Demystifying Mortgages And Its Jargon
This month we thought it was a good idea to get stuck into demystifying mortgages a little bit by explaining some of the jargon in our industry because there is so much of it!
OCR – The Official Cash Rate,
Set by the Reserve Bank. It affects the price of borrowing and savings in New Zealand and influences economic activity and inflation
LVR – Loan to Value Ratio
A measure of the amount of debt against a security (or group of securities) as a percentage. Owe $100,000 against a $200,000 property and you have an LVR of 50%
DTI – Debt to Income Ratio
A measure of household debt versus total gross income. Have $200,000 of gross income and total debt of $1,000,000 and you have a DTI of 5 to 1. Some banks use this measure to cap how much someone might borrow.
UMI – Uncommitted Monthly Income
The amount left over after all obligations are met, including the home loan you are applying for. Home loan repayments are calculated with a higher rate than is available in the market (a stress test or buffer rate) to ensure you can meet obligations in the future should rates go higher. Lenders will have a minimum Umi requirement for different circumstances that must be met to gain approval.
RV – Registered Valuation
A report that gives a value to a property and is provided by a Registered Valuer. The valuer will visit and inspect the property, measure it all up and compare with suitable sales of similar properties in the area to arrive at a value that lenders will use to measure a security value.
CV – Capital Value
The Capital Value of your property is used by the local council for rating purposes (setting how much rates the owner will pay) and is often mistaken for a measure of market value. Used to be called RV or Rateable Value and also GV (Government Value)
AVM – Automated Valuation Model
Is supplied in New Zealand by data providers Corelogic or Valocity. The report is created by running a variety of algorithms and close to real-time data science to produce a security value for a property. Banks use either of these two companies to provide the reports and many advisers also have access to this data. The report can be used by banks in most circumstances and avoids a costlier Registered Valuation.
CCC – Code of Compliance Certificate
Is issued at the end of a renovation or build process that originally required a building consent. If a bank lent for the project they usually retain a small portion of the loan at the end until the CCC is evidenced. If the property is a new build and lending is drawn down in full in order to purchase then the bank will want the CCC before settlement can take place.
AML- Anti-Money Laundering
AML requirements were introduced to the financial services industry to help detect money laundering and funding of terrorist activities. Obligations to identify the customer properly, identify suspicious transactions and having robust reporting processes were put in place. In the main you will notice this when opening bank accounts or applying for a loan. You’ll need to have good proof of ID and address.
P & I – Principal and Interest
Probably the most common loan payment type where each payment contains both a principal and an interest component. Over the term of the loan the principal component usually increases and interest decreases until the loan is paid off.
IO – Interest Only
Generally, the domain of the property investor an interest only loan carries no repayment of principal and therefore is less than what the P & I payment would be.
LIM – The Land Information Memorandum
Details the Council record of a property. It usually includes rates information, consents or any notices/requisitions, District plan classifications, any details on potential land issues (ie flood plains). Bottom line is you should always get a LIM and liaise with your solicitor on your understanding of it.
CT – The Certificate of Title
Is a legal document that details the owners of the property (past and present) and any rights or restrictions that apply to the land and what type of title it is (such as freehold or leasehold).
Adviser
A Dedicated Valued Influencer Sorting Everyone’s Rates (and Mortgages)
I made the last one up 🙂 all the best.
