GlossAry

Accrued Interest

Interest calculated but not yet added to the Loan.

Acceptance

To agree to the terms of an offer or contract.

Additional repayments

Extra funds paid into the loan over and above the minimum prescribed repayments.

Agent

Person or body authorised to act on behalf of a client in the sale, purchase or management of property.

Amortisation

Repayment of a loan through agreed regular installments (e.g. Weekly, Monthly or Fortnightly). The Borrower pays the interest accrued and part of the principal at each repayment. As you pay back the loan, an increasing amount of each payment is applied to principal and a lesser amount is applied to interest. Amortisation is also a process of spreading a cost that is incurred upfront over the term of the loan or life of the asset.

Amortisation period

The period of time one has to repay a loan at the arranged terms.

Application Fee

Fee that Lenders charge to cover or partially cover the lender's internal costs to consider or secure the Loan.

Arrears

Amount that the Loan is overdue for repayment.

Assets

Money, Property or Goods owned by the applicant(s). (e.g. house, cars, furniture, cash and savings, etc)

Auction

Public sale of property with ownership going to the highest bidder, subject to a reserve price being reached.

Balance sheet

A statement of assets, liabilities and net equity for an entity as at a particular point of time.

Balloon payment

A large one off loan repayment to clear a debt. Typical at the end of an Interest Only term.

Bank cheque

A cheque, issued by a bank, which draws money specifically from funds you hold in a bank. Bank cheques are generally considered to be cleared funds (ie: they cannot be dishonoured by the bank) and thus are as good as cash. These are usually required when settling the purchase of a property.

Baycorp

Association that lenders subscribe to which holds credit information on all of us. Individuals, for a small fee, can obtain a copy of their personal credit history from Baycorp. Under the Privacy Act, you also have the right to get Baycorp to correct any incorrect data that they hold on their files.

Body corporate

A corporation of the owners of units within a strata building. They form a self-elected council for the management of the building and common areas.

Break costs

Penalties charged when a loan is paid off before the end of its term. Generally applies to fixed rate loans.

Bridging Finance

A short term loan (typically less than 6 months), usually with an application fee, which covers the financing gap between the purchase of a new property and the sale of a current property. Interest rates will vary, depending on whether there is a confirmed sale of the current property in place or not.

Building inspection

An inspection generally carried out prior to the purchase of a property to ensure the building is structurally sound.

Capital gain

The monetary gain obtained when you sell an asset for more than you paid for it.

Capitalising interest

When interest payable is accrued and added to the total debt payable rather than being paid as it is charged.

Capped Loan

A floating rate loan where the interest rate is guaranteed not to exceed a stated rate for a fixed period of time. The interest rate can fall below the capped rate if floating rates fall during the capped rate period. Particularly good for times when interest rates are rising, or are expected to rise.

Caveat

A Latin term for 'beware'. A caveat can be registered on a title to notify the world of a lenders interest without having a formal mortgaged registered. Generally used for short term loans, bridging finance etc. A Caveat does not have the same legal strength as a mortgage

Certificate of Compliance (or Code of Compliance)

A certificate issued by Council (for a fee) confirming that all buildings on the land comply with council's building regulations.

Certificate of Title

This document details the land dimensions and ownership details, and whether there are any encumbrances on it.

Chattels

Fixtures and fittings inside a building.

Common property

An area used by many, not an individual. Owned by the tenants in common.

Company title

A property title that applies when owners of units in a block form a company.

Compound interest

Interest that is paid on both the accumulated interest as well as on the original principal.

Conditional Loan Approval (or Conditional Finance)

Loan approval where the lender approves the loan, subject to one or more conditions (such as a registered valuation, opening of bank accounts, etc). It is important to note that THE BANK MAY STILL DECLINE A LOAN AFTER A CONDITIONAL APPROVAL HAS BEEN GIVEN! (if the borrower is unable to meet the conditions to the satisfaction of the lender)

Conditional Offer to Purchase

A sale and purchase agreement where there are conditions to be satisfied (such as finance, LIM report, etc) before the buyer is willing to purchase the property.

