At The Mortgage Supply, we understand that buying a house can be confusing. We’re not all fluent in housing jargon so a fun and exciting time in your life could soon turn frustrating. Luckily, I am property fluent and have compiled an A to Z for your reference. Or you could just pick up the phone and I’ll be happy to explain the process to you in plain and simple English.
Auctions have become the preferred method of sale in New Zealand. Auctions are simply put a bidding war and the person who wants to pay the most wins. Auctions are always unconditional so finance, LIMs and building inspections must always be arranged before you bid.
When the property is listed as private treaty there will be an asking price which is the advertised price for the property. It can be negotiated in accordance to demand so it may not always be the same as the sale price.
On top of the apartment sale price, you may have to pay an annual body corporate. This is a fee that covers the communal space and upkeep of the apartments.
Once the sale becomes unconditional, it’s yours along with the leaky roof, flooded basement and everything else at fault. That’s why it’s essential to carry a building inspection before you finalise the Sale and Purchase Agreement.
This is the difference in the price you paid for a property and the amount it is or can be sold for.
In the Sale and Purchase Agreement, you can outline all the conditions you want to be satisfied before the sale becomes unconditional. This can include getting a loan approved or any building works agreed between the vendor and buyer.
This is the amount you need to secure your home loan. Lenders generally require a minimum deposit of at least 20 percent of the amount borrowing. There are exceptions and we will be more than happy to help you secure a mortgage on a low deposit.
The equity in your house is the difference between what you owe the lender and the market value of your house. The equity is increased as you pay more off your mortgage and the property rises in value. The equity in your house can rise and fall with the property market.
Fixed Rate Mortgage
For a fixed initial period, the interest rate on your mortgage stays the same so you are paying the same on your mortgage each month. This provides security but means you cannot take advantage of the market movements or pay your loan off faster.
Floating (Interest) Mortgage
Also known as a variable rate, the interest rates go up or down according to the market movements determined by the Official Cash Rate (OCR). Some months you will be paying more interest, others you will pay less.
When you purchase freehold, you own the property and the land on which it stands. In general, houses are bought and sold as freehold and apartments are leasehold.
If you are unable to obtain a loan for financial reasons, you may ask a family member or close friend to act as a guarantor. This is a legal responsibility in which they become responsible for any missed payments and interest accrued. A guarantor does not have the rights to the property even if they end up paying it off. Think carefully before acting as a guarantor.
Interest only loans
This is when you only pay the interest owed on the home loan, so the outstanding loan amount will remain the same. You are relying on the equity in your house to increase by its market value to pay off the principle at the end of the loan period.
Land Information Memorandum (LIM)
A LIM report is obtained from a city council and contains all the information held on a property such as any resource planning consents and special conditions.
You own the building but not the land it stands on. This is common in apartments. While leasehold is generally more affordable, it can be more difficult to finance and the landowner, not the property owner will benefit from the increasing value of the land.
You can use your current home to get a mortgage on a new purchase by freeing up the equity. You are basically borrowing against your current home.
Loan term/Mortgage term
This is the period you loan is taken out and promised to repay.
Loan to Value Ratios (LVR)
The LVR is calculated by dividing the amount of the loan by the value of the property. In New Zealand, banks are capped at giving out 10 percent of their mortgages to owner/occupiers with less than a 20 percent deposit (high-LVR). For investors, banks may only agree to 5 percent of their lending to those with less than a 40 percent deposit (high-LVR).
This is when your house value and the equity you have built up in it falls below the amount that is left on your mortgage.
Is where the income from a investment property is insufficient to meet to meet the interest costs of the loan. Costs can include interest rates, maintenance expense and agent fees.
If you have savings in your accounts, you may benefit from an offset mortgage to reduce your interest rates. With an offset mortgage you only pay interest on the amount of the loan owing minus the amount of your savings.
If you carry out renovations on the property that cost more than the value it adds, the costs cannot be recouped when the property is sold.
Principal and Interest Loan
Your mortgage (principal) is paid off over the agreed term along with any interest owed on the remaining loan. As you pay off more principal, the interest is reduced.
Sale and Purchase Agreement
A Sale and Purchase Agreement is essentially a contract that outlines all the terms and conditions of the sale or purchase. It is decided by and agreed upon by both parties before it is signed. Once it is signed, it becomes a legally binding contract by which there are agreed penalties and repercussions should the contract be defaulted. Find out more about sale and Purchase Agreements.
The settlement day is when all the clauses in the Sale and Purchase Agreement have been satisfied and the funds and documents are exchanged.
If you are in a fixed term loan, you may pay a break out fee to take advantage of the market movements. Find out more about refixing mortgages.
What may have been right for you a few years ago may not be now. Refinancing is the process of obtaining a new loan which better suits your current needs. Reasons may include wanting a more flexible repayment structure or looking to free up equity. Find out more about refinancing.
Buying tender is a confidential process in which interested buyers make an offer by an agreed date. The vendor can choose the offer they would like to go with. It’s not always the highest offer that wins; vendors will also consider the number of conditions they want satisfied in the Sale and Purchase Agreement.
If we haven’t covered what you are looking for, give me a call and I’ll be happy to help.