Mortgage and Financing Jargons Demystified: Understanding Legal Terms When Getting a Loan in Victoria

Navigating the property market in Victoria can often feel like deciphering a foreign language. The myriad of legal and financial terms can make the process seem more daunting than it needs to be. However, fear not! As your trusted legal experts, we're here to break down some of the most commonly encountered jargons when buying property or securing a loan in Victoria.

1. Mortgagee vs. Mortgagor

At the core of every property purchase financed by a loan, you'll encounter these two terms.

• Mortgagee: This refers to the lender, often a bank or a financial institution, that provides the loan.

• Mortgagor: This is you, the borrower. You're granting the mortgage as a security for your loan.

2. Principal & Interest

The principal is the amount you borrow, and the interest is what the lender charges for lending you the money.

• Principal: The initial amount of the total loan without interest.

• Interest: The cost of borrowing money. In Australia, this can be charged at a fixed or variable rate.

3. Lenders Mortgage Insurance (LMI)

If you're borrowing more than 80% of the property's value, you might be required to pay LMI. It's a one-off insurance payment that protects the lender if you can't meet your loan repayments.

4. Comparison Rate

A tool to help you identify the true cost of a loan. It factors in the interest rate, fees, and the term of the loan to give you a clearer picture of what you'll be paying.

5. Equity

Equity is the difference between the property's market value and the amount still owed on it. As you pay off your loan or if your property increases in value, your equity rises.

6. Redraw Facility

A feature on some loans allowing you to withdraw any extra repayments you've made. This can be handy for unexpected expenses, but there may be fees or limits.

7. Offset Account

This is a savings or transaction account linked to your home loan. The balance of the offset account is deducted from your loan amount before interest is calculated, which can save you a significant sum in the long run.

8. Stamp Duty

An Australian state tax. In Victoria, when you buy a property, you're required to pay stamp duty, which is based on the property's purchase price. It's essential to factor this in as it can be a substantial amount.

9. Conveyancing

The legal process of transferring ownership of a property from the seller to the buyer. You'll often engage a conveyancer or solicitor to manage this for you.

10. First Home Owner Grant (FHOG)

A national scheme that offers a one-off payment to eligible first home buyers to help them purchase a property. The amount and eligibility criteria can vary, so it's crucial to check the details specific to Victoria.

11. Cooling-off Period

After signing a contract of sale in Victoria, there's typically a three-business-day cooling-off period, allowing you to change your mind. However, it's worth noting that this doesn't usually apply at auctions.

12. Fixed vs. Variable Rate

These refer to the types of interest rates available.

• Fixed Rate: The interest rate remains unchanged for a set period, making your repayments predictable.

• Variable Rate: The rate fluctuates based on the market, meaning your repayments can go up or down.

13. Guarantor

A person, usually a family member, who offers their property as security for your loan. It's a way to help you get into the property market, especially if you're short on a deposit. But, remember, if you default, they're responsible for your debt.

14. Valuation

Before lending you money, a lender will often require a valuation of the property to ensure it's worth the purchase price. This ensures the property is a good security for the loan.

15. Settlement

The final stage of your property purchase. It's when ownership is transferred to you, and you pay the balance of the purchase price. It typically occurs six weeks (or 42 days) after the contract is signed, though it can vary.

In conclusion, the world of property finance doesn't need to be an enigma. By understanding the fundamental terms, you'll be better equipped to navigate the process smoothly and make informed decisions. Always remember that our team at Verge Legal is here to assist, guide, and represent your best interests every step of the way. After all, buying property or securing a loan in Victoria should be an exciting milestone, not a maze of confusion.

Verge Legal provides legal advice regarding property and conveyancing matters in all states in Australia, contact us today if you need assistance.

This blog post provides general information and is not intended as legal advice. It may not be complete or up-to-date. For specific legal advice, please consult a qualified lawyer.