Australian real estate terminology to help you on your homebuying journey

Buying a property, particularly for the first time, can be a daunting prospect. Quite apart from the financial commitment, there’s a seemingly endless string of technical words and phrases to get your head around.

So while you may have heard of things like offset accounts, stamp duty and LMI, do you really know what they mean? Well, worry no longer because our homebuying terminology guide is here to save the day!

Homebuying glossary

Jump to: A - D | E - H | I - L | M - P | Q - T | U - X | Y - Z

A

Additional Repayments

This is any extra money you pay on top of the minimum repayment amount required for your home loan. Additional repayments can help you pay off your loan faster and pay less interest over the course of your loan. And because it’s extra money, above what’s required to meet your loan obligations, in most cases you can ‘redraw’ that money if you need to. Most variable rate home loans allow unlimited extra repayments and the ability to redraw them later, while fixed rate home loans usually have some restrictions on extra repayments.

Application fees

These are the fees charged by the lender to cover or partially cover their costs of processing a new loan application. Also known as ‘establishment fees’, they may include the cost of valuing your property.

Assets

When you apply for a home loan, the lender will ask you to list all the assets you currently own to help ascertain your financial position. Your assets will include things like real estate properties, savings account balances, cars, the contents of your home, superannuation, shares or other investments you may have.

Auction

Auctions are a popular way for properties to be sold. Conducted by a qualified auctioneer hired by the seller, auctions are public sales staged at a specific time and aim to have the property sold by the end of the auction. Potential buyers need to register for the auction before it begins. Once the auctioneer starts the auction, registered bidders compete against each other by making higher offers. The property is usually sold to the highest bidder, providing the reserve price has been reached and the property is “on the market”. Auctions are unconditional and do not have a cooling-off period, so you will need to have your finances sorted and any building and pest inspections performed prior to auction. Specific auction rules can vary between states.

B

Body corporate

If you’re buying a unit, apartment or townhouse that has common property areas (gardens, lifts, pools, gyms, etc...) there will usually be a management group that handles the administration, control and maintenance of all these areas. Usually paid quarterly, body corporate fees are paid by each unit owner and pay for any repairs or improvements that have been approved by the owners and the body corporate.

Borrowing power or capacity

This is the maximum amount you could borrow from a lender. It will depend on your income, expenses and other financial commitments. Many calculators are available to give you an idea of your borrowing power.

Break costs

Fixed rate home loans offer greater certainty of your monthly repayments for a specified period (usually 1 to 5 years). However, if you need to end this period early (e.g. if you sell your house), you may need to pay a ‘break cost’ that covers the lender for the lost interest income. It’s best to check what the break costs are before you end your fixed rate loan. Also known as Early payout fees.

Bridging loan

These are special home loans that are often used to help you between buying and selling properties. They’re used by people who buy a new home before selling their existing home or who are building a brand new home.

Building and pest inspection

Before you buy, you’ill need to get a building and pest inspection to check the property is structurally sound and free of pests, like termites. The inspection ideally needs to be completed before contracts are exchanged, or it can be a standard condition inserted into the contract, where the buyer has a certain time period (commonly 7-14 days) to arrange for an independent building and pest inspection of the property. This will be an out of pocket expense for you, so make sure the inspector is licenced with your state government authority and ask what exactly will be included in the report.

Building insurance

Building insurance covers your house, garage and other structures against damage or theft due to events like severe weather, fire and vandalism. Check with your solicitor, but in most cases, you’ll become responsible for the property from 5pm the next business day after the contract date so you should consider having your new home insured from then, rather than from the settlement date.

C

Capital gain

If you sell a property for more than you paid, this is called a capital gain.

Capital gains tax

This a Federal Government tax you may need to pay if you make a capital gain from the sale of a property bought after 20 September 1985. If the property is your main residence, it is exempt from capital gains tax. There are some other exemptions, so check with the ATO.

Certificate of title

A document (electronic or paper) that has all the ownership details of a property. If the property already has a mortgage on it, those details will appear as well. Not all states and territories have certificates of title.

