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@*#$ Decoding Finance Jargon

Knowing where to start with investment finance or even lending for your own home can be daunting, for even the most savvy investor.C = (M -v) + 1111

The most frustrating part is, undoubtedly the industry jargon that is used when it comes to property and finance. I think we may be one of the biggest offending industries when it comes to jargon use.  There is nothing worse than trying to do research when you have to consistently keep referring to Google to work out what the lender is offering.

To be completely honest even I am guilty of ‘slipping’ into industry speak from time to time. Imagine the dinner conversations at my house, when both my husband and I are mortgage brokers. Even our own kids have no idea what we are talking about !

The good thing about this is that we’ve implemented a Q & A type section in all of our customer communications as we  never assume that one persons level of knowledge is the same as the next ones.

Whilst I was developing those templates, I also came up with the table below to help explain the most commonly used terminology.  It is no way a complete list but will it should be enough to keep you off Google.

Term Meaning
LVR Loan to Value Ratio. Eg your house is worth @$500,000 and you owe $250,000 your LVR is 50%
LMI Lenders Mortgage Insurance. The policy you have to pay if you are borrowing over 80% of the property value. Covers the bank in the event of a loss and not you
Serviceability This can also be affordability.  The calculation your broker will perform to make sure you can afford the loan taking into account all your income and outgoings together with supporting your dependants each month
A & L Asset & Liability Statement.  This is a detailed account of what you own (asset) and what you owe/pay regularly (liability)
COS Contract of Sale. Quite simply the contract you sign when purchasing a property
Val Valuation.  I’m going to be very general here. In most cases a lender will complete a valuation on any property being used as security for a loan.  This can be a full inspection by an independent valuer appointed by the bank or a ‘virtual’ or ‘desktop’ valuation which does not require a full inspection. The decision as to which is performed is totally up to the lender and relies on many different things.
Funds to complete This is the money you are going to use to buy a property. E.G you are buying an investment property for $350,000 and have 20% deposit.  The deposit, plus the money you are going to use for stamp duty, solicitors fees and any other associated costs are the ‘funds to complete’ the purchase. The other 80% is being borrowed from a lender.
Conditional Approval This is a type of approval issued by a lender. It means that they are generally okay to proceed with your application as long as certain conditions are met.  This is not a formal approval.
Unconditional Approval This can also be called ‘formal approval’.  This means that the lender has satisfied themselves that you are suitable to lend and the property is suitable to be taken as security.  Generally speaking as long as your mortgage documents are executed correctly and you have the ‘funds to complete’ this loan is going to be funded/given to you.  This is the type of approval you will need to satisfy a finance clause in a contract
On completion/TBC This is a type of valuation that is performed on a property that has not yet been built.  TBC also stands for To Be Completed. The valuer will rely on the plans of the property and the builder’s contract instead of being able to actually inspect the property.  The valuer then gives an ‘on completion’ value to the property.
Cross – Collaterisation Also referred to as Cross-Coll or Cross – Securitisation (it can be a mouthful to pronounce).  This is when a loan or loans are secured by more than one property.  The property values are added together to show a total value and there the properties are ‘crossed’. E.G you have 2 x rental properties that are worth $200,000 each.  You could have a mortgage on each of those individually (or stand-alone) or you could ‘cross’ them to create a total value of $400,000.  The main benefit of this strategy is to avoid Lenders Mortgage Insurance, and keep your total lending below 80% of the value.
Construction Loan I know this is self-explanatory – it means lender to construct a new property. A construction loan, means that in most cases the land will settle and then the builder is paid at regular stages throughout the construction of the property (progress payments) as long as each is completed to standard. This is opposed to the next item.
Turnkey/House & Land Packages This is when one full payment is made to the seller/builder on completion of the property and after the council regulations are satisfied.

 

What are your experiences with industry jargon ? Is finance the worst offender ?  Leave your comments below the link where you first read this article.

 

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