Glossary of terms

COS:

Contract of sale, also known as offer and acceptance.  This is the form you complete and sign when making an offer on a property

Credit card:

A credit card account has a fixed limit and you can buy goods and services and even obtain cash using that card.  If you make a cash advance then interest is payable immediately.  If however, you make no cash withdrawals and pay the closing balance by the last day of the interest free period then no interest will be payable.

Debit card:

A card providing access to your savings account via ATM, Bpay or EFTPOS.  Unlike a credit card, you are spending your own money.

DSR:

Debt servicing ratio. This is the percentage of your gross income being used to make loan payments.  For example, if your annual loan payments are $60,000 and your gross annual income is $100,000, the DSR is 60%.  Loan payments includes home loan, credit cards, car loans etc.

Equity:

Equity is defined as value of your property less any amount owing.  For example, if your property is worth $1m and you owe $200,000, your equity is $800,000.

FHOG:

First Home Owner’s Grant.  In WA, there is no grant for established properties but a grant of $10,000 is available for a new property that hasn’t previously been occupied eg: an off the plan apartment or for construction of a new home.  There is no stamp duty payable for properties with a purchase price of $430,000 and below.  Above $430,000, stamp duty is payable at a discounted rate but the amount of the discount diminishes until at $530,000 and above, there is no discount at all.  It is a requirement that you live in the property within 12 months of settlement or completion in the case of construction of a new home and you must live there for at least 6 months.

Gross Income:

Amount earned before tax

Interest only:

Interest only payments means you are only covering the interest charged each month ie: you are not paying anything off the principal so the loan balance remains unchanged.

Line of Credit:

A type of home loan whereby a permanent limit is approved.  It is basically an overdraft at a home loan rate albeit a premium usually applies.  If the limit was say $200,000, you can operate within this limit forever and a day without ever having to repay the principal as the payments are interest only.  In the wrong people’s hands, a line of credit can be a disaster whereby you go round and round in ever decreasing circles like a one legged duck.  In theory, after 30 years you might still owe the original amount you borrowed.

Living expenses:

Your day to day living costs over and above any loan payments. These include food, insurance, utilities, shire/water rates, rent, transport eg:petrol, bus/train fares, education, maintenance, entertainment, mobile phone, internet etc

LMI:

Lender’s mortgage insurance. This is payable if you are borrowing more than 80% of the purchase price of your home. It protects the bank not you and covers the bank for any shortfall in the event of legal action not realising sufficient funds to cover the outstanding debt.  You are then liable for that shortfall to the mortgage insurer.

LVR:

Loan valuation ratio. This is the loan amount divided by the value of the security property.  For example, the LVR on a loan of $800,000 secured by a property worth $1m is 80%.

Net income:

Amount received after tax

O&A:

Offer and acceptance, also known as contract of sale. This is the form you complete and sign when making an offer on a property.

Offset Account:

A normal everyday transaction savings account which has an additional feature called mortgage offset or 100% offset. With an offset account linked to your home loan, you can save interest and cut the term because interest on your loan is calculated on a daily basis on the outstanding net balance between the offset account and your home loan.  For example, if you owe $315,000 on your home loan but have $15,000 in your offset, the net balance is only $300,000 so you only pay interest on $300,000.

P&I:

Principal and interest.  This means you are paying off the loan over what is usually a maximum term of 30 years.

Redraw:

The amount of surplus funds sitting in your home loan and available for you to withdraw.

Stamp duty:

A tax levied by the State Government based on the purchase price of your property.  Exemption or a discount may be available to first homebuyers.

TOL:

Transfer of land.  This is the document prepared by the settlement agent to transfer the purchase property into your name.