LMI (Lenders Mortgage Insurance)

Lenders Mortgage Insurance (LMI) protects the lender if you can't make the loan repayments and the lender can't recover the loan balance. 

Keep in mind that an LMI insurer who pays the lender under an LMI policy can then come to you, the borrower, to repay the sum directly to it. LMI protects the lender, not you or a guarantor. 

Loan establishment fee

Establishment or application fees are typically charged by the lender to cover the cost of documentation of the new mortgage. This is a one-off payment of around $200-$700 (depending on the loan), though many lenders waive establishment fees on particular products or for special promotions. Depending on the product, the lender might also charge annual fees and monthly service fees.

Loan to value ratio

The bigger your deposit, the lower your loan to value ratio (LVR). Your LVR is the amount of the loan divided by the purchase price (or appraised value) of the property. For example, if you're buying a house valued at $400,000 and you have a $300,000 loan, your LVR would be 75%.

Official cash rate

Official cash rate (OCR) is the rate of interest that the Reserve Bank of Australia (RBA) charges on its overnight loans and advances to commercial banks (e.g. Commonwealth Bank, Westpac, ANZ). OCR influences the cost of borrowing money and allows the Reserve Bank to influence the level of economic activity and inflation. When OCR decreases, home loan interest rates will often drop too, although various factors may impact interest rates.

Pre-approval (finance)

Pre-approval is a lender's indication they may be willing to lend you a certain amount of money. Pre-approval is usually subject to certain conditions being met and can also be called conditional approval.

Property inspection fee

If you are getting serious about buying a property and want to be certain the building is in an acceptable condition, there are reputable companies that offer pest and building inspections for around $300 to $500. An online search for ‘pre-purchase building inspection’ will present you some options.

Rooming house

A rooming house is a residential property managed by a proprietor (landlord) who makes accommodation available to residents (tenants) on a room-by-room basis. Rooms are available to rent to at least three other people. The sa.gov.au website explains rooming house accommodation in more detail.

Settlement

Settlement is the process of taking legal possession of the property (i.e. receiving the keys). There are some legal and administrative tasks that must be completed on settlement day which are typically undertaken by your conveyancer.

Stamp Duty

Stamp duty is a government charge on certain transactions, including real estate. It is charged at either a flat rate or a rate based on the price of the property (i.e. the higher the price the higher the stamp duty).

Refer to RevenueSA for more information that can assist to estimate the amount of stamp duty payable on a property.

Valuation

A bank valuation is a conservative estimate of the value of the property you are planning to buy. It allows the bank to determine if they could recover the losses associated with the loan, should you be unable to make your repayments. 

Lenders can sometimes charge to cover the cost of having your property valued by a third party. The fee can vary depending on the location of the property but typically costs between $100 and $300. Some lenders offer a free valuation. 

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