Speaking Property: Terms you need to know when purchasing your new home
Buying a property is exciting, but it can be confusing and daunting is you aren’t familiar with the terminiology commonly used in the Real Estate industry. Below is a list of property jargon you will most likely come across in your search for your new home.
- Appreciation – The increase in the value of a property, also see Capital Growth
- Bank Valuation – The bank’s estimated value of a property. It is a conservative estimate as the bank needs to ensure they can recover any funds and costs associated with your purchase if you are unable to make your repayments
- Bridging Finance – A bridging loan is a loan that links the finance gap while you await the proceeds of a sale. It allows borrowers to purchase a new property while they’re in the process of selling their existing property
- Capital Gains – The profit from the sale of your house
- Fittings – Items installed in a property that are included within the purchase, such as dishwashers, tapware, etc
- Finishes – How your property will be finished. If purchasing off the plan your contract will include a finishes schedule detailing the interior finish such as carpets, wall colours, benchtops, etc
- Lenders Mortgage Insurance (LMI) – If the borrower doesn’t have a sufficient deposit (usually 20%), Lenders Mortgage Insurance is a commonly used option. Lenders Mortgage Insurance protects the lender if a borrower is unable to meet their mortgage repayments and the property has to be sold
- Loan-to-Value Ratio (LVR) – LVR stands for loan-to-value ratio. This ratio is determined with a formula that divides the loan amount by the value of the property, thus determining the ratio. Normally lenders will allow up to an 80% loan to value ratio without the need for Lenders Mortgage Insurance
- Negative Gearing – Essentially, borrowing to invest can generate a negative income stream or a loss, and in Australia, this can then be claimed as a tax offset. Your property investment can also be neutrally geared, with the income and expenses breaking even. This is a complex topic and you can read more about gearing here.
- Settlement – The settlement process is where funds are exchanged between the purchaser and seller, and the buyer takes ownership of the property
- Capital Growth – Capital Growth represents the growth in the price or value of the property
- Body Corporate – A group consisting of all the lot owners within the development that run the strata plan. All members are entitled to elect members to an Executive Committee which makes decisions about the management of the property
- Cooling-Off Period – In Queensland, there is a 5-day cooling-off period after the contract is signed. Within these 5 days you can decide not to proceed with the contract should something unforeseen happen
- Depreciation – The reduction in the value of a properties plant, fitting and fixtures over time
- Refinancing – Refinancing essentially means restructuring your debt in an effort to benefit your financial situation. By moving to a new lending product you replace your current debt obligations with new ones, usually under terms that better suit your current financial position
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