Understanding Mortgage And Finance Jargon
A good mortgage broker should be able to make sure you fully understand the ins and outs of the finance you are potentially going to take on.
If you are talking to a finance professional, always beware of the person who hides behind jargon, especially if you say you do not understand something, and they carry on in that vein. Usually, they are hiding a lack of experience or knowledge, and are trying to appear knowledgable in the field by doing this. My opinion is if you cannot explain a concept to someone in simple English, you yourself do not understand it. A good mortgage broker in Adelaide should be able to make sure you understand every aspect of what you are doing with regards to finance. They should cut through the jargon and be checking that you are across everything. Great Mortgage brokers make you feel comfortable enough to say, “I don’t understand, could you please explain that again?”Castle Mortgages is a mortgage broking firm in Adelaide, and we will ensure to the best of our ability, we make finance easier to understand. Just in case you are not talking to us, though, we have put together a list of jargon common to the industry for your benefit.
Amortization Period: This is the loan term or the period in which the loan stretches over. This is the time period in which the borrower and the bank have agreed to repay the loan.
Application Fee’s: These are the upfront fee’s a lender will charge when you submit a loan application. Application Fee’s normally cover internal paperwork processing costs.
Appraisal: also called a valuation. An appraisal is where an approved valuer will look at your home and come up with a market value for the Lender.
Appreciation: An increase in value, usually Property related
Arrears: this means you are either overdue on a payment or means after the fact. Mortgage interest is normally paid in arrears and not in advance.
Assets: These are goods and property that you own, ie, houses, cars, shares, savings, etc.
Auction: a public sale of a property where the property is sold to the highest bidder.
Body Corporate: When you own a unit in a strata building, the owners will usually elect a council for the management of the buildings and the common areas.
Borrower: is the person or entity that is lending the funds in a loan.
Breach Of Contract: Breaking the rules set out in your contract
Break Costs: are the costs involved in breaking or ending the contract with your current Lender. Normally these costs are most frequently associated with a fixed loan.
Bridging loan: this is a loan set up that is used to finance both the current home you are living in and the new one you are purchasing or building. Bridging loans allow the client to move into the new home and keep the old one until they sell it.
Building Inspection: a building inspection is normally ordered by the new purchases of a home. This is a contracted person that inspects the home to make sure the building is sound. These are usually ordered in the cooling-off period.
Building Regulations: are a set of rules set out by the council that governs the quality and standard of buildings erected.
Building Society: is a financial institution owned by its members.
Capital Gains: are an increase in the overall value when you have sold a property in the monetary sense.
Capital Gains Tax: this is the tax you will pay on the earnings on an investment property that has capital gains once you sell it.
Caveat: is when a part that does not own the property has a registered interest or right over the property. This is registered on the title of the property.
Certificate Of Title: this is a record that is obtained from the government that lists the current relevant information on a piece of land.
Chattels: are normally movable items which may or may not be included in the sale of a property
Commission: this is a fee that a mortgage broker or real estate agent is paid for their services.
Contract Of Sale: this is the agreement entered into between the seller and buyer of a property. It is a legal contract containing all the terms and conditions.
Conveyencer: is the person responsible for transferring ownership of the property as well as title into the new purchaser’s name or out of the seller’s name.
Credit Union: is a co-operative that acts much as a bank does .Credit unions are owned by the people who use it.
Creditor: is an entity or person who is owed money.
Debtor: is an entity or person who owes money to someone else.
Deed: this is the legal document containing all the particulars over the ownership of a piece of land. A deed can also be referred to as the title.
Default: is when you miss a payment on a loan or the like . You have defaulted on the payment of your loan.
Deposit: this is your contribution required in the purchase of a property when you are loaning the money. Often used to secure the property you are buying.
Direct Debit: This is a prearranged payment that is taken out of your bank account, normally for the monthly repayment of the loan.
Disbursements: these miscellaneous fees and charges related to the conveyancing process.
Discharge Fee’s: These are the fees payable to an outgoing lender for closing the loan.
Discharge Form: is a form used to notify the outgoing Lender that you will be closing that loan.
Disposable Income: This is the income left over at the end of a month, once you have paid all your comitments. Disposable income is your spendable income.