Comparison rate

When loans are advertised, lenders must show the interest rate and the comparison rate. The comparison rate includes both the interest rate, as well as the upfront and on-going loan fees and charges – expressed as a percentage. This allows borrowers to easily compare loans – like apples and apples. In fact, you should always consider comparing the comparison rates and look for a comparison rate that’s close to the interest rate.

Contents insurance

Building insurance only covers your home, garage and other structures, so you will need to consider covering the contents with a separate insurance policy. Contents insurance covers things like furniture, appliances, clothing, jewellery, etc… against theft and damage. If you have higher value items you may need to specify these on the policy, as well as items you want to insure away from home such as laptops, mobile phones and jewellery.

Contract of sale

This is what both parties (the seller and the buyer) sign. It’s a written agreement that clearly outlines the terms and conditions (the price, deposit, settlement date, finance clauses, building and pest inspection conditions, etc…) for the purchase or sale of a property.  You may like to engage a solicitor to review a contract of sale before you sign it.

Construction loan

These loans are for the building of a new apartment or house. Since the property isn’t built yet, a construction loan releases funds to the builder over stages as the building progresses.

Conveyancing

Buying and selling a property has a lot of paperwork. Enter the lawyers! Conveyancing is the legal process of transferring property ownership from the seller to the buyer.

Cooling-off

Having second thoughts about that ‘renovator’s delight’ after your offer was accepted? Most contracts have a 'cooling-off period' where the buyer may be able to withdraw from the sale after contracts have been exchanged. Check what’s applicable in your state.

Credit score / Credit rating

Unless you’re a millionaire with loads of cash, there’s a good chance you’ll need to borrow money to buy your first home. Since it’s usually a reasonable sum of money, lenders like to ascertain the risk of you paying the money back to them before they lend you the money. To do this, they conduct an assessment of your credit-worthiness, based on your borrowing and repayment history. Your credit rating will help the lender decide whether or not to give you a loan and how much you can borrow. Remember, missing or late payments on things like “buy now pay later” schemes will show up on your credit history – even though they don’t feel like a loan.  If you want to find out what your credit score is, there are plenty of websites available for this.

D

Default

When you don’t make a repayment on time this is considered a default. Your credit contract will outline when your repayments are due, what the conditions are and what happens if you don’t meet your contract conditions. If you’re experiencing financial difficulty, talk to your lender early. You may be eligible for a repayment pause or a financial relief package.

Deposit

With any large purchase, a deposit of some sort is usually required to secure the item. Homes are no different. A deposit between 5% to 10% of the purchase price is commonly paid into the real estate agent’s trust account once your offer is accepted. It’s your initial contribution to the purchase of your home.  Generally, if you have a deposit of 20% or more for your new property purchase it can mean you avoid paying Lenders' Mortgage Insurance (LMI) and even get you a better interest rate.

Disbursements

In the lead-up to settlement, your solicitor or conveyancer pays various fees to other organisations and bodies on your behalf. These can include search fees and stamp duty/ land tax. All these costs or disbursements will be itemised on the invoice from your solicitor or conveyancer.

Discharge Fee

If you happen to win lotto or just want to sell up and pay out your home loan in full, your lender may charge a discharge fee. Also called ‘termination’ fee, it’s commonly an admin fee of a few hundred dollars to remove the mortgage from your property.

E

Early Payout Fee/Economic Cost

Fixed rate home loans offer greater certainty of your monthly repayments for a specified period (usually 1 to 5 years). However, if you need to end this period early (e.g. if you sell your house), you may need to pay a ‘break cost’ that covers the lender for the lost interest income. It’s best to check what the break costs are before you end your fixed rate loan.

Easement

Some properties have a passage of land that’s owned by another property owner. There is usually an agreement in place giving you the right to use, but always ask.

Encumbrance

This is a very fancy term for an outstanding liability or charge on a property, like the current owner’s mortgage. If the property you want to buy still has money owing on it, that’s an encumbrance.

