are buying the property as a PPOR or an investment, it is whether you are buying the property to live in or to rent out.
- Body Corporate Levy/Strata Fees – If you are buying an apartment or a property in a complex, this is one you will hear. This is the fee paid to a body corporate to cover costs associated to common property such as insurance, maintenance, gardening and general upkeep.
- Pre-approval – Your bank may offer pre-approval. This is when a lender formally advises you how much you can borrow, all based on lending terms and conditions such as a building and pest inspection, income or several other terms. Once you have this, you can start looking for a property, providing the bank with the contract prior to them approving finance.
- Stamp Duty –Stamp Duty is basically a tax imposed by the Government on the purchase of real estate and is paid on top of the purchase price of the property. You will need to pay this when purchasing a property, although you may receive a rebate after the property has settled.
Finance jargon
When it comes to getting finance, there are a few keys terms you need to be aware of. Most of us know what an interest rate is, but what about a honeymoon rate or comparison rate?
- Offset Account – An offset account is a way to reduce the interest costs on your loan. Essentially your loan account is linked to your transaction account and any balance offsets the principal on the loan, bringing down your interest costs.
- Borrowing Capacity – You’ll hear lenders talk about your borrowing capacity which is how much you can borrow based on your current financial status.
- Honeymoon Rate – A honeymoon rate offers you a lower interest rate initially to get you in the door. The lower rate is generally given for the first 12 months or so, after which it increases back to the normal rate. You need to be aware of what the normal interest rate is and whether it is affordable.
- Comparison Rate – The comparison rate lets you compare loans between lenders by including any fees and charges as well as the interest rate itself.
- Lenders Mortgage Insurance – This is generally charged if you have a deposit of less than 20 per cent. Lenders Mortgage Insurance, or LMI, is insurance that a lender takes out on a loan in case you default on your mortgage. Remember however, this insurance protects the lender, not you.
- P&I – This means principal and interest. Some home owners take on an interest-only loan for the first few years, while others dive straight into a principal and interest loan which means they start to pay off the actual home price straight away, rather than just making the interest payments.
Post-purchase jargon
Once you’ve purchased your new home and moved in, there are some terms you are likely to hear or be asked about in the coming years. These questions might come up in conversations with family and friends or they might be asked about when you apply for further loans or finance.
- Equity – Equity generally gives an idea of how much of your home you own. Essentially it is the current market value minus what you still owe to the lender. As you make P&I payments, your equity in the property will grow.
- Default – A failure to meet the debt repayment on a due date.
- Switching Fee – This is charged by your lender when you want to change from one type of loan to another. For example, if you were wanting to change from a variable rate to a fixed rate loan, you may be charged by your lender to do so.
Remember – if you don’t understand a term an agent or the bank is using, just ask. It’s better for you to be aware up front of what is being said, rather than getting caught agreeing to a term or an addition to the contract that you don’t understand.