Construction loans

A loan specifically granted for the purpose of funding the building of a new dwelling (or major renovations). Special conditions apply to these loans regarding the amount that can be drawn at any one time. Usually, a valuation is required prior to drawing down additional funds, to confirm that the work has actually been done

Contract

A legally enforceable agreement between individuals or entities.

Conveyancing

The legal process for the transferal of ownership of real estate.

Covenant

Special terms that apply to certain properties e.g. home must be built within a certain time period or must be a certain minimum value.

Credit limit

The maximum amount of funds a borrower may have on an account e.g. a credit card account.

Default

This has 2 meanings:
1. As a noun - This is an adverse entry on your credit (Baycorp) report, showing that you have not paid a bill or invoice when due.
2. As a verb - the action of defaulting or not making a payment when due (eg: failing to make loan payments on time)

Default rate

The interest rate that applies to a loan if payments are not made on time.

Deposit bonds

Guarantees that the purchaser of a property will pay the full deposit by the due date. Institutions providing deposit bonds (typically insurance companies) act as a guarantor that payment will be made. They are often used to fund the deposit when you are buying a new house, but have not yet settled the sale of your existing property.

Disposable income

Any income left over after all known expenses have been met e.g. mortgage payments, bills.

Disbursements

Costs, (such as rates, mortgage registration fees, etc) due to companies other than the lenders or solicitors, which are incurred by the purchaser/borrower when buying a property.

Draw down

To access available loan funds, especially lines of credit where the limit is set and you can use the funds as required.

Easement

A right to use a corridor or passage of land that is owned by another.

Encumbrance

An outstanding liability or charge on a property.

Equity

The difference between the value of a property and what you owe to the bank or other lender(s). Eg: value $500,000, first mortgage $250,000, second mortgage $50,000. Equity is $200,000

Equity loan or Equity mortgage

A loan secured by the part of the value of an asset (usually residential property) which you own.

Establishment Fee

Fee charged to establish a loan (see Application Fee).

Fittings

Items that can be removed from a property without causing damage to it. (eg: curtains)(also see chattels)

Fixed Interest Rate

An interest rate set for a fixed term. The interest rate cannot move (up or down) during the fixed term period. Penalties usually apply if the loan is repaid before the term expires. Fixed rates are generally available for terms of 6 months, 1, 2, 3, 4, and 5 years (although specials may apply for different periods)

Fixtures

These are items that would cause damage to a property if removed. (eg: kitchen cabinets)(also see chattels)

Floating Interest Rate (or variable interest rate)

An interest rate that varies during the term of the loan. This rate can go both up and down, in line with movements in wholesale interest rates (usually the 90 day bank bill rate).

Freehold Title

Property ownership whereby the land is owned plus everything thereon.

Gearing

The ratio of borrowed funds to the total value of a home or an investment property. (eg: you buy a property for $200,000, putting in 20% deposit ($40,000). Your gearing ratio is 80%)

Guarantee

A form of security for a loan where someone else promises/guarantees to repay the loan if the borrower defaults. Lenders view these as a poor form of security because of the bad publicity for the lender if the guarantee has to be exercised. These are typically required by a lender as a sign of good faith by the borrower.

Guarantor

A party who agrees to be responsible for the payment of another party's debts.

Income statement

A statement of income and expenditure for a period, usually a year. (can be called a profit and loss statement)

Interest

The lending body's charge for the use of funds or the return on deposited funds.

Interest Only Loan

A loan where the principal is repaid at the end of the loan term and interest only is repaid during the term of the loan. These loans are usually short term, say 1 to 5 years. These are typically favoured by property investors who wish to keep their loan payments as low as possible.

Investment loan

A loan used for the purchase of an investment property.

Investment property

A property purchased for the sole purpose of earning a return on the investment, either in the form of rent or capital gain (as distinct from living in the property yourself).

