If you’re new to the property market cutting through real estate agent spin and debunking the jargon can be a challenge.
So let’s unpack a few key things.
The deposit is usually 10 per cent of the property’s price, unless a lesser amount has been negotiated, and is paid at the time the buyer makes an offer. If buying at auction the deposit must be paid on the day. The remainder of the purchase price is paid on the “settlement date”, which is specified in the contract of sale. If the contract conditions are not met, then the deposit is refundable
If you’re buying at auction the sale is final and there is no cooling-off period. A cooling-off period generally applies to contracts for the sale of residential property purchased outside of an auction. These vary from state to state, so check the limits in your state.
In most jurisdictions a contract is exempt from the cooling-off period under the following circumstance: a sale by auction, a follow-up sale after an unsuccessful auction (before 5pm on the second business day) in which the buyer was a registered bidder, an option contract (or a sale contract formed as the result of an option contract)
Certificate of title
An official document detailing the location and ownership of a property. When a property is sold the new owner’s name is registered on the title. It’s important to check that the title is free from “encumbrances”—obstacles relating to the way the land can be used—such as caveats, easements (which give another person a right to use the property for a set purpose eg. sewerage, drainage, right-of-way), leases, and mortgages.
Conveyancing refers to the legal process of transferring the title for a property from one party to another. Conveyancers provide advice to buyers and vendors with the goal of enabling a smooth and legally sound transaction.
The home loan
Fixed v variable
Repayment rates for variable home loans fluctuate based on the lender’s variable mortgage rate. A fixed rate provides more certainty by locking in a repayment rate for a period of time.
Offset v redraw
A mortgage offset account is an everyday savings bank account that is linked to a home-loan bank account. It generally only applies to variable-rate home loans. Offset accounts work by deducting (or “offsetting”) a savings balance against the amount owing on the mortgage. This means that rather than earning interest on the savings balance, the amount of interest owed on the mortgage is reduced instead. Redraw is an alternative option which allows borrowers to earn interest on extra repayments which can be withdrawn if needed.
Lenders Mortgage Insurance (LMI)
LMI is designed to protect mortgage lenders from clients who encounter financial hardship and subsequently default on their loans. Rather than an upfront fee, LMI is usually an additional fee applied to directly to a home loan. A financial institution can make a claim if a borrower defaults on (is unable to pay) a loan and the subsequent sale of the property doesn’t cover the value of the mortgage.
Home buyers are typically required to pay LMI if they have a deposit of less than 20 per cent of the cost of the property. Buying property without a deposit of at least 20 per cent is considered risky, and is not usually recommended.
More information on the features of a good home loan, and how to find one, can be found on the government’s Money Smart website.