Many property investors we work with educate themselves using blogs, websites, and other online resources–which is fantastic. However, many of them still look a little confused when we use language that’s quite specific to the investment property world.
So, in this article, I’ve defined 31 property investing terms you’ll need to know if you want to walk the walk and talk the talk of a seasoned property investor. Let’s dive right in…
31 Property Investment Definitions
“Approved In Principle”
When a loan is “approved in principle” it means the bank has provided an indication of how much they may be able to lend you, based on fundamental loan application information (your income, savings, assets, etc.). Approved in principle is also known as “pre-approval”.
Bridging finance helps you finance a new home before you sell your current home. Bridging finance is usually a short-term loan.
Capital growth, usually expressed as a number or percentage value, demonstrates how much a property has grown in value over time.
A comparison rate is used to help consumers compare the ‘real’ costs of loans and lending products against each other. A comparison rate is calculated using a combination of the loan’s interest rate, loan fees, and other loan charges.
A bank or lender will give you conditional approval for a loan application after it has been assessed and most details validated (including a credit check), pending final documentation (such as a Contract of Sale).
A construction loan is a lending product that funds the construction or renovation of a dwelling. Construction loan funds are released in stages, as a builder progresses through different construction milestones.
Conveyancing is the process of moving ownership of a property from one owner to another. A ‘conveyancer’ carries out the process of ‘settling’ a property (see “Settlement” below), and must be a legal professional or carry an appropriate license.
Cross-collateralisation is a lending strategy whereby multiple properties are used to secure the mortgage for one property. Cross-collateralisation is usually implemented when buying an investment property. Click here to learn more about this strategy.
Depreciation occurs when the natural wear and tear of a property causes its value to decline.
In the context of property investment, a depreciation schedule tracks all depreciating items inside of a new investment property and helps you claim appropriate tax deductions when needed. Please note, this isn’t tax advice.
A discharge occurs during a property refinance and is the process of changing the name of the lender on the property’s title.
Equity is a metric used to determine how much of a property is NOT encumbered by finance. Equity is calculated by subtracting the balance of your mortgage (ie. what you owe the bank) from the market value of your home. Your home’s equity can be fluid, depending on market fluctuations. Equity is usually expressed as a dollar amount.
A family guarantee happens when a family member provides a property, or part of a property, as security against a loan for another property. Family guarantees usually occur when parents help their children buy their first home.
“Fixed Interest Rate”
A fixed interest rate is an interest rate on a mortgage that stays at the same percentage for an agreed period of time, ie. one year, three years, etc. This means that the repayments on the mortgage will not change over the agreed fixed period.
A guarantor is someone who provides their property (or other suitable collateral) as a second layer of security for your home loan. Very similar to a family guarantee.
“Interest Only Repayments”
Paying ‘interest only repayments’ on a mortgage means you’re only paying interest owed to the bank, and are not paying down any of the principle borrowed to purchase the property. Interest only (“IO”) loans are often used for investment properties, where it’s not desirable to pay off the principle (and the investor is only relying on capital growth).
“Lenders Mortgage Insurance”
Lenders Mortgage Insurance, or “LMI” is insurance your lender takes out to protect themselves if you are unable to pay your regular repayments. You, the borrower, must pay LMI if your lender chooses to take out a policy. However, it is usually only paid if you are borrowing more than 80% of the property’s value.
“Loan to Value Ratio”
Loan to Value ratio, or “LVR” is a metric that indicates how much you have borrowed against the total value of the home.
An offset facility is a feature offered by some home loan products that allows you to reduce the amount of interest you pay on the amount you’ve borrowed, by placing savings into an offset account. The balance of the offset account will ‘offset’ the amount of money you owe, and therefore reduce the interest you pay.
See “Approved In Principle”.
“Principle & Interest Repayments”
Paying a mortgage’s ‘principle and interest’ means that your repayments are paying both the bank’s interest AND the amount that you borrowed (known as the “principle”) to purchase the property.
A progress payment is a payment made to your builder as they complete certain milestones of your renovation or new home build.
Refinancing is the process of moving your mortgage from one lender to another, usually to get a better rate or loan conditions.
A redraw facility is a feature of some mortgages (not all!) that lets you ‘re-borrow’ some of the money you’ve paid off early. In other words, if you make extra repayments, the bank may let you ‘redraw’ them for any purpose you see fit.
Rentvesting occurs when a property owner leases their property to a tenant however chooses to rent the home they actually live in. Rentvesting usually happens when a property owner can’t afford to buy in a certain area, so they rent there instead while purchasing a property in a more affordable area.
You could ask your bank or lender for a repayment holiday if you want to stop making loan repayments for a short period of time. In most cases, you are only eligible for a repayment holiday if you have made extra repayments in the past.
Settlement happens when a ownership of a property transfers from the seller to a buyer. Settlement is usually conducted by a conveyancer.
A split loan occurs where a certain percentage of the loan has a variable interest rate, and the remaining percentage is a fixed interest rate.
Stamp duty is tax paid to the government when a property is sold. The buyer pays stamp duty.
Unconditional approval is given to a loan application that successfully meets all of the lender’s requirements, and indicates that the loan will be funded.
“Variable Interest Rate” Unlike a ‘fixed’ interest rate (see definition above), a variable interest rate can change at the discretion of the lender.
Are These Terms A Little Too Complicated For You?
Of course, you don’t need to remember all of these definitions–that’s what we’re here for. If you’re looking for an expert team to help with your property investment journey, request a Free 30-Minute Finance Strategy Session during which you will…
- Gain greater clarity over where you want to be in terms of owning investment properties (and how to structure your loans to get there the fastest, safest way)
- Discover how to unlock the equity in your current properties, so you can build your portfolio – and your wealth – faster (and enjoy a better lifestyle now and in retirement)
- Discover clever, no-cost ways to save money on interest, fees, and charges — immediately
- Get an up-to-date picture of the lending landscape including rates, conditions, and how to structure loans for cashflow positive investors
- Learn about our process to find you a better loan that will save you thousands.
This no-obligation session will be held with one of our experienced mortgage brokers.
Please be assured this will not be a thinly disguised sales presentation. On the contrary, you’ll receive our best strategic advice, specific to your situation, so you too can accumulate multiple properties without sacrificing your current lifestyle and accelerate your progress towards wealth.
Please note, the numbers and assumptions listed in this article are for educational purposes only. Individuals should seek specific advice pertaining to their unique situation and the real estate market before making any decisions.
Trilogy Funding Two is a corporate credit representative (Representative Number 506131) of BLSSA Pty Ltd, ACN 117 651 760 (Australian Credit Licence 391237)