AAPR
This stands for "Average Annual Percentage Rate" - also known as the mortgage comparison rate or true rate.
The AAPR (Average Annual Percentage Rate) is also known as the mortgage comparison rate or true rate. It is a "fictional" figure, and is used to compare the actual rate of a loan, taking into account the nominal interest rate per annum, the compounding frequency and upfront and ongoing fees, as outlined in the Consumer Credit Code.
ABA
Australian Bankers' Association.
The Australian Bankers’ Association (ABA) is the national organisation of licensed banks in Australia.
The ABA is funded by its 23 Member banks ranging from traditional retail, trading bank-style organisations to regional banks, foreign and wholesale banks and contributions to its operational expenditure are based on individual member bank liabilities in Australia.
ABIO
Australian Banking Industry Ombudsman. The ABIO exists as a means through which customers can make complaints about a bank, and have them dealt with independently of the particular bank.
The Banking Ombudsman, also known as the Banking and Financial Services Ombudsman (BFSO), is a free and independent dispute resolution service. The Banking Ombudsman considers complaints about banks and their affiliates operating in Australia.
The Banking Ombudsman is able to investigate disputes and make decisions that are binding on the financial services provider. As far as investigations are concerned, the Banking Ombudsman is bound by his terms of reference.
Accelerated approval
This is a means by which you can have your loan approved quickly and without some of the usual checks a more expensive option than standard.
Accelerated repayment
Allows the borrower pay off more of the loan than the minimum set out in the loan agreement.
Account fee
Fee charge by lenders for the cost of setting up and maintaining mortgages.
Accountant
The professional whose role it is to examine and record the income and expenditure of a business.
The accountant is the professional whose role it is to examine and record the income and expenditure of a business.
According the the Macquarie Dictionary, accounting is the theory and system of setting up and looking after the books of a business, so that its financial position can be examined and the owners can find out how well it is doing.
An accountant is like a doctor for the business. The accountant "keeps a finger on the pulse" of a business, and lets the business owner know what to do to maintain the health of the business. Anyone who is considering embarking on any type of business venture, or investment strategy, should consult an accountant before making any binding decisions.
Accrued interest
Interest earned, but yet to be paid or charged.
Additional Payments
Extra loan repayments made, above the minimum repayment amount, and paid during the loan term.
Adjustments
Apportionment of rates and charges, whereby the vendor pays the rates etc., and the purchaser bears the cost of them beyond the settlement date.
The Statement Of Adjustments is the document that sets out the rates and any other charges that have to be apportioned as between the vendor and the purchaser.
The Statement Of Adjustments will show the full purchase price, the amount of deposit deducted from the full purchase price, and then the balance owing. The amount due for the full year's council rates, and amounts due for water rates and body corporate fees, if applicable, are also stated. If penalty interest has been incurred, this too will be stated.
It is a standard contractual requirement that the vendor must pay the full year's rates, and then the purchaser is required to reimburse the vendor for the amount paid for the period from settlement to the end of the rating year.
Affordability
A measurement made on the basis of an index which is the ratio of average household disposable income to the income required to meet payments of a typical dwelling. The higher the figure, the more affordable property..
Agent
The law of agency is a branch of the law of Contract. Basically "agency" is a relationship whereby one person, known as the "principal", authorizes another person, called the "agent", to act on behalf of the principal. The agent is appointed by the principal for the purpose of bringing a third person into a contractual relationship with the principal.
All-in-one facility
Facility that allows the borrower to deposit all funds into the loan account, and then draw on those funds for smaller expenses.
In all in one facility
allows you to combine your home loan with your normal
personal accounts, such as savings account, cheque
account, and credit card account.
An all in one facility provides one of the best mortgage
strategies available, if managed properly.
Amortisation
Period
Time
over which the loan is to be repaid at the agreed
rate.
Amortisation
is the payment of debt in regular, periodic instalments
of principal and interest, as opposed to interest only
payments.
Amortisation can also be described as the process of
reducing principal and interest, in equal instalment
payments, at specific intervals over a set period of
time.
Over time, the interest
portion of the loan decreases as the loan balance
decreases, in the amount applied to the principal
increases, so that the loan is paid off in the specified
term.
Annual
percentage rate
The
advertised rate of interest per annum.
The annual percentage
rate is a figure that states the total yearly cost of a
mortgage, as expressed by the actual rate of interest
paid.
The annual percentage rate includes the base rate of
interest, and any other add-on loan fees, costs and
charges. Because it also incorporates other costs and
charges, the annual percentage rate will be higher than
the rate of interest quoted by the lender for the
mortgage product, to which it relates. However, it does
give a more accurate indication of the true cost of the
loan.
Borrowers should be in
mind the fact that most home loans do not run for their
full term, as the majority of home loans are paid out
before they have run their full term. This may result in
the effective annual percentage rate being higher than
the quoted annual percentage rate, because the loan fees
and charges are spread out over fewer years.
Application
fee
The
fee a lender may charge for setting up a loan approval
for a home buyer. While some lenders do not charge
application fees, they usually charge higher interest
rates.
The
application fee is a fee charged by the lender in order
to cover the initial costs of processing a home loan
application.
The application fee may include the cost of obtaining a
property
valuation, a credit report, and
other costs associated with a home loan application
process. In some cases, these fees may be charged
separately, and the application fee charged as a
stand-alone fee.
Appraisal
"Appraisal" is just
another term for valuation, but is used instead of the
word "valuation" because estate agents are not permitted
to provide true valuations on real estate. Only an
accredited valuer can provide a genuine property
"valuation".