Equity

The difference between the amount you owe on your home loan and the current value of your property. The more you pay off your loan and the more your home grows in value, the more equity you’ll have. Many home owners use their home equity to fund renovations, or as a deposit on an investment.

Establishment fees

The lender’s fees to set up your loan, which can include doing a valuation of your property. Also see Application fee.

F

Finance clause or finance date

In the contract of sale, you and the seller can stipulate certain conditions of the sale. If you don’t have finance approval for your loan, you can add a ‘subject to finance’ condition or clause into the contract. It means that if you can’t get finance by a certain date (say 14 to 30 days from signing of the contract), the conditions haven’t been met and the contract may fall through.

Family guarantee

If you’re struggling to reach your 20% deposit goal and want to avoid paying Lenders' Mortgage Insurance (LMI), you can ask your family for help with a Family guarantee. By going guarantor, your family member is allowing the equity in the property they own to be used as security for your loan.

First Home Loan Deposit Scheme (FHLDS)

A Federal Government initiative that assists eligible first home buyers to buy a home with as little as 5% deposit. The FHLDS is only available through approved lenders and scheme allocations are usually limited to 10,000 per year.

First Home Owners Grant (FHOG)

This is a Federal and State Government scheme to assist first home buyers. The amount of assistance and eligibility criteria vary. It’s usually paid directly to your lender and may be used as a contribution towards the loan. To see if you qualify and meet your state’s conditions, visit www.firsthome.gov.au.

Fittings

Fittings are all the items that can be removed from a property without causing damage to it. If there is a fitting you want the seller to leave in your new home, it must be specified in the contract for sale.

Fixed interest rate

This is one type of home loan where the interest rate is set for an agreed fixed period. Fixed rate home loans offer borrowers more certainty than variable rate home loans, as the interest rate, and therefore your repayment, doesn’t change for the specified term (usually between 1-5 years). At the end of the fixed rate period, the interest rate usually reverts to a variable interest rate, unless a further fixed rate period is agreed with the lender.

Fixtures

Unlike fittings, fixtures are items that would cause damage to a property if they were removed. If the seller wants to take a fixture, it must be stipulated in the contract and any damage paid for by the seller.

Freehold

A freehold title gives the purchaser complete and indefinite ownership of a property and the land on which it stands. Some states sell land with a Leasehold Title.  See “Leasehold” for more information.

G

Gearing

Gearing is more related to investment properties where an income is received. It’s the ratio of rental income compared to the loan repayments over the same period of time. A property can be positively or negatively geared. If rental income is less than the loan repayments and other property expenses, it’s considered negatively geared. If more, it’s positively geared.

Genuine savings

When you’re borrowing for a home loan, the lender just doesn’t consider the deposit you have. After all, you may have been given the money as a gift. Lenders want to see that you have a regular savings pattern and the ability to meet regular home loan repayments. They’ll look at your bank account statements to see savings patterns over three months, or that large amounts like your deposit can be held for that period as well. They may also consider other loan repayments you make and your rental history as proof of being able to save.

Government fees & charges

A range of government fees and charges that vary by state. Check out our government fees calculator to get an idea of what you’ll be up for. Be aware that lenders may not finance these fees as part of your loan. You’ll have to cover these costs on top of your deposit.

Guarantor

See Family guarantee. In simple terms, someone (usually a family member) is guaranteeing to the lender that you will meet your loan obligations. They will also put their own property up as security. If you default on the loan, the family member guaranteeing your loan will be responsible for the repayments.

I

Introductory rate

Everyone loves a low interest rate. But you should be aware of introductory or “honeymoon” rates on home loans. They usually offer a lower interest rate for an introductory period (usually the first couple of years of the loan), then revert to a higher rate once the honeymoon or introductory period ends. Make sure you know the rate and can afford to meet the repayments once the introductory period ends.

Inclusions

These are items that are included with a property, such as curtains, light fittings, stove, etc… These must be specified in the contract of sale.

Interest

For loans, this is the lender's charge (usually expressed as a percentage) for using their funds. Loans can have variable or fixed interest rates, or even a combination of both with a split loan.

