From our Property Partner, Domain
Buying your first home can be a stressful experience.
Not only do you need to save a deposit, brave the crowds at open homes, secure a loan and make a winning offer, but you need to do it all while navigating what can feel like a foreign language.
From comparison rates to stamp duty, we’ve translated some of the jargon you’re likely to come across in your home-buying journey to make things that bit easier.
Borrowing power
Put simply, your borrowing power – or capacity – is the amount of money a lender is willing to loan you.
“Getting an indication of how much you can borrow is an important part of the home-buying journey as it provides you with a better indication of what suburbs you should focus your search in and the types of homes you can afford,” says Unloan chief executive Daniel Oertli.
Your borrowing power will be calculated based on factors like your income, debt, expenses, savings history and deposit amount, and may differ between lenders, he says.
Comparison rate
You’ll see this term sitting alongside the interest rate for a home loan.
“A comparison rate is a tool that helps you identify the true costs of different home loans,” Oertli says. “It takes into account the interest charged on the loan as well as certain fees and charges that apply.”
Comparison rates may not include all fees and are calculated on a prescribed loan value and term, so it’s important to consider your own circumstances, he advises.
Conveyancer
A lawyer who specialises in property, a conveyancer will typically be engaged to manage the legal aspects of a property sale.
This can involve reviewing contracts, providing advice to buyers and arranging the details for settlement. A conveyancer can also assist with things like arranging building inspections and reviewing strata reports.
Cooling-off period
Nothing to do with temperature, a cooling-off period is the length of time a buyer has to change their mind about a property purchase.
This period ranges between two and five business days depending on your state or territory, with the exception of Western Australia, which has no mandated cooling-off period.
It’s important to note that cooling-off periods generally don’t apply to homes sold at auction and that pulling out during this period typically means forfeiting a percentage of your deposit.
Interest rate
The interest rate on a home loan is the cost you pay to borrow money as a percentage of your loan amount.
You’ll likely come across options for loans with fixed and variable interest rates. As the names suggest, the interest rate on a fixed-rate loan stays the same for a set period, while the interest rate on a variable-rate loan can go up or down depending on the market.
LMI
LMI or lender’s mortgage insurance is insurance that a lender takes out to protect itself against the risk of a borrower not repaying their loan.
This cost is typically passed on to you in the form of an upfront fee or an amount added to your loan, to be paid off over time.
Lenders will typically require a borrower to pay LMI if their deposit is less than 20 per cent of the lender-assessed value of the home, which could differ from the sale price.
Pre-approval
Pre-approval is conditional approval from a lender that shows you are eligible to apply for a home loan of a certain value.
While it doesn’t guarantee a home loan for that amount, gaining pre-approval can provide peace of mind and show sellers that you’re serious about buying.
“On average, it lasts between three to six months. If you need to extend your conditional approval, make sure you speak to your lender before it expires,” Oertli says.
Redraw facility
If you’re looking into home loan options, you’ll likely come across this term.
A redraw facility is a feature that allows you to access additional payments you’ve made towards your home loan.
“By making extra repayments and reducing the balance of the loan, you can save on interest,” Oertli says. “The ability to redraw these extra repayments when needed ensures you can still access those savings.”
Reserve price
While winning at auction means outbidding other would-be buyers, something called a reserve price also comes into play.
Set prior to auction, this is the minimum price that the seller is willing to accept for the home.
If bidders fail to reach this price, the vendor may decide to lower the reserve price or the property will be “passed in” by the auctioneer, meaning it is withdrawn from auction.
Stamp duty
Also known as transfer duty, stamp duty is a tax paid on property transactions to a state or territory government, and varies across Australia.
The amount paid will be based on the price of the property you are buying, with some states offering stamp duty exemptions or concessions for first-home buyers.
The path to buying your first home can be a complicated yet exciting one. We hope this glossary helps you on your journey.
To find more education on home loans and prepare for your next property journey, head to the Unloan website.
Written by Jessica Golding