Arrears
Amount overdue on an
account.
Arrears is the term used to describe money which has not
been paid on time. For example, if a borrower has not
made the last two mortgage payments, then that borrower
is said to be “in arrears” with the mortgage payments.
Similarly, where money
is payable at the end of the year, rather than at the
beginning, it is referred to as being money “due in
arrears”, rather than money due in advance”.
Assets
The
items a person or company owns and which are worth money
in the open market. Assets include real estate and other
items that can be sold anything from which a person may
derive a benefit.
Assets
are any property or resources which have a monetary
value. Assets include cash on hand in cheque accounts and
savings accounts, stock, bonds and other securities, real
estate, income producing property, and business
equipment.
Intangible assets
include goodwill (the value of the company's name in the
market), patents and other intellectual property that are
owned by a company and given financial value in the
company's balance sheet.
At
call
An
account from which money can be withdrawn immediately.
ATM
Automatic Teller
Machine. Most bank customers are familiar with electronic
banking through the use of automatic teller machines.
Automatic teller machines are accessed with a plastic
card that automatically debits or credits a nominated
account whenever cash is withdrawn or deposited.
Auction
An
auction is a form of sale where potential purchasers make
competing offers or "bids", with the person offering the
highest bid being declared as the purchaser.
Unfortunately, the auction concept is falling into
disrepute with regard to the sale of real estate. This is
because many of those who promote real estate auctions
tend to resort to tricks and deceptions in order to make
the concept work.
Balance
Sheet
Statement
of assets, liabilities and net worth for an individual or
a business.
The
balance sheet is a financial statement that lists the
company's assets and liabilities as at a specified date.
The balance sheet presents a company's financial position
by listing what the company owns (including cash,
infantry, planned, equipment, and accounts receivable),
and what the company owes (liabilities such as short-term
and long-term debt, and the accounts payable).
The difference between
assets and liabilities is known as equity or book value.
Balloon
payment
Large
loan repayment to clear a debt.
A
balloon payment is where a lump sum, usually representing
the balance of the loan principal, is paid before the end
of the term.
Similarly, a balloon
mortgage is where the balance of the loan principal is
paid as a lump sum at the end of the term.
Bank
cheque
Cheque
purchased from a bank, usually on a cash basis, and
regarded as being almost as acceptable as cash in a sale
transaction.
Bankruptcy
Situation where a debtor
is unable to repay debts, and his/her estate placed into
the hands of a receiver who has the responsibility for
its distribution.
Basic/Standard
variable
Variable
home loan at an attractive rate, but without all of the
features of a loan at the standard variable rate.
Bearer
A
person who holds a document. In the case of a cheque, it
is the person presenting the cheque (may or may not be
the owner of the cheque).
Body
Corporate
A
body corporate comes into existence when a plan of
subdivision, allowing the creation of a body corporate,
is registered at the Land Titles Office. Owners of the
Lots specified on the plant of subdivision become members
of the body corporate.
Bond
Money
paid by the tenant and held by the Residential Bond
Authority as security against damage or rent default by
the tenant.
Breach
of contract
This
occurs where a party fails comply with the
terms/conditions of a contract.
Break
Costs
Costs
payable by a borrower where a loan is paid in full before
the end of the term of the loan. Generally applies to
fixed loans.
Bridging
Finance
Finance
used to "bridge" the gap between the purchase of a new
property, and receipt of funds from the sale of
purchaser's existing property.
Building
inspection
Inspection
carried out by a purchaser (usually by engaging a
professional building inspection service) to discover any
defects in a building which may affect the preparedness
of the purchaser to buy the property at the asking
price.
Building
society
An
institution which takes deposits and provides loans just
like a bank, but without the Reserve Bank oversight given
to banks.
Buyer's
Agents
The
buyer's agent is simply an estate agent who "spots"
properties for people who cannot afford the time to seek
out a suitable property in person. Unfortunately, the
term is also used to describe estate agents who falsely
pretend to provide a service in terms of "negotiating" on
behalf of inexperienced purchasers.
Capitalising
interest
When
interest that has accrued is added to the total debt
rather than being paid when due.
Capital
gain
Profit
realised from the sale of an asset, when it is sold for a
higher market price than the owner initially paid for it.
(See Capital gains tax below).
Capital
gains tax
Liability
to pay tax on the Capital gain (See Capital gain above)
made on the sale of an asset. Usually a taxpayer's
principal place of residence is exempt from capital gains
tax.
Capital
growth
The
difference between the value of an asset when purchased,
and its current value.
Capped
Loan
A
loan where there is a ceiling on the interest rate.
Caveat
A
caveat prevents the Registrar Of Titles from registering
another interest against the title without first giving
notice to the person who lodged the caveat. Generally
speaking, once a caveat has been lodged against a
property, nothing else can be lodged against the property
without the consent of the person who lodged the
caveat.
Caveat
emptor
'Let
the buyer beware' - the principle that puts the onus on
buyers to be satisfied with any item before buying.
Certificate
of Occupancy
As
the name implies, the Certificate of Occupancy certifies
that a home can be lived in. It is a requirement of most
local government or shire councils that an occupancy
certificate be issued prior to the purchaser of a home
taking occupation.
Certificate
of Title
A
simple explanation: Imagine a huge book kept at the Land
Titles Office, in which every block of land in the State
of Victoria has its own page. Of course, such a book
would have many volumes and many pages (folios). If you
wanted to identify a particular block of land, you would
find out its volume and folio number, and use these
numbers to look up the relevant page. To find out who
owns the land, you would simply turn over the page, and
see whose name was last added to the page. This person is
the owner.