Joint Tenants

Where more than one person is the owner of the property. If one person dies, then the title reverts to the survivor(s) irrespective of the deceased's will. (Refer also to Tenants in Common).

Judgement

The next step after a default, where the lender applies to the court and obtains a judgement to recover the outstanding debt.

Lease

A document granting a period of tenancy of a property under specific terms and conditions.

Lender

The bank or other institution or private company that lends you the money. (Also see Mortgagee)

Lenders Mortgage Insurance (LMI)

When your deposit is under 20% of the purchase price, most banks insure the mortgage with an insurance company. All lenders either insure the mortgage and charge an LMI premium or alternatively take on the risk themselves and charge a 'Low Equity Fee'. The fees are calculated on a sliding scale, with the lower your deposit, the higher the LMI fee. Fees typically range between 0.5% and 1.5% of the loan amount. The premium is a one-off fee, and can usually be added to the loan amount.

Liabilities

What a person owes. (eg: mortgages, credit cards, personal loans, hire purchase, etc). There are also "Contingent Liabilities", which are Liabilities that are contingent on something happening, e.g. where a guarantee is acted upon through a loan default. In other words the liability may or may not come into effect.

LIM Report

Land Information Memorandum. A report provided by the local council, providing details about the property including permits issued, any hazards on the site known to the council, etc. Your solicitor will check thisreport as part of the conveyancing process.

Line of Credit

See Revolving Credit Mortgage

Loan Application

The loan application form, together with supporting information, which is submitted to a lender to enable them to make a lending decision.

Loan Offer

A letter from a lender outlining terms and conditions upon which they are willing to provide finance. These can be either conditional, or unconditional

Loan Structure

The mixture of fixed rate loans, floating rate loans, and/or revolving credit loans that make up the total amount borrowed. Loan structures are designed specifically for each client's individual circumstances.

Loan to Valuation Ratio

The ratio of the amount lent to the value of the security offered or held. Commonly called LVR. As a general rule, mortgage loans that exceed an LVR of 80% require lenders mortgage insurance. (also see Gearing)

Lo-Doc Loan

Refer No Financials Loan

Margin

This is the difference between the lender's interest indicator rate (or other reference rate) and the rate actually charged to borrowers. The margin on a loan varies with the risk involved.

Mortgage

A form of security for a loan usually taken over real estate. The lender, the mortgagee, has the right to take the real estate if the mortgagor fails to repay the loan.

Mortgagee

The lender of the funds.

Mortgagor

The borrower of the funds.

Mortgage brokers

A person or organisation who offers a service where they will select the best loan or loans for borrowers from a panel of lenders.

Mortgage discharge fee

An administration fee to cover the costs (e.g. documents) incurred in winding up a loan.

Mortgage protection insurance

Not to be confused with lenders mortgage insurance, this covers a borrowers' loan repayments in the event that they are not able to meet them through illness or redundancy, for example.

Negative Gearing

Where an investment is geared (usually to 100%) to produce a tax loss. (ie: the total income from rent is less than the total outgoings - including mortgage payments, rates, insurance etc, and depreciation) This loss may be able to be deducted from other taxable income.

"No Financials" Loan

Loan where you do not have to provide proof of income (eg: annual accounts, income statements, rental statements, etc). Only available for self-employed borrowers (including rental investors). Special conditions apply, but ideal when you have a new business, or where your annual accounts do not show an adequate capacity to service proposed debt. Loans MUST be secured by residential property only (not commercial).

(buying) Off the plans

The purchase of a property, before it has been completed i.e. after only having seen the plans, not the finished product.

Offer to purchase

A legal agreement that details a specific price for the purchase of a specific property. (also see conditional offer to purchase)

Ongoing fee

Any loan maintenance fee charged regularly over the life of a loan.

Option to purchase

A legally binding document which gives a person, for a fee, the right to buy something a property within a specific time frame at a specific price.

