Finance jargon explained

Demystifying the language used in finance when building a new home.

Most business can talk in acronyms or language that relate to their particular field… financial institutions and builders are no different. The only difference is, you’re spending a lot of money with a new home builder and the ‘jargon’ needs to be up front and understandable for all parties. 
 
We have put together a list of terms you will come across that may help you navigate your way through. And, of course, we are here if there are other terms you come across that you’re not quite sure of. 

• Pre-Approval – When a lender formally advises how much you can borrow. Once you have this, you can start looking for your home and land. 

• Stamp Duty – A tax imposed by the Government on top of the purchase price of your property. This is paid on the land component only, not the new build but will need to be factored into your budget. 

• Borrowing Capacity – How much you can borrow based on your current financial status. 

• Lenders Mortgage Insurance (LMI) – Generally charged if you have a deposit of less than 20%. This protects the lender, not you, in the unlikely event that you can’t pay back your loan. 
   

• FHOG – First Home Owners Grant -  an incentive from some state governments that provide a cash incentive off the total loan cost for building your first home as opposed to buying an established property.  

• Principal & Interest – this means as you pay your loan repayments, what you owe the bank, decreases as well. 

• Interest Only Period – Often occurring while under construction, this means you only pay the lesser amount with the interest portion of your loan, where the total amount you owe the bank remains the same.  
   

• Authority to Commence (ACC) – A letter from your bank notifying the builder they are happy with everything and the builder can start on site. 
   

• Payment Plan - The payments on a new home build are very different to any other loan you may receive. 
  
  Instead of paying the full amount in one go, home builders operate on progress payments so that you can still afford to pay for your current residence while your new one is under construction.  
  
  Firstly, you’ll pay initial deposits with the builder which come off the total amount owing, then as each stage claim is reached at milestones like the slab being poured and the frame going up – your builder will invoice you a predetermined percentage of the total value.  
  
  The amount and stages cannot be negotiated as it’s determined within your building contract and governed by state industry bodies and standards.  

Need more support? - We are here to help
Burbank can help you navigate through your building journey and explain all the tricky language. 

Want to chat with a finance expert? We have you covered.
At Burbank as part of our service we offer a free consultation with a home loan expert from our finance partner National Pacific Finance (NPF).  To book your obligation free appointment talk to a new home consultant today.