Certification
The
planning authority "certifies" a plan of subdivision when
it is satisfied that the plan is in compliance with the
all requirements. Upon certification the plan of
subdivision is lodged at the Land Titles Office.
Chattels
Fixtures & Chattels:
Fixtures are things that
are permanently attached to the land so as to become part
of the land. Chattels are things that are not part of the
land. When land is sold, all fixtures (the house, and
things permanently attached to the house) will pass to
the Purchaser as part of the land.
Collateral
An
asset (such as a car or a home) which the borrower must
give to the lender if the loan is not repaid. In a home
loan, the home itself is usually the main
collateral.
Combination
loans
Also
known as "cocktail loans or "split" loans. Different
types of loans combined to form one loan product. For
example, the loan may have a portion variable, fixed or
even a portion as a line of credit.
Commission
Commission is the way in
which estate agents are paid for their services, and is
probably the most unfair and unethical form of payment
imaginable. Real estate commissions have been described
as a form of "wealth tax" levied by estate agents.
Common
property
This
is the land on a plan of subdivision that does not form
any of the lots, but is the subject of shared ownership
by the Lot owners as members of the body corporate.
Common property may take the form of land, air space,
space below the ground or buildings.
Company
Share Scheme
This
was the first type of "unit" development. While it
appears to be similar to a strata unit development, is
really quite different.
Comparison
rate
The
comparison rate is a standard to be used in advertising
material. It is used to compare the actual rate of a
loan, taking into account nominal interest rate per
annum, the compounding frequency and upfront and ongoing
fees.
Compound
interest
This
is interest that is paid on the accumulated interest as
well as the principal amount of a loan.
Conditioning
Conditioning the vendor
is the term used to describe the process where an estate
agent strives to convince the vendor to lower the asking
price on a property so that the estate agent can secure a
sale.
Conditions
Conditions are the
"rules" of the contract. They tell the parties who is
responsible for what, the dates by which things must be
done, and what will happen if things are not done as
agreed.
Conflict
of Interests
A
conflict of interests occurs when a person who has a duty
to act in the interests of a client also has a duty to
act against the interests of that same client. A conflict
of interests also occurs when a person who has a duty to
act in the interests of a client is in a position where
he/she may be tempted by money or some other motive to
act against the interests of that same client.
Construction
loan
This
is a loan for the purpose of building a dwelling. Funds
are usually drawn down on a staged basis, upon completion
of each building stage.
Consumer
Credit Code
The
Uniform Consumer Credit Code (UCCC) was passed by the
Commonwealth government, with identical legislation
passed by most states, to provide uniform consumer credit
law throughout Australia. The Code governs the
relationship between borrowers and lenders.
Contract
of Sale
The
Contract of Sale is the term used to describe the
document prepared by a lawyer, and used to formalise the
sale of real estate. However, the word "Contract" has
more than one meaning: 1. Contract can mean an agreement;
or 2. Contract can mean the document that sets out the
agreement.
Contract
Note
This
is another nasty device used by estate agents (see also
the "Exclusive Sale Authority"). The name of the document
is the first trick - Contract Note. To most people the
term "Contract Note" suggests that the document is
something less than a Contract, and that a real Contract
will be drawn up later. In fact a "Contract Note" is a
full contract, but the terms and conditions are
hidden.
Conveyancer
The
Legal Practice Act 1996 states, at Section 326:
"conveyancer" means a person, other than a current
(legal) practitioner or registered (legal) practitioner,
who carries on a business in the course of which
conveyancing work is carried out directly or indirectly
for fee or reward;". Conveyancers attend to the clerical
work associated with conveyancing matters, but are
prohibited from performing legal work or giving legal
advice.
Conveyancing
Work
The
Legal Practice Act 1996 states, at Section 326:
"conveyancing work" means work, other than legal work,
carried out in connection with the
transfer...of...interest in land. In effect,
"conveyancing work" is confined to the clerical tasks
associated with arranging for the transfer of ownership
from one person to another.
Conveyancing
Kits
In
their promotional material, conveyancing kit-writers
don't emphasise that those who use the kit will still
have to pay for rate and planning certificates, title
searches, postage, transport to settlement, etc. There is
also an assumption that kit-users have plenty of spare
time, and that their time is of no value. Otherwise, the
amount of time needed for reading and learning about
conveyancing has to be taken into account.
Cooling
Off
In
certain circumstances, the Purchaser of real estate is
permitted to cancel the Contract and walk away from it
all together, within 3 days of having signed it.
Covenant
A
covenant is a way in which the use of one person's land
can be controlled by another, and is commonly to protect
the "amenity" or value of an area. A developer, for
example, could prevent the building of front fences, the
parking of heavy vehicles or the building of low-quality
homes in a new estate by placing a special condition in
the Contract of Sale, requiring the Purchaser to register
a restrictive covenant on the Purchaser's new
title.
Cover
note
A
temporary insurance policy, designed to be issued at
short notice to provide cover between the time the cover
note is issued, and the issue of a full insurance
policy.
Credit
Limit
This
is the maximum amount a borrower can use on a credit
facility. For example, the maximum amount that can be
used on a credit card.
Credit
unions
Also
known as credit co-operatives, these are finance groups
owned and controlled by the people who use it. Usually
based on common employment e.g. VTU Credit Union or
Victoria Police Credit Co-Operative.
Creditor
The
party to whom the debtor owes money.
Crossed
cheque
A
bank cheque or personal cheque with two parallel vertical
lines across it to specify that the cheque must be paid
into an account and cannot be cashed. Usually includes
the words "Not Negotiable" written or printed between the
two parallel lines.