Interest only repayments

When you take out a home loan you can choose from two types of repayment options – interest only, or principal and interest. Interest only repayments are where you’re only repaying the interest with your monthly repayment – you won’t be paying anything off the balance borrowed also known as the principal. These types of repayment are usually limited to a specified time (between 1 to 5 years) and revert to principal and interest repayments for the remainder of the loan term.

Investment home loan

When you apply for a loan you’ll be asked whether it’s for an owner occupier (if you’ll be living in the purchased property), or for an investment (if you’ll rent out the property). Interest rates vary depending on this and other factors. It’s part of your loan agreement that if you change the use of the property that your lender is informed immediately.

J

Joint tenants

Where property ownership is held equally between two or more people. Should one person pass away, their share passes to the survivor(s) – it cannot be bequeathed under a will.

L

Leasehold

Some contracts to purchase land are under a Leasehold title. When purchasing a property as Leasehold, you own the land for a particular length of time e.g. 100 years.

Lenders' Mortgage Insurance (LMI)

This is a one-off insurance payment which protects your mortgage lender if you default on the loan. LMI is commonly paid when borrowers have less than a 20% deposit. The premium can vary depending on the lender, loan amount and deposit size. Most lenders allow you to choose if you’d like to pay it upfront or add this to your loan amount and include in your repayments.

Liabilities

Lenders like to know what liabilities or debts you have before they lend money to you. These can be home, car or personal loans, credit cards, as well as your “buy now pay later” commitments.

Loan Documents

These documents include your loan contract, all the terms and conditions, as well as your mortgage document, which is lodged by your lender with your state or territory Titles office. You’ll need to review, sign and return these to your lender before settlement.

Loan term

It’s the number of years that you agree to repay your home loan, generally 30 years or less.

Loan to valuation ratio (LVR)

Expressed as a percentage, LVR is the amount of the loan compared to the value of the property that’s being used as security. For example, the home you’d like to buy is valued by the bank at $400,000 and the loan you need to purchase it is $320,000. To get the LVR: $320k ÷ $400k = 80% LVR.

The LVR is set at the time of your loan approval, based on the bank’s valuation of your property (which may differ from the amount you paid on the contract). From a lender’s perspective, the higher the LVR, the higher the cost and risk to the lender, which is why you’ll often see higher rates for higher LVR applications. Apart from getting a better rate, having 80% or lower LVR also means you could avoid paying Lenders' Mortgage Insurance (LMI).

M

Minimum deposit

The minimum deposit required by a bank to borrow for a home. For many lenders, it is 5% of the purchase price. However, be aware that government fees can’t be included in your loan amount, so you’ll need to save for the cost of these yourself.

Mortgage

When you borrow larger amounts of money (like for a car, renovation or a property), the lender will usually require some form of security for the loan. The “security” is their way to get their money back, if you can’t repay the loan. A mortgage is the loan security usually taken over real estate, like land, homes and apartments. If you default on the loan repayments, the lender (also known as the “mortgagee”) has the right to take possession and sell the real estate to get their money back. When a mortgage is taken over a piece of real estate, it is registered or noted on the Certificate of Title to that land. This helps ensure that all parties, namely the seller and the mortgagee, are paid what they’re owed when the property is sold.

Mortgagee

The mortgagee is the lender of the money that holds the security or mortgage over a property.

Mortgagor

The mortgagor is the borrower who gives a mortgage over their property as security for the loan.

N

Negative gearing

Where the income from an investment property (the rent) is less than the property expenses and loan repayments of the loan used to fund the investment property.

O

Offset account

An offset account is a commonly used feature to help home loan borrowers save money on interest. How it works is pretty simple. An offset account is a non-interest earning account where the balance is offset against the balance of your home loan account to reduce the total interest payable. It can be 100% offset or partial. With a 100% offset, if your home loan balance is $330,000 and you have an offset account balance of $30,000, interest will only be charged on $300,000. Some banks allow you to have multiple offset accounts. There can be limits so always read the terms and conditions.