Overdraft

A prearranged limit to which a person can continue to draw funds once the account balance has reached $0.

Passed in

A property is 'passed in' at auction if the highest bid fails to meet the reserve price set by the vendor.

Plan

Detailed illustration of a house that shows the internal layout and dimensions and the position of the house on the land.

Possession Date

The date on which possession of a property is given or taken. Usually, this is the same as the settlement date, but this does not have to be the case.

Preapproved Finance

Finance which has been approved by a lender prior to the borrower finding a specific property to buy. Preapproved finance is typically conditional finance.

Principal

The capital sum borrowed on which interest is paid.

Principal and Interest

A loan where both the principal and interest are repaid together on a regular basis, by monthly or fortnightly instalments (P & I).

Private sale

The sale of a property without a real estate agent.

Redraw facility

A loan facility whereby you can make additional repayments on your loan and then access these extra funds when necessary. They will often have limitations such as a minimum redraw amount and a fee for each withdrawal.

Refinancing

To replace or extend an existing loan with a new loan from the same or a different lender.

Rental Appraisal

A letter from a real estate agent or property manager indicating the likely amount (or range) that a property will rent for.

Rental guarantee

A promise by the developer guaranteeing a certain level of return on an investment property. Usually stated as a percentage of the purchase price, it generally relates to investment properties purchased off the plan.

Requisitions on title

A process by which the buyer requests additional information about the title of the property from the seller.

Reserve price

Specified minimum price acceptable to a seller at auction.

Residential investment loan

A loan granted to purchase a property intended for investment purposes (for example, to be rented out) as opposed to owner-occupied purposes.

Revolving Credit Mortgage

A flexible loan arrangement with a specified ceiling to be used at a customer's discretion

Right of way

Either somebody's right to cross other property or a general pathway across your land.

Sale and Purchase Agreement

A written agreement outlining the terms and conditions for the purchase or sale of property.

Search (or Title Search)

A request to Land Information New Zealand to ascertain who owns a specified property, and what encumbrances (mortgages, caveats, or other restrictions on dealing with the land) are on the title.

Securitisation

The process of taking a pool of diverse assets such as different home loans and converting them into a tradable security such a bond which investors can then purchase and trade.

Security

An asset that guarantees the lender their loan until it is fully repaid. Usually property such as real estate is offered as security.

Settlement Date

Date on which the new owner finalises payment and assumes possession. Sometimes called the "Drawdown" date, as this is the date the loan is usually fully drawn.

Split loan

One loan split into several different parts (eg: fixed and floating portions) (Also see loan structure)

Strata Title

Similar to Freehold title but usually over units. With a Strata Title only a particular unit is owned.

Survey

A plan that shows the boundaries and the building position on a block of land.

Supporting Documentation (for a Loan Application)

Information such as bank statements, proof of income, proof of deposit, identification, etc. (click here for a full list of requirements)

Tenants in Common

Where more than one person is the owner of the property. If one person dies, then part of the title passes through the estate of the deceased. Also each owner can have a nominated share of ownership such as 5% or two thirds, etc.

Term

The period of a loan, generally measured in years. Can be for any period up to 30 years.

Transfer

A document registered with the Land Titles Office that confirms the change of ownership as noted on the Certificate of Title.

Unconditional

The point at which all the conditions in a sale and purchase agreement are satisfied. The purchaser can not back out of the contract to purchase the property once it has been declared unconditional without exposing themselves to the potential for legal action by the vendor.

Unencumbered

A property free of liabilities, encumbrances or restrictions.

Valuation

A report giving a professional opinion of the value of the property. A valuation obtained for one lender is generally NOT suitable for another lender, as each valuation has an indemnity clause which protects the specific lender. However, valuers will normally readdress their valuation to a different lender within certain timeframes.

Variable Interest Rate

(See floating interest rate)

Vendor

Party who offers a property for sale.

Zoning

Local authorities' guidelines as to the permitted uses of the land.