Current
Market Value
The
current market value of a property is determined
according the following standard: The price at which a
willing but not anxious vendor would sell, and at which a
willing but now anxious purchaser would buy.
Theoretically, if someone bought the property at current
market value as an investment, then decided to sell it
again, they should be able to find someone else who is
prepared to pay the same price in the same market, and so
on.
Daily
interest
Interest
that is calculated on a daily basis, varying in
accordance with the account balance as at the end of each
day.
Debtor
The
borrower the party who owes money to the creditor.
Default
Occurs where the
borrower fails to meet payments by the agreed due
date.
Default
rate
This
is the rate to which a loan reverts or automatically
adjusts to at the end of any fixed period.
Deposit
A
deposit is an amount of money, usually 10%, paid by the
purchaser to secure the contract of sale. Generally, if
the purchaser repudiates the contract, the deposit will
be forfeited.
Deposit
bond
A
deposit bond is a form of guarantee, usually provided by
an insurance company, that a purchaser will pay the full
deposit when it becomes due (i.e. at settlement, or upon
rescission of the contract).
Disbursements
Disbursements are the
out-of-pocket costs associated with a matter, as opposed
to the legal costs charged for the service being
provided. For example, in a conveyancing matter the legal
costs include checking of the contract and preparation of
documents. Disbursements include the amount paid to the
Land Titles Office for the title search, and amounts paid
to rating authorities for certificates.
Discharge
fee
See
'mortgage discharge fee' below.
Disposable
income
This
is the part of a person's income that is not committed to
on-going living expenses, and is available spending on
non-essentials or for saving.
Down
payment
Similar
to a deposit. Usually paid when the sale agreement is
made, with the balance due at a later dated.
Draw
down
The
term used to describe the issuing of funds from the
lender for the purposes for which they have been
borrowed. Also used to describe access to loan funds,
e.g. in a line of credit where the funds are available as
needed.
DSR
Debt
Service Ratio. This is the amount of a borrower's income
which will support loan repayments It is usually
expressed as a percentage, with the majority of lenders
setting a maximum DSR of between 30% to 33%.
Early
termination charges
These
are costs a borrower may be required to pay upon the
early repayment of the loan.
Easement
An
easement is a right that allows one person's land to
dominate another person's land by exercising some right
of the dominated land. The land that benefits from the
easement is called the dominant land, while the land
affected by the easement is called the servient
land.
EFTPOS
Electronic Funds
Transfer Point of Sale. A facility that allows
cardholders to access funds held in an account at the
point of sale (i.e. shop or supermarket checkout) to pay
for goods or to withdraw cash.
Encumbrances
This
is the term used to describe a claim that one person has
against another person's land. It is important to
remember that an encumbrance is against the land and NOT
the owner of the land. This means that if the land
changes hands, the new owner takes both the land AND
encumbrances attached to it.
Equity
This
is the term used to describe that part of the property
that can be identified as belonging to the borrower.
Equity represents the value of the property after debts
secured by the property are paid.
Equity
loan
This
is a loan secured by the borrower's equity in the asset
offered as security.
Establishment
fees
Term
used to describe the fees charged by lenders to cover the
costs associated with the arranging of a new mortgages
and the preparation of loan documents.
Estate
Agent
See
Agent above.
Exclusive
Sale Authority
This
is the document by which an estate agent is able to
exclusively secure the Vendor, the property being sold,
and all persons who enquire about the property for a set
period of time, and then indefinitely until the Vendor
cancels in writing. Devised by estate agents, and
distributed through the Real Estate Institute of
Victoria, it is one of the most complex and deceptive
documents a consumer will ever encounter.
Exit
fees
See
'break costs' above.
FID
Financial Institutions
Duty. This is a government tax levied on the receipts of
financial institutions.
Fidelity
Insurance
Fidelity
insurance protects the clients of professionals against
theft or misappropriation of funds by the professional
person or an employee while the client's funds are under
the control of the professional person. Simply put, if
your lawyer had a secret gambling problem and took the
proceeds of your property sale to a casino and lost it,
there would be little point in trying to sue the now
bankrupt lawyer.
Fiduciary
Relationship
A
fiduciary relationship is one where a professional
representative owes the highest duty to the client, and
must always act in the utmost good faith. The law
requires that the professional representative must never
allow his/her own interests conflict with those of the
client.
Finance
- "Subject To Finance"
Signing
"subject to finance" simply means that the Purchaser is
not yet sure as to whether their home loan has been
approved by the bank, and wants to be able to cancel the
Contract if the bank fails to approve their loan
application.
Financial
planner
Also
known as "Financial Advisers", financial planners find
out about a client's needs and circumstances, and provide
plans and recommendations to assist and benefit the
client.
First
Home Owner's Grant
This
is a government grant $7000 payable to purchasers who are
buying their first home. Conditions and qualifications
apply.
Fixed
interest
This
is where the interest rate on a loan is fixed for an
agreed period of time.
Fixtures
& Chattels
Fixtures
are things that are permanently attached to the land so
as to become part of the land. Chattels are things that
are not part of the land. When land is sold, all fixtures
(the house, and things permanently attached to the house)
will pass to the Purchaser as part of the land. If a
chattel is to be included in the sale, it must be
specifically listed in the Contract. If a fixture is to
be removed from the property by the Vendor and therefore
not included in the sale, then this must be specifically
mentioned in the Contract.
Flat
interest rate
Interest
calculated on the original amount of the loan for the
full term of the loan.