Draw Down: This is when you access the funds of a loan slowly using them up to a loan limit. Drawdown is often referred to in construction loans.
Easement: This is usually a section of a property that another party, such as a utility company, has the right to access.
Encumbrance: This is usually a liability that is registered to an asset.
Equity: The amount of the property owned by the owner, excluding the lenders part.
Establishment Fee’s: Fee’s Charged by the Lender to set up the loan
Exit Fee’s: Penalty fee’s charged by a lender if a loan is paid off early.
Fittings: Fixed items not intended to be removed when a property is sold, like lights and carpets
Fixed-Rate: This is when the rate of a loan is fixed, usually for a period of time. Over that period, the rate will not go up or down with interest rate fluctuations.
Freehold: Complete ownership of the property and land without any loans outstanding on them.
Guarantee: is an agreement to pay someone’s debt if they cannot pay the debt themselves.
Guarantor: is the person or entity that is guaranteeing the loan.
Home Loan: This is a mortgage or loan that is used to purchase a property.
Installment: Ths is the regular loan payment a borrower makes to a lender.
Interest Only Loan: is a loan where only the interest component of the repayment is paid. In the Interest-only period, the principal loan amount is not paid off and stays the same.
Interest Rate: This is a percentage of the loan amount that the lender charges for the loan; it is how they make their money.
Introductory Loan: This is a loan with an initial special rate for a period of time that will usually change to a higher rate after that. They are also known as Honeymoon rates.
Investment Property: This is a property that is used to earn an income, usually through rent.
Joint Tenants: this is when a property is equally owned between two people.
Lenders Mortgage Insurance: This is an insurance premium that a borrower pays that protects the Lender should the property be sold due to the borrower being foreclosed on. The insurance covers any deficit between the sale price and the loan outstanding for the Lender.
Line Of Credit: This is a loan that can be drawn up to a limit to be used at a customer’s discretion.
LVR: this is a loan to value ratio. This is the ratio of the loan to the value of the property securing it. A property worth $1000000.00 with a loan of $800000.00 has a LVR of 80%.
Maturity: the date the loan reaches its completion.
Mortgage: This is a loan used to purchase a property. The property is used as security.
Mortgage Broker: This is a person who brokers the deal between the Lender and the borrower. They act on the borrower’s behalf. Castle Mortgages are Mortgage brokers located in Adelaide.
Mortgage Protection Insurance: This insurance covers the borrower’s repayments for a set period should they not be able to meet them due to sickness or involuntary unemployment.
Mortgage Registration Fee: This is the fee the government charges at the land titles office to register a mortgage.
Mortgagee: the Lender of the home Loan Funds
Mortgagor: the owners of a property offered as a security for a loan
Principal Debt: This is the original amount of the loan on which interest must be paid.
Principal and Interest Loan: A loan where both principal debt and interest are paid in the repayments
Redraw Facility: this is the facility in a loan enabling the borrower to drawback out any extra funds paid into the loan.
Refinance: To switch mortgage providers for your loan
Security: The Property or asset used as collateral for the loan
Settlement: This is when a loan is finally used to pay for the property purchased.
Settlement Date: This is the agreed-upon date in a purchase contract when the property is paid for.
Stamp Duty: This is a government tax that is based on the value of the property being purchased that is paid by the purchaser
Strata Title: This is a title that is most commonly associated with townhouses. Each owner will own a small portion of the building ie a unit. The rest will fall under a strata plan that they share common property such as common walls, driveways, etc.
Tenants In Common: An agreement that details equal holding of property by two or more people. If one person dies, their portion of the property will pass on according to their will or the law.
Term: The duration of the loan
Title Deed: Legal document covering the ownership of a property
Title Fee’s: These are Fees Charged by a state for the search of a title in their records.
Transfer: A document used to register a change of ownership with the land titles office.
Valuation: A market appraisal of a property to establish its value
Variable Rate: A rate that fluctuates up and down with market interest rates.
Variation: A change to any part of a purchase or loan contract.
Zoning : The allowable uses of a property as set out by the relevant council it falls under.
The above glossary covers most of the jargon used in the finance industry, but not all of it. It would be in your interest to chat with someone to clarify and simplify the whole process for you. Mortgage brokers do this. Castle Mortgages are Great Mortgage Brokers situated in Adelaide. Contact us today.