Excited about the prospect of investing but confused by all the terminology? Read on for a list of the most commonly used mortgage and financial terms explained in words that we all understand.
Assets - things owned with monetary value, e.g. cash, property. In accounting terms this can include cars or vehicles, but when applying for a loan, cars may be considered a liability if you have a loan on the car and are still paying it off.
Body corporate (or owner's corporation) - All the unit owners within a strata building. The owners elect a council responsible for the management of the building and its common areas.
Capital gains - The financial or monetary gain (profit) obtained when an asset is sold for more than its original price.
Capital gains tax - Tax payable on the profit made when selling an investment property.
Certificate of Title - a document showing who owns the property, details of the size of the property and whether there is a mortgage registered on the title. The lender (your bank) usually holds this document as security. Once the loan if fully repaid, the Certificate of Title is returned to the borrower.
Conveyancing - legal work carried out by your legal representative to transfer ownership of the property from the seller (vendor) to the buyer.
Depreciation - The amount claimed on an investment property for the reduction in the value of an item due to usage, passing of time, wear and tear.
Equity - the difference between your mortgage and your property's value. It defines the amount of the property actually owned by the owner. Paying off your mortgage, market values and improvements to the property can also affect equity.
First Home Owner's Grant (FHOG) - a grant from the Federal and State Governments. The grant is only for buyers who have not previously bought property in Australia. It's for owner-occupied, new homes under the value of $750,000 (VIC only). Currently the grant is $10,000. There are a number of different exemptions and concessions to help first home buyers - for more information click here.
Gearing - only used for investment properties. This can be positive or negative, Investment property is negatively geared when expenses (mortgage repayments, utility service fees, body corporate fees etc.) exceed rental income. Investment property is positively geared when the rental income received is greated than the total amount of expenses.
Investment property - a property purchased for the sole purpose of earning a return in either rent or capital gain. The owner does not live in the property.
Lender's Mortgage Insurance (LMI) - a once-off insurance premium that protects the lender in the event that you default on your mortgage repayments. It's usually required for loans that lenders consider more risky. Typically, LMI is applicable for loans over 80% of the property's value.
Vendor statement - also called section 32, is a document that tells potential buyers certain things about the property title they should know before signing a contract to purchase.
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