Struggling to understand some of the terms used by your bank / Mortgage broker. Here are some of the terms that are widely used in the banking industry.
Put simply, these are costs you may need to pay if you terminate a fixed rate home loan early. This may happen if you repay your loan in full or in part or refinance your loan before the end of the agreed term. Be aware – break costs can be significant.
The lender should be able to give you an estimate of the likely cost, on the day that the early repayment occurs.
Capital gains tax (CGT) is a tax you may have to pay when you make a profit from the sale of a property. Generally, you won’t have to pay CGT when you sell the home you live in. You may have to pay CGT if you sell an investment property.
This is an indication from a lender that they will be willing to lend you a certain amount of money, subject to specified conditions.
It is important to know that Approval in Principle is not a guarantee that your loan will be fully approved. The lender will only approve the loan if certain conditions are met. For example, Approval in Principle is usually subject to the lender’s own valuation of the property.
There are likely to be other conditions too. Generally, presuming that your circumstances do not change, your pre-approval will last for around three months. This may differ from lender to lender.
This is an offer to buy a property if certain conditions are met.
If the seller accepts the offer, you may be legally required to follow through and buy the property once the conditions are met. If the conditions aren’t met, talk to your lawyer or conveyancer about what to do next.
These are loans designed for people who are intending to pay a builder to construct their home.
A construction loan lets you access your funds as the building work progresses. This is important because builders usually require part payment at specific stages of the building work.
Conveyancing is the legal term for transferring ownership of a property. Whether you are buying or selling, this process needs to be completed by a conveyancer or a solicitor, who handles all the legal aspects of buying and selling. Passing a property to a new owner means a lot of work and a typical conveyancing transaction generally consists of three stages:
Buying a property involves signing a Sale & Purchase of real estate agreement. When you do this, you may also need to pay the seller a deposit. It can typically range from 5% to 10%.
Once a home loan has been paid in full or refinanced, there are certain legal tasks that will need to be performed. If the home loan has been paid in full, the borrower may want the lender’s mortgage notice to be removed from the property’s title. If a property owner refinances the home loan, the new lender will need the mortgage notice to be changed. Updating the property’s title involves submitting paperwork to the relevant government body. The process and time frame may vary depending on the state or territory.
Equity is the market value of your property; minus the amount of your loan, you still have to repay.
For example: if the market value or your home is $500,000 and you still owe $300,000 to your lender, this means you may have up to $200,000 in equity.
This is a fee you may be charged when your home loan is set up by your lender.
Your home loan agreement will state the minimum repayments you are required to make each month. Payments made over and above this amount are referred to as extra repayments. Making these extra repayments towards your floating interest loan may help you to pay your mortgage faster.
Yes, it’s true – the government gives eligible first home buyers a grant to help them buy their first home. To be eligible for a First Home Grant (FHG), you need to over 18 years of age, have earned less than the income caps in the last 12 months, not currently own any property, have been contributing at least the minimum amount to KiwiSaver for 3 years or more, purchase a property within the regional house price caps, agree to live in your new house for at least 6 months.
Freehold is the most common kind of property ownership in New Zealand. If you own a freehold property, it means you own both the land and anything built on it – unless there are any legal restrictions – like covenants, easements of restrictions under the Resource Management Act 1991. It is sometimes also known as ‘fee simple’ ownership.
A flexible mortgage deal allows you to overpay, underpay or even take a payment holiday from your mortgage. This can help you pay off your mortgage early and save money on interest, but flexible mortgages are usually more expensive than conventional ones.
Some home loans let you pay a year’s worth of interest in advance. There may be tax advantages in doing so, depending on your financial circumstances. Generally, this is an option on fixed rate residential investment property loans only.
You are probably going to hear this term a lot. Loan to Value Ratio (LVR) is the amount you need to borrow, calculated as a percentage of the lender-assessed value of the property. The ‘lender-assessed value’ is your lender’s valuation of the property. This may be different to the purchase price.
For example – Your lender values the property at $500,000 and you have a $100,000 deposit (excluding transaction buying costs). It means you need to borrow $400,000 to buy the property. Your LVR would be calculated like this: $400,000 / $500,000 = 80%
* It does not include additional fees and costs you may have to pay.
This is the minimum amount you need to repay on your home loan each month. The details will be in your home loan contract.
Where a borrower holds this insurance, it can help them with their repayments in the event of death, sickness, unemployment, or disability for a short period of time.
Simply put, this is the amount you owe on your home loan. Usually, the principal amount gets smaller over time as you pay off your home loan.
Under this kind of repayment, you’ll pay the interest charges, as well as a portion of the principal. The principal is the amount you borrow from your lender.
The written contract for a property – usually handled by a real estate agent and a lawyer. The agreement usually outlines your offer, the settlement date and any conditions that must be met before the sale goes ahead.
This is an asset that secures your home loan. If you default on your loan, the lender has a legal right to sell this asset. In other words, the security gives lenders peace of mind that they will be able to recover their money if you cannot pay back your loan.
This is the process of finalising the purchase of a property and then transferring ownership from the seller to buyer.
During settlement, the remaining money owed under the contract of sale is paid to the seller. The seller then provides the certificate of title which is updated to include the new owner and mortgagor (if any). Settlement can be complex. Therefore, most people have a conveyancer or solicitor helping them out.
This is a loan that is split into two loan accounts. Part of the loan amount will sit in one account, while the rest will sit in the other account.
The interest rate charged may be different for each account: One of the accounts may have a fixed interest rate, which stays the same for the fixed-rate term.
The other account may have a variable rate, which may go up and down over time. The rate may change in response to decisions made by the Reserve Bank of New Zealand, as well as other factors. Fixed and variable interest rates each have advantages and disadvantages. A split loan may be a way to get the best of both worlds – but it really comes down to personal choice.
A written report of the current market value of a property, prepared by a registered independent valuer.