Off the plan

This refers to when you buy a property purely from an architect’s plans and not the finished building. With these, you won’t be able to physically inspect the property, or see the outlook of the property you’re buying. In many cases, a display unit and sample finishes are available for buyers to view.

Owner occupied home loan

This is a specific type of home loan you take out for your principal place of residence. The other type is an investor loan, where you won’t be “occupying” or living in the property as your main residence. When you apply for a home loan, you’ll need to tell the lender whether the property is for owner occupier or investment purposes. And if your situation changes, (e.g. your investment property becomes your main residence) you’re required to advise your lender. This can be to your advantage as owner occupier interest rates are usually lower than investor rates.

P

Package home loan

Many lenders offer the choice of a basic home loan or a package home loan. As the name suggests, a package loan offers a number of additional benefits, such as a lower interest rate, a free transaction and offset account, a credit card with rewards program, as well as discounts on other financial products, like general and travel insurance. Package home loans usually have an annual fee around $400.

Passed in

At auction, a property is “passed in” if the highest bid fails to meet the reserve price set by the vendor. In most cases, the highest bidder then has the first option to negotiate with the seller.

Pre-approval

A home loan pre-approval confirms how much you can borrow from a lender. It‘s conditional upon the property you want to purchase being acceptable security, and your lender confirming your income and other information provided in your application. Pre-approvals normally last for 90 days to allow you time to search for and put a contract on a property. At the end of the 90 days, if you haven’t found a property yet you can apply to extend the pre-approval.

Principal

This is the amount you borrow for your home.

Principal and interest loan

With many home loans, you can choose between two repayment options – principal and interest or interest only. With principal and interest repayments, your repayment includes paying off the original loan balance (principal) and interest accrued.  Principal and interest repayments will help you pay off your home loan faster than interest only repayments.

Private sale

When a property is offered for sale by a seller without using the services of a real estate agent. It means you’ll be negotiating directly with buyers and not paying a commission on the sale to an agent when the property is sold.

Private treaty sale

A private treaty sale is one of the most common ways to sell a property. Here, the seller or vendor sets a price, and buyers can negotiate with them or their agent until an agreeable price is reached. It’s a private negotiation, as potential buyers are unaware what amounts are being offered by others for the property. At auction, potential buyers all know what is being offered.

Progress payment

When you borrow to build a home, you’ll need to have a construction loan that releases progress payments to your builder after the completion of key phases of the build.

Q

Questions

Buying a home can feel overwhelming at times and you may have loads of questions buzzing around your head. If you’d like to know the answers, our Great Southern Bank team members will be more than happy to help.

R

Rate lock

Home loans can take some time to process, do the paperwork and await your settlement date. If you’re wanting to take out a fixed rate loan, a rate lock is an option that helps protect against the risk of interest rates going up before your loan is settled. If interest rates do go up, you’re holding or “locking in” the original lower rate for three months. While some lenders provide this service without a cost, most charge a fee of between $300-$750.

Redraw facility

A popular feature among many home owners, a redraw facility lets you make additional repayments (on top of your minimum loan repayments) into your loan account. These extra funds can then be accessed or redrawn from your loan account later if you need them. Available funds for redraw can also be used if you need to have a break from making repayments on your loan – it all depends on how much you have to redraw. Most variable rate home loans offer this option, with some lenders charging a redraw fee for the service.

Refinancing

Once you have a home loan, you may want to review it after a while to see if it’s still working well for you. You may see another lender with a home loan with more features and a lower rate than you currently have, or even a cashback incentive. If you switch to a different lender, it’s called refinancing. It’s a great way to save some money on a better rate or access new features. Just make sure you understand the costs of moving your current loan before you switch.

Repayment frequency

Most lenders give you the option of making weekly, fortnightly or monthly loan repayments. The more frequent you pay, the more interest you’ll save – since the principal amount that interest is calculated on is being reduced each time a repayment hits your account. Whether it’s weekly or fortnightly, just make sure from a timing perspective you’ll meet the full expected monthly repayment on your contract.

