8 Financial Terms You Should Know When Buying A House
When it comes to buying a home there can be a lot of jargon. Here, we clear up some of the financial terms associated with the purchase of a new house.
A comparison rate is the true cost of your loan. Looking at this rate allows you to compare rates between lenders easily. Not only does it look at the interest rate, it also considers the fees and charges. Expressed as a single percentage rate, you can easily compare it against various loans from a variety of lenders.
Payment of a compliance bond is sometimes required at settlement. The bond is a one-off payment designed to ensure that a contractor, builder or developer is acting in accordance with the rules and regulations of the local municipal council. Your bond will be returned to you subject to final completion of your home, landscaping and fencing as set out in your approved Development Application.
Conveyancing is a necessary process when buying or selling a property. A conveyancer or conveyancing solicitor is used to help transfer the title of a property from one person to another. Using a conveyancer will ensure that all your rights and legal obligations are met and protected during the process of transferring property titles.
COOLING OFF PERIOD
The cooling off period is a set number of days after the sale of a property during which the buyer can back out of the purchase, even if a contract has been signed. Be aware that a cooling off period doesn’t exist in some states or in the case of auctions. The length of the cooling off period varies from state to state and, in some states, you need to pay a financial penalty if you back out from the sale. Always ask about the cooling off period before assuming you can rely upon it.
Not a commonly used term in Australia, although you may have read or learnt about this term when reading about buying a house online. When your money is in “escrow” it is held in a trust by a third party to be kept safe until a specific event occurs, like the sale of a property. The funds are only released when all the terms of the transaction are met. Escrow accounts can be useful when large sums of money are changing hands and a variety of terms need to be met before the deal is done.
Your mortgage rate is the amount of interest you pay on your mortgage. Mortgage rates are described as fixed or variable. A fixed rate mean you lock in the interest rate for a period of time, while a variable rate will change depending on changes in the economy. Talk to your broker about which kind of rate is right for you. A combination of the two is often available too.
An offset account is an account that is set up with the same lender that you have your mortgage with. The interest earned on this account offsets the payments you need to make on your mortgage. In other words, the interest earned on your offset account is deducted from your mortgage payments to reduce the payment needed on the loan each month.
Settlement is the process of transferring property from one owner to another. The time between when you sign your contract and settlement can vary depending on whether you are buying a registered or unregistered block of land. Generally, if your land is unregistered, settlement will occur within 14 days of the Deposit of Plan. If your block of land is already registered, settlement will generally occur within 28 days of the contract date. Once all the relevant mortgage documents are signed, the land title will be transferred into your name. Always ask your solicitor or conveyancer about your settlement date and ensure you put the date in your diary.