From a distance, looking at the world of real estate and property might appear to be a foreign land, filled as it is with seemingly indecipherable jargon and lingo.
Much of the confusion no doubt stems from the abundance of acronyms used by realtors, lenders, and other professionals in the real estate industry. However, if you’re considering buying a home or investing in property, it’s important that you understand this jargon. After all, these terms are abbreviated into acronyms because they’re so commonly used. With a better comprehension, you can find it much easier to navigate the property market.
Here we’ll take a look at the most commonly used jargon:
Appreciation: When a property value experiences an increase.
Amortisation period: This refers to the period of time in which a borrower will repay his or her mortgage. Because of interest, the amount paid back differs from borrower to borrower, which can also impact the timeframe.
Bank valuation: The estimated property value given by the bank.
Capital Gains Tax (CGT): The tax that’s assessed by the profit of an investment property.
Depreciation: The calculation of an asset losing value over time based on a physical, functional, technological or economic factor.
Equity: The value of a property versus what is still owed on the mortgage.
Exchange of contracts: A final agreement that is handled between the buyer and seller to complete the sale of the property. At this point in time, the sale cannot be legally stopped.
First Home Owner Grant (FHOG): Introduced in 2000, this government scheme serves to incentivise first home buyers who are building or purchasing residential property. It’s a one-off payment that people can qualify for without financial criteria, like their income, being taken into consideration.
Guarantor: A person who is expected to fulfil a loan contract if the person responsible defaults.
Home loan pre-approval: Also referred to as conditional approval or approval in principle, this occurs when the bank or lender approves or denies a request for a loan before applying to purchase a house or property. At this time, the lender checks finances to ensure the applicant’s eligibility for a loan.
Interest: The amount of money paid to the borrower in addition to the principal; this amount is considered the cost it takes to borrow money in the first place. Interest can be fixed (everlasting) or variable (split into different sums over time.)
Interest only loan: In this case, the borrower only pays the interest during the loan term and pays back the principal once the loan has expired.
Lenders Mortgage Insurance (LMI): This type of insurance covers a lender’s financial risk in the event that the borrower is unable to repay the full mortgage.
Loan-to-Value Ratio (LVR): A financial term used to calculate the amount borrowed against the property’s appraised worth.
Mortgage protection insurance: This insurance takes care of the borrower’s mortgage repayments in case the borrower becomes unable to repay them due to personal events such as illness or unemployment.
Offset account: An account linked to your home loan that offsets the balance left on the mortgage with the intention of reducing the interest paid over the life of the loan.
Principal and Interest Loan (P&I): Lenders typically divide the borrowed balance into two sections: the principal which represents the total amount of money borrowed; and the interest, which is the cost charged by the lender for lending the money to the borrower.
Stamp duty: The tax levied on a contract that’s set by government and varies by state or territory.
Settlement date: The point in time when the property sale becomes final.
With a greater understanding of property jargon and lingo, you’re more likely to make more informed decisions when it comes time to buy a home or invest in property. While the ones listed above don’t represent a complete list of jargon, they’re a good starting point to help overcome any initial anxiety when confronted with them.
If you're ready to take the first step toward buying a home or investing in property, why not visit our team in your local branch today?