Simplifying Financial Jargon for First-time Homebuyers
When it comes to buying a home, there are a lot of technical terms used throughout the process that can be difficult to understand, especially for first-time buyers. To avoid costly mistakes down the line, it’s important to have a good grasp of this terminology as you navigate the journey of homeownership. In this article, we’ll help you break down some of the trickier financial jargon you may come across.
Here are some of the key loan terms to know:
Comparison Rate:
This percentage figure takes into account the interest rate and fees associated with a loan. It allows you to compare the true cost of a loan across different lenders.
Line of Credit:
This flexible loan arrangement allows you to borrow within an agreed credit limit and is charged interest on borrowed money. This type of loan is often used for everyday transactions.
Lenders Mortgage Insurance (LMI):
This insurance protects a lender if a borrower defaults on their loan repayments. It enables lenders to accept smaller deposits than the usual 20% required to speed up the home ownership process.
Loan-to-Value Ratio (LVR):
This is the proportion of the loan amount to the lender’s property valuation. It’s used by financial institutions to assess lending risk, and LMI is typically required if the LVR is over 80%.
Break Costs:
These fees are incurred when making additional repayments or repaying a fixed-rate loan in full during the fixed rate period.
Offset Account:
A savings account linked to a home loan. Deposits made into this account are offset against the loan balance, reducing the interest paid and potentially shortening the loan term.
Guarantor Loan:
This type of home loan allows a borrower to rely on a third party’s assets as part of their loan approval. The guarantor accepts the obligation to step in if the borrower defaults on their loan.
There are also key property terms to know:
Gazumping:
This is when an accepted offer is subsequently sold to someone else who makes a higher offer. Protect yourself against it by exchanging contracts with the vendor as soon as possible, having loan financing arranged in advance, or purchasing at auction.
Contract of Sale:
This legally binding written agreement outlines the terms and conditions of the property sale and is prepared by solicitors or conveyancers.
Conveyancing:
This includes all legal work required to prepare and finalise the sales contract, mortgage, and other property documents. You can choose to do your own conveyancing or hire a licensed conveyancer or solicitor.
Exchange of Contracts:
This is the stage at which the sale becomes legally binding for both parties. The purchaser is required to pay the deposit for the property being sold.
If you’re considering buying a home and need help, contact us today, we can help you cut through the jargon!
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This article has been prepared by United Global Capital Pty Ltd (ACN: 154 158 273, ABN: 25 154 158 273, AFSL: 496179).
This article contains general information only and is not intended to provide any person with financial advice. It does not take into account any person’s (or class of persons) investment objectives, financial situation or particular needs, and should not be used as the basis for making any investment or financial decisions. United Global Capital Pty Ltd does not make any representation as to the accuracy, completeness, relevance or suitability of the information, conclusions, recommendations or opinions contained in this article (including, but not limited to any forecasts made). No liability is accepted by United Global Capital Pty Ltd or its directors, officers, employees, agents or advisors for any such information, conclusions, recommendations or opinions to the fullest extent possible under applicable laws.
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