With so many acronyms being thrown at us during the home buying journey it’s easy to feel a little lost.
Davina from our mortgage team thought she would give a quick rundown on what some of the common acronyms are, along with some terminology that gets used.
FHB – First Home Buyers
FHG– First Home Guarantee. The First Home Guarantee is a government initiative that supports home buyers who have saved a minimum deposit of 5% of the property value and meet eligibility criteria to buy a home. Housing Australia provides a guarantee to the participating lender to enable you to borrow up to 95% of the property value. For the First Home Guarantee, this is up to 15% of the property value.
HBC – Home Buyer Concession. The scheme helps people to buy the home that’s right for them by removing or reducing stamp duty on any property they want to buy.
LMI – Lenders Mortgage Insurance. This is an insurance policy that the bank will take out to protect itself if you are unable to meet your repayments. This typically happens when you borrow more than 80% of the property price (with some lenders its 85%). This policy is paid by you as soon as the loan is taken out and is not refundable. The lender can sometimes include payment of this insurance in your home loan, allowing you to get into your home sooner without the larger deposit needed. The LMI is generally different from lender to lender and is dependent on the amount you borrow vs the amount of the property.
LVR – Loan to Value Ratio. This is the ratio that the banks refer to when they divide the loan amount by the property purchase price. If this amount is below 80%, then you can avoid LMI.
Most lenders will offer a better rate the lower your LVR is.
Example of how to calculate:
Loan Amount / Property Value x 100 = LVR
$400,000 (Loan Amount) / $500,000 (Property Value) x 100 = 80% (LVR)
CCR – Comprehensive Credit Report. It is slowly becoming mandatory for all lenders to disclose the loans and cards their clients hold to the Credit Reporting Bodies (CRBs). The history of all these facilities is also listed, which can work in your favour. It means that instead of a lender just looking for a default, they can now look at your entire repayment history and see if you are regularly and timely with any repayments. This can lead to a better outcome in relation to interest rates etc. Like all things, the flip side means that if you have missed a few payments in the last 2 years, then this will also be visible, and a “please explain” may be required. Other areas like telco and utility companies will also be reported, so it is crucial that you stay on top of all your payments to ensure the best outcome with your application.
AIP – Approval in Principle (also known as a pre-approval). If you are looking to get certainty around your borrowing capacity, then you will want to apply for an AIP. The lender will complete a full assessment, including the confirmation of your income and deposit, which will give you surety if you are looking to attend an auction, for example. The AIP is generally valid for 90 days, after which time the lender may ask for updated verifications, like your payslips and bank statements. It is to be noted that not all lenders will complete pre-approvals, so please talk to us and we can help you find a lender that does.
FR – Fixed Rate. This is the rate that will be applied to your loan for a fixed period of time. It means your repayment won’t change even if there are rate changes in the market. Once the fixed rate term has expired, your loan will generally revert to a standard variable rate.
VR – Variable rate. This rate is variable and generally is affected by changes that the RBA makes based on our current economy, among many other factors. Your repayments will be impacted each time the rates change.
P & I – Principal and Interest. This is a loan repayment that is set to reduce the principle of your loan along with covering the interest charges.
I/O – Interest Only. This is a repayment that will just cover the interest charges of your loan, leaving the principal at the original amount. Generally, this would be reserved for investment loans; however, exceptions can be made if it is requested on your owner-occupied home.
Offset – A loan product that has a bank account included. When you put money into the offset bank account, this amount will be deducted from the total loan amount before any interest calculations. For example, if you had $10,000 in your offset with a home loan of $100,000, then your interest would be calculated as though you had a home loan of $90,000. Please note that not all lenders have their offset set at 100% with some only offering a partial offset.
Redraw – This is when your loan account will allow you to withdraw money that you have paid towards your home loan on top of the scheduled repayments. This will add to your loan amount.
Stamp Duty – This is a government tax that is applied to all property purchases. It differs from state to state and is dependent on the house price. There are some cases where the stamp duty is exempt or can be deferred. Please refer to your solicitor if you want more information on this.
Body Corp – All properties that contain more than one dwelling on the title will have a body corporate. This is a fund that covers costs associated with the common areas of the property, such as elevators, pools, gyms, driveways, parks, etc. It is important to understand that this is an annual cost in addition to your property rates and can change over time.
Exchange – This is when you have paid your deposit and the contracts have been signed, but you are not yet the owner. This occurs after you have “settled” and paid the seller the full amount.
We could go on all day, however, I think the above covers the most common ones used.
If you have any more questions, or want help navigating your options, get in touch with us today. Call 1300 815 921 or click here to arrange a no-obligation meeting—we’re here to help you take the next step towards owning your home. There’s also a great range of calculators and guides on our website.