Fraud
Fraud
is the gaining of an advantage by improper or unfair
means. At present, fraud is a major problem in the real
estate industry.
Frozen
account
This
is where an account is rendered inoperative, and no
activity permitted. Accounts are often frozen a short
time prior to settlement of a borrower's sale if the
borrower has a redraw facility. This allows the lender to
determine a "payout figure", which will not change
through activity on the loan account. (See also "payout
figure" below).
Garnishee
The
legal process by which a creditor is able to arrange for
the diversion of funds. Often used where a debtor's
employer can be required to pay part of the debtor's
salary to the creditor.
Gearing
This
is the term used to describe the ratio of a borrower's
contribution to an investment purchase, and borrowed
funds for investment purposes. Where a property is
'highly geared' it has a high ratio of borrowed funds
compared to ownership. (See also "negative gearing"
below.)
General
Law Land
This
is land that is not under the operation of the Transfer
of Land Act. Ownership of general law land is determined
by examination of the "chain of title", a collection of
documents showing that the land has been transferred from
one person to another over many years. A chain of title
must show every dealing associated with the land for the
past 30 years, if good title is to be established. These
days, the purchase of any general law land must be
converted so that the land is brought under the operation
of the Transfer of Land Act.
GiroPost
Australia Post banking
facility.
GST
A
Federal Government tax on sales of all goods and
services, set at 10 per cent. The tax is levied against
the supplier of the goods or service, but is paid by
consumers in the form of higher prices. A purchase
contract may contain a condition that requires a
purchaser to add an amount equal to the GST to the
purchase price.
Guarantee
In
the context of a home loan, a guarantee is the promise
made by a person who will guarantee the lender that the
home loan will be repaid. The person giving the guarantee
(known as the "guarantor") is legally responsible for the
repayment of the loan. If required by the lender to do
so, the guarantor must honour the guarantee by repaying
the loan in full on behalf of the borrower.
Guarantor
The
person who provides a formal guarantee to a lender, that
the guarantor will repay the borrower's debt if the
lender cannot secure payment from the borrower. If
required to repay the loan on the borrower's behalf, the
guarantor may stand in the shoes of the lender in order
to sue the borrower and recover the funds paid on the
borrower's behalf.
Home
equity loan
A
loan account that gives the borrower access to a
revolving line of credit.
Henderson
Poverty Line
The
Henderson Poverty Line (HPL) was developed by Professor
Ronald F. Henderson as an attempt to estimate poverty in
Melbourne on the basis of a two adult, two child family
set at an income equal to the value of the basic wage
plus child endowment (family allowance) payments.
Honeymoon
rate
This
is a reduced loan rate, usually offered for period of 12
months before reverting to the standard rate.
House
& Land Packages
A
house and land package is where a home is sold together
with the land on which it is to be built. Usually, the
process of purchasing a house and land package involves
the selection of a display home, and matching it with a
block of land from an estate being developed by the
vendor.
Housing
Affordability Index
Ratio
of average disposable income to income needed to make
payments on a typical residential property.
Independent
Legal Advice
When
a person needs legal advice it is important that the
person providing that advice not only knows the law and
how to apply it, but is also in a position to provide
that advice without bias. The lawyer must always be
totally "independent" of the matter. In other words, the
lawyer should never be personally involved in the matter,
and should not be acting for, or advising anyone else who
is involved in the matter or who stands to gain anything
from it. See "Legal advice" below.
Instructions
This
is the term used by lawyers to describe what the client
wants done. However, it goes beyond this. Taking
instructions is not just a matter of doing as the client
directs. The proper taking of instructions requires the
lawyer to use his or her legal knowledge and skills to
ensure that the client is in a position to make the best
decision. This is part of the lawyer's fiduciary duty.
After finding out what the client wishes to do, the
lawyer will advise the client as to the legalities
involved, and the options available to the client as the
client pursues his/her goal.
A
client is entitled, not only to make the final decision,
but also to be in a position to make the best possible
decision, based on the best possible advice.
Only after the lawyer has listened, considered, advised,
and then been told which direction the client wishes to
take, can the lawyer regard him/herself as having been
properly instructed.
Interest
This
is the cost of the home loan. Interest is the charge the
lender makes in return for allowing the borrower to have
the use of the borrower's funds for the period of the
loan.
Interest
only loan
A
short-term loan, often used by investors. Allows for
payment of the interest payable on the loan, without the
loan itself being repaid. The borrower pays the full
amount of the loan principal at the end of the agreed
term.
Introductory
loan
Similar
to "honeymoon rate' above.
Investment
loan
Loan
used to purchase an investment property. Often in the
form of an "interest only" loan (see above).
Legal
Advice
The
giving of good legal advice involves the obtaining of an
understanding of what the client wants to achieve, the
checking of relevant documents, having a sound
understanding of relevant principles of law or
researching finer points of law, and then explaining to
the client what options are available.
Lender
Term
used to describe a bank, building society, credit union,
or other lending institution which derives loan moneys
deposits. May also be used to refer to a specialised home
lender which provides borrowers with access to funds
raised on the professional money markets.
Lender's
mortgage insurance - LMI
Insurance
premium charged to the borrower, but by way of a one off
payment for the protection of the lender, allowing the
lender to recover any unpaid loan principal in the event
of the borrower's default. The borrower's debt is
transferred to the Mortgage Insurer.
Letter
of offer
Insurance
premium charged to the borrower, but by way of a one off
payment for the protection of the lender, allowing the
lender to recover any unpaid loan principal in the event
of the borrower's default. The borrower's debt is
transferred to the Mortgage Insurer.
