Glossary of Terms

As you apply for a home loan, you will come across quite a few strange words. Most of the time, you might not know what they mean. Here follows a list, in alphabetical order, some of the words and phrases you will find:

A

Agreement of Sale

This is basically the contract that is signed by the Buyer and Seller and stipulates the terms and conditions of the sale of the property between the two. It is often referred to as a Deed of Sale.

B

Building Loan

A building loan is a form of a home loan and is ideal for companies or individuals looking to take out a loan to build a property.

Bridging Finance

This is a short-term loan and taken out to when a larger amount is paid to the applicant. This amount basically bridges funds until such a fund becomes available to pay back the bridge amount, with interest.

Bond Protection

A bond protection is basically a life insurance that will cover the lender for the same amount as the mortgage/bond of the financed property.

Bond

Sometimes also referred to as a mortgage, a bond is a loan that a bank or finance institute provides a lender and uses the property as collateral.

C

Costs Clause

This is a clause located inside a loan agreement and basically secures an amount (excluding initial home loan amount) that will be used for potential costs such as legal fees, costs of attachments, interest, penalties, etc.

Conveyancer

A conveyancer is normally an attorney or a lawyer, that is qualified to compile legal documents, do the transfer of the property and register mortgage loans.

Consolidation of Debt

A debt consolidation debt is a combines multiple loans under one single loan. When a lender takes out a consolidated loan, all other loans, such as a bank draft or credit card, is paid in full and the lender only has to repay one loan amount. Most of the time, this single loan repayment amount is much lower than the combined amount of each loan previously paid. This also means that the repayment amount is also extended as the repayment amount is much lower.

Cooling Off Period

A cooling off period is normally a 5-day period where a Buyer has the option to cancel the offer to purchase. The cooling off period clause can be found in the purchase or a sale agreement and applies to properties with a purchase price of R250 000 or less. A seller and a buyer may also agree on a cooling off period between themselves if so desired.

Cession

A cession is when a seller transfers its rights to a buyer, e.g. the transfer of rights of ownership of a property.

Capital Gains Tax

Capital gains tax is a tax that is paid on profit a seller, whether an individual, company, corporation or trust when selling a property or an asset of capital nature. This tax is calculated when such a property changes ownership. This type of tax does not apply to the seller’s primary residence.

D

Domicilium Citandi et Executandi

This is a latin legal term and is a legal address a party nominates as the address where all legal documents may be sent to. Whenever this nominated address changes, the onus lies with the party to notify any other parties about the change of address.

Deposit

A deposit is an amount that a purchaser contributes to buying an asset or property. This amount is deducted from the total price of the asset being bought and the difference is then financed by a bank or financial institution.

e.g. sell price = R250 000; deposit amount = R50 000; financed amount through a bank = R200 000

Deeds Office

A deeds office is a regional governmental department where the rights and interests of an immovable property are registered.

Deed of Sale

Also called the Agreement of Sale – is a legal document stipulating the terms and conditions of the sale of a property between a buyer and a seller.

Deed

A deed is a legal term of a legal document has to be signed, witnessed and send to a conveyancer or attorney to initiate a transfer of property, create a legal obligation or contract between respected parties.

E

Equity

Equity can be described as the difference of amount between the value of a property and the amount owed on the property loan.

Positive Equity

A positive equity is when the value of the property exceeds the amount owed to on the property loan.

Negative Equity

A negative equity is when the amount owed on a property loan exceeds the value of the property

Employment Type

There are different employment types – The employment type is important when applying for a home loan as different home loan type requires different documents when applying for a home loan.

Salaried

A person who is permanently employed by a business enterprise and receives a monthly salary. The type of ownership of the business enterprises has no significance.

Self-Employed

An individual or individuals that are a material shareholder in a Private Company, Close Corporation or Sole Proprietorship. Self-employed individuals need to supply proof of income in the form of a letter drafted by a book keeper or accountant and has to state the gross and nett income of the individual. This letter must also be supported by bank statements.

Subsidy

This is when the institution or company that employs the applicant provides a set amount towards a home loan. The loan amount is then deducted automatically from the employee’s salