Investment Property and Understanding Finance terms
With Self-Funded Freedom’s team of qualified professionals guiding you we take care of everything and understand the language of investing from A-Z. For many new investors the language used by the professionals involved can seem like a foreign language so hopefully, the below will serve as a helpful guide.
Offset account: A transaction account that you can link to an eligible home loan. The money in the offset account doesn’t earn interest but instead offsets your loan balance and reduces the interest you pay on your loan.
A mortgage is commonly used to secure a loan from a lender.
Loan to value ratio (LVR)
The total you’ve borrowed for your loan as a percentage of your property value. For example: if your property is valued at $400,000 and you’ve borrowed $320,000, your LVR is 80% ($320,000 divided by $400,000).
Moving your home loan from one lender to another
Variable interest rate
An interest rate that can go up and down over time. If you have a home loan with a variable interest rate, your repayments can change when the interest rate changes
Fixed interest rate
An interest rate that stays the same for a set period of time e.g. 2 years. If you have a home loan with a fixed interest rate, you’ll know exactly how much your repayments will be for this period.
Settlement or settlement date
When the sale or purchase of a property is completed and ownership of the property is transferred.
Stamp duty is a government charge or tax. The amount you pay depends on the value of the property, the state or territory in which it’s located, and whether you’ve purchased a property before in Australia.
A valuation is an opinion about the market value of a property asset at a specific date, by a person authorized to undertake valuations for security purposes.
Off the plan
When you commit to buy a property based on plans before the property has been built. ( Always important to include a “subject to finance” clause)
A loan specifically for the building where you can draw down the loan progressively and only pay interest on the amount you’ve used.
When you live in the property you have the home loan for
Loan provided for the purposes of purchasing or building an investment residential property.
Principal and interest repayments (P&I)
The loan principal is the amount of money you borrow and the interest is the cost charged to borrow this money. The interest rate on your loan, the amount you borrow, the length of the loan term, and the required repayment amount on your loan will determine how much interest you pay over the life of the loan
The minimum payments only cover interest charges on the loan. Interest-only repayments are for an agreed period of time.
A person, company, or trust that helps you secure a loan by offering their own property (or properties) as additional security for your loan. If a company or trust is the borrower and is unable to service the loan, a guarantor can also help by contributing additional income. Guarantors cannot contribute additional income where the borrower is an individual.
The process of transferring a property from one owner to the next. You’ll need a lawyer, solicitor or licensed conveyancer to do this for you