Licence
Agreement
Sometimes
a purchaser may wish to occupy the property before
settlement; or a vendor may wish to continue to occupy
the property beyond settlement. A Licence Agreement is a
simple contract whereby one party grants another party
the right to occupy the property. The difference between
a licence and a lease is that the lease is a form of
"ownership" of the property for a period of time, and the
lessee is entitled to remain in occupation for the period
of the lease. The licence, on the other hand, can be
revoked at any time. If the licence is revoked, the
occupier must leave the property and rely on whatever
remedies are provided for in the licence.
Line of
credit
Borrowing
arrangement by which the borrower may access any amount
up to a specified limit, with the value of the borrower's
property as security for the loan.
Listing
This
is the term used to describe the arrangement between a
Vendor and an estate agent, whereby the agent is
appointed to act on behalf of the Vendor to sell real
estate. Estate agents rely on a contract called the
Exclusive Sale Authority to bind the vendor, the property
and all enquirers, to the agent. This document is so
heavily biased in favour of the estate agent that
obtaining a listing with it is almost as good as "money
in the bank" for the agent. (See also "Exclusive Sale
Authority")
Loan-to-value
ratio
Often
referred to simply as the LVR, this is the ratio derived
from the amount being borrowed, as against the valuation
of the security (usually the property being
purchased).
Lot
A lot
is simply a separately identifiable piece of land, part
of a building, or air space, that is created when a plan
of subdivision is registered.
Low
docs loans
Low
document loans do not require the support of pay slips,
tax returns, etc. and are often used by self-employed
borrowers. These loans are well suited to borrowers who
have substantial equity and serviceability capacity, but
are unable to provide traditional forms of income
verification. Because proof of income is not requied, the
amount of paperwork is significantly reduced.
Margin
Term
used to describe the difference between the lender's
interest indicator rate and the rate actually charged to
borrowers.
Maturity
This
is the date a debt or investment matures, and is to be
paid in full.
Mortgage
A
mortgage is basically a scheme or an arrangement whereby
one person borrows money from another, and promises to
pay the money back in return for offering land as
security for the loan. The offer of land as security
becomes an interest in the land for the lender. The land
itself becomes encumbered by the mortgage.
Mortgage
broker
An
individual or an organisation, such as Oasis Home Loans,
who provides consumers with access to a variety of loan
products offered by a panel of lenders. The role of the
mortgage broker is to assist the customer to select the
most appropriate loan for the borrower's purpose, and to
assist the borrower in his/her dealings with the
lender.
Mortgage
comparison rate
See
"comparison rate" above.
Mortgage
discharge fee
Fee
charged by a lender for the administrative services
associated with the finalization of a loan.
Mortgage
document
The
mortgage document is the means by which the lender’s
rights or “interest” in the property is registered on
title.
Mortgage
insurance
Insurance
premium charged to the borrower, by way of a one off
payment, for the protection of the lender. It allows the
lender to recover any unpaid loan principal in the event
of the borrower's default. The borrower's debt is
transferred to the mortgage insurer.
Mortgage
intermediaries
Term
used to describe mortgage managers who are positioned
between the lenders and the mortgage originators.
Mortgage
manager
Term
used to describe the company responsible for managing a
loan. The mortgage manager liaises with the panel
lenders, and co-ordinates the mortgage originators.
Mortgage
offset account
This
is a savings account associated with a home loan, the
contents of which are paid into the borrower's home loan,
thereby reducing the amount to be repaid. A 100% offset
is achieved where the interest rates earned and paid are
the same. A partial offset occurs where the interest rate
earned on the offset account is only a portion of the
rate paid on the home loan.
Mortgage
originator
This
is the term used to describe a wholesale lender whose
role it is to source securitised funds that are then
provided to consumers through loan brokers in the form of
loan products.
Mortgage
protection insurance
Unlike
"mortgage insurance" (see above), mortgage protection
insurance is cover that protects the borrower by meeting
repayments in the event of the borrower's death, illness
or loss of employment.
Mortgage
registration fee
This
is a fee paid to the Land Titles Office for registration
of the mortgage. The mortgage is usually registered by
the lender or the lender's solicitors together with the
Transfer of Land after settlement.
Mortgage
stamp duty
This
is a state government tax, determined by reference to the
amount of the mortgage. It is usually paid on the
borrower's behalf to the State Revenue Office by the
lender, and deducted from the loan funds.
Mortgagee
The
mortgagee is the person to whom a mortgage is given the
lender.
Mortgagor
The
mortgagor is the person who gives a mortgage over their
property as security for a loan the borrower.
Negative
gearing
The
term used to describe the situation where an investor
buys the right property in the right location, and then
has the tenant and the taxman partially fund the
repayments. The investor sits back and counts the profit
from the appreciating property value. The property is
purchased using borrowed funds, and the interest payable
on the borrowings exceeds the income produced by the
asset (after expenses), resulting in a negative cash
flow.
Negotiation
Negotiation involves
conferring or discussing matters with another person,
with a view to reaching some form of compromise or
agreement. To be effective as a negotiator, your
representative must be well informed about the rules and
laws associated with the matter under negotiation, and
must have precise instructions as to their capacity to
negotiate on your behalf.
Non-conforming
loans
Term
used to describe loan products designed for borrowers who
do not meet the criteria for regular lending due to
impaired credit history, insufficient income or business
start up finance.
Off The
Plan
This
term describes the sale of land that does not yet exist
as a separate "Lot". The land is described as a proposed
Lot only. The Vendor of an "off the plan" lot is obliged
to complete the subdivision process or building of units,
and to have the Lots individually created through
registration of the plan of subdivision.