Reserve price

At auctions, this is the set minimum price that is acceptable to a seller. Before the auction, the seller will advise the reserve price to their agent and auctioneer. Once reached, the seller commits to selling the property. If bidding falls short of the reserve price, the seller usually negotiates with the highest bidder to arrive at an agreeable price.

S

Security

It probably goes without saying but lenders will only lend money if they know they’ll get their money back. So when you borrow large amounts of money, a lender will often want a high value asset, like a property, house or even a car, that can be used as security on the loan until the loan is repaid in full. If the borrower defaults on loan payments and the loan can’t be paid off, the lender has the right to take possession of the asset that secures the loan and sell it to recoup the money they lent.

Servicing

When you apply for a loan, you’ll hear the term servicing or ability to service your loan. It refers to your ability to repay the loan, and depends on your income, current debt commitments and living expenses. The lender will look at your incomings versus your outgoings to ensure you have enough money to make the loan repayments and pay all your other expenses. They’ll ask about any foreseeable changes to your employment, income or expenses, and also check to see if you have the capacity to maintain loan repayments should interest rates increase.

Settlement date

The big date when documents and money are exchanged, and the transfer of ownership of the property is finalised between the seller and the buyer. More importantly, the buyer can assume possession of the property.

Split loan

A split loan is the best of both worlds. It’s where the loan is split into two (or more) accounts – one part fixed rate loan, the other variable rate. A split loan provides greater certainty on the fixed rate portion and more flexibility on the variable rate portion. It can be split with any percentage or amount.

Stamp duty

This is a tax that’s based on the value or purchase price of the property and charged by your State Government. In some states, properties under a certain value are exempt from stamp duty.

Subject to finance or Finance clause

When you submit your offer to buy a property to the seller, it’s done in a formal contract. The contract needs to clearly state all the conditions of your offer. A standard condition in many contracts is a subject to finance clause, which gives you time (usually with a time limit) to organise a loan for the property you’re buying. It means that if you can’t get finance approval for your loan, you may choose to end the contract and not go through with the purchase.

Switch or variation fee

If you decide to make changes to your home loan, say going from a variable interest rate to a fixed interest rate, you may be charged a switch or variation fee that covers or partially covers the lender's internal processing costs.

T

Term

The length of your home loan – the average is usually 30 years.

Title search

Before you buy a property, your legal firm or conveyancing team will need to review certain records or documents relating to the property being bought at a Land Titles Office or Government Department. This review is known as a title search and confirms ownership of the property, registered easements and other encumbrances (debts owed), or current or future proposals in respect of the land.

Transfer and transfer duty

When ownership of a property is transferred from seller to buyer, these changes are noted on the Certificate of Title and are registered with the Land Titles Office. The transfer confirms a change of ownership. Transfer duty is the fee charged to register that change.

U

Unconditional Approval

A moment for mild celebration, unconditional approval signals that your loan application has been fully approved and is not subject to any terms and conditions. Loan offer documents will be sent to you for review and signing. Once signed, returned and checked by the lender, your application will be ready for settlement.

Unencumbered

The opposite of having encumbrances. Your home is debt free! It’s free of mortgages, encumbrances, covenants or restrictions.

V

Valuation

Part of the loan application review process, a lender will commission a valuation report on the property to be used as security for a loan. It will detail the professional valuer’s opinion of the property's value. The bank’s valuation of a property might be different from the amount you pay for it.

Variable interest rate

With a variable interest rate, the rate may fluctuate depending on a number of factors, including the marketplace and the cost to lend money incurred by lenders. If interest rates go up, so will your repayment amount, and if interest rates go down your repayment can also decrease.

Vendor

Also known as the seller, this is the person or people offering a property for sale.

W

Woohoo!

That thing you yell when you move into your first home.

X

X

Where you sign on the contract!Z

Zoning

The land on which houses and building sit are “zoned” or designated for specific uses by your local authority. Zoning guidelines outline the permitted uses of land and buildings on that land.

Zzzz

When you’re all settled in and have the loan of your dreams you sleep much better.