Offer
For
the average consumer, the term offer has a simple and
straight-forward meaning. However, when applied to the
law of Contract, it has a very specific meaning. The
confusion between these two meanings is often
manipulated, and used against consumers.
Ombudsman
(Banking)
See
ABIO (above)
Ongoing
fees
Any
fees charged in association with the loan on a regular
basis over the life of the loan.
Overcapitalising
Term
used to describe the situation where a property owner
spends more money in improving a the property than can be
recovered upon sale.
Overdraft
Prearranged limit to
which an account holder can access funds in excess of the
account balance.
Payout
figure
This
is a figure provided by a borrower's lender to confirm
the amount of sale proceeds to be applied to repayment of
the borrower's mortgage upon the sale of the security
property. Usually, the lender will "freeze" the
borrower's loan account, to ensure that the payout figure
will not be changed through the use of any redraw
facility.
Penalty
Interest
Condition
4 of Table A, Schedule 7 of the Transfer of Land Act
provides for the payment of penalty interest if either
party delays the payment of money. The most common form
of delay is the postponement of settlement.
Plan of
Subdivision
Basically,
the plan of subdivision is a map of a large area of land
that has been divided into small blocks of land or
"Lots". The plan shows the dimensions of each Lot, and
its location in relation to every other Lot in the
subdivision. Each Lot is separately numbered. When the
plan of subdivision is registered, each lot is identified
in terms of its Lot number and the number of the plan of
subdivision. Each Lot is registered by way of a
Certificate of Title bearing distinct Volume and Folio
numbers to identify the title, and the title itself
records the Lot and Plan Number of the Lot it
represents.
Portability
A
loan facility that provides for the substitution of one
security property for another in relation to an existing
loan.
Payee
The
person to whom payment is to be made. E.g. the person to
whom a cheque is payable.
Pre-Approval
If
you’re thinking of buying a home, then obtaining
pre-approval for a mortgage is a good idea. This
determines the size of the mortgage you qualify for, and
therefore, decides the price range for the homes you can
look at.
Pre-Contract
Legal Advice
Advice
provided by a qualified lawyer prior to the signing of a
Contract to buy or sell real estate. By obtaining
pre-contract legal advice a consumer is able to consider
what matters should be investigated before deciding to
buy, what responsibilities have to be fulfilled before
selling, and what special conditions may have to be
inserted into a Contract to protect his/her interests.
See also "Independent Legal Advice" above.
Price
Ranges
Also
called a "buyer enquiry range" this is a trick that
involves the invention of two figures: one much lower
that the vendor intends to accept, and the other much
higher than the vendor expects the property to make.
Purchasers are expected to make offers somewhere in
between the two false figures. Any form of marketing that
involves "invented" figures is fraudulent. The Northern
Territory government recently wrote to all estate agents
in that State, warning them that price ranges and buyer
enquiry ranges amount to misleading and deceptive
conduct.
Principal
Term
used to describe the actual amount of money borrowed. The
term is used to distinguish this component of a repayment
from the "interest" component. (See "interest" above).
Principal
and interest loan
The
most common form of home loan, where both the principal
and the interest are repaid during the term of the loan.
(Compare with "interest only" loan above.)
Professional
Indemnity Insurance
Professional
indemnity insurance is held by a professional person to
ensure that any claims of professional negligence made
against the professional person can be met. To put it
another way, there is not much point in suing a
professional person if they do not have enough money to
pay for your loss - so professional indemnity insurance
comes in to cover the cost.
Rates
This
is the term used to describe amounts payable to the local
council and the water authority for services provided to
a property. Rates are adjusted on a pro-rata basis,
together with any other outgoings that are payable as a
consequence of land ownership.
Real
Estate Institute Of Victoria
The
Real Estate Institute of Victoria is the professional
body representing real estate agents in the State of
Victoria. Known as the R.E.I.V., it also acts as a lobby
group to protect and further the interests of real estate
agents.
Real
property
This
is another term for real estate, or land. It is used to
distinguish land (which is permanent in nature) with
personal property (which is not permanent and can be
destroyed).
Rebate
Term
used to describe a situation where money paid is refunded
as a form of incentive. E.g. where a vendor pays a rebate
of $3,000 if the purchaser can settle prior to a
specified date.
Redraw
facility
A
facility which allows the borrower to make mortgage
repayments beyond those required in the loan agreement,
and "redraw" them as needed.
Refinancing
This
is the term used to describe the situation where a
borrower decides to change lender or loan product by
repaying the existing loan and then obtaining
another.
Registrable
Documents
These
are the documents, usually collected at settlement in
return for the payment of the balance of the purchaser
price, that are lodged at the Land Titles Office to
transfer ownership of the property to the purchaser. They
must be property signed or endorsed so as to allow
registration.
Requisitions
On Title
These
are a series of questions formally served on the Vendor
of a property by the Purchaser, by which the Purchaser
discovers any issues relating to "title" (i.e. the right
or capacity of the Vendor to legally sell the property).
Requisitions often include a variety of other questions
that are not related to "title", and can run to many
pages. Many lawyers now replace the right to submit
requisitions on title with warranties in the Contract of
Sale.
Reserve
Bank
The
Reserve Bank of Australia is responsible for
independently maintaining Australia's financial system,
and for setting the official short-term interest rates on
which many variable-rate home loans are based.
Residential
Investment Loan
A
loan obtained for the purpose of purchasing real estate
for investment purposes (for example, to be rented out)
rather than for owner-occupier purposes.
Retirement
Villages
While
most people understand the term "Retirement Village" as
meaning a form of unit accommodation, it often comes as a
surprise to find that there are different ways of
"owning" or "occupying" a retirement unit.
Securitisation
This
is the term used to describe the process of taking a pool
of various assets, such as different home loan products,
and converting them into a tradable security such a bond
which investors can then purchase and trade.
Security
This
is the term used to describe an asset that is put forward
by a borrower on the basis that the lender will be able
to sell the asset or convert it to the lender's use in
the event that the borrower fails to repay the loan in
full.
Serviceability
This
is the term used to describe the borrower's ability to
make regular repayments of an agreed amount.
Settlement
Settlement is the term
used to describe the moment when all of the parties
involved in a sale of real estate meet together and
exchange documents and cheques to complete the matter.
Often there are four parties at settlement: the Vendor,
the Vendor's Mortgagee, the Purchaser and the Purchaser's
Mortgagee. Usually each of these is represented by a
lawyer or other representative.
Signatory
Term
used to describe a person who has authority to operate an
account.
Solicitor
The
terms "solicitor" or "legal practitioner" or "barrister"
are just other terms used to describe a lawyer. The term
"barrister" is used to describe a lawyer who appears in
court on behalf of clients. Barristers usually avoid
accepting clients direct, and prefer to act on behalf of
lawyers in a form of "sub-contacting" capacity. Many law
firms described their lawyers as "Barristers &
Solicitors". In the State of Victoria, all lawyers can
describe themselves as "barrister and solicitor", and all
are equally entitled to represent their clients in court.
We prefer the term "lawyer" because it is readily
understood by everyone as meaning a person whose role it
is to advise and assist clients in matters of law.
Solicitors
mortgages
These
are mortgages offered through solicitors firms, utilising
funds offered by clients for this purpose.
Solicitor
supervision
The
Legal
Practice Act prohibits unqualified
people from giving legal advice or performing legal work.
This means that conveyancers are not permitted to offer
any form of legal services to their clients, even though
conveyancing matters essentially involve legal
issues.
Because most consumers would be reluctant to use
conveyancers if they knew that their conveyancer could
not perform the legal work associated with a conveyancing
matter, the concept of "solicitor supervision" has been
developed to make conveyancers appear more
credible.
Split
loan
See
"Combination loans" above
Stamp
duty
This
is a government charge incurred by the Purchaser of real
estate, and payable to the State Revenue Office prior to
lodging of the Transfer of Land at the Land Titles
Office. It is usually paid by the Purchaser's lender
after settlement, with funds retained from the loan
moneys. If there is no lender involved, a cheque will be
obtained from the Purchaser and paid to the State Revenue
Office by the Purchaser's lawyer.
Stamping
and lodging
This
is the term used to describe the process of taking the
registrable documents (obtained at settlement) to the
State Revenue Office, payable stamp duty and having the
Transfer of Land "stamped" to show that stamp duty has
been paid, and then lodging the documents at the Land
Titles Office for registration.
Standard
variable home loan
As
compared with a "basic variable" loan (see above), a
standard variable home loan, usually includes a suite of
features, and is charged at the standard variable
rate.
Standard
variable rate
This
is the rate a lender will apply to its 'premium' home
loan product.
Statement
of Adjustments
This
document sets out the way in which rates and other
outgoings have been apportioned as at the day of
settlement. It shows the purchase price, the deposit
paid, the amount of rates paid for the rating period and
the proportion of those rates to be paid by the Purchaser
for the period beyond the settlement date.
Strata
Title
This
is the term used to describe a title where there is a
building on land. The title covers not only depth and
width, but also the height between upper and lower
boundaries.
Stratum
Title
In
a stratum subdivision the building is subdivided into
lots, with common land, i.e. driveways, stairwells,
gardens being owned by a service company and appearing on
the subdivision as an additional lot. Stratum units are
regarded as unattractive because of difficulties and
complexities involving the operation of the company,
Corporations Law obligations, and a reluctance on the
part of lenders to accept them as security.
Studio
Apartments
A
studio apartment is the term used to describe a small
unit, usually comprising one open-plan room. Care should
be taken when considering the purchase of a studio
apartment!
Subject
To Finance
Where
the purchaser had not yet received formal home loan
approval, and wants to be able to end the contract in the
event that the home loan is rejected, the contract can be
made "subject to finance". This means that a condition is
added to the contract that allows a fixed period of time,
by which the home loan must be approved. If the home loan
is not approved, then the purchase may elect to end the
contract. Purchasers should always ensure that the
finance condition is drafted by their lawyer, or at least
with advice from their lawyer. It is often the case that
estate agents draft finance conditions such that the
purchaser can't help but breach the terms, and risk
losing the deposit.
Term
The
term of the loan is the period over which the loan is to
be repaid.
Transaction
fees
These
are fees charged by the lender on particular
transactions, such as withdrawals, transfers, deposits
etc., usually on an item by item basis.
Transfer
of Land
This
is the document by which the Vendor and the Purchaser
direct the Registrar of Titles to transfer ownership of
the property from the Vendor to the Purchaser. It may
also direct the Registrar to include a covenant or other
encumbrance on title.
UCCC
See
"Consumer Credit Code" above.
Valuation
See
"Valuer" below.
Valuer
A
valuer is a professional person whose role it is to
determine the current market value of a property. Valuers
are tertiary trained, and accredited by the Australian
Property Institute (API).
Variable
interest rate
An
interest rate that varies in accordance with the rates in
the marketplace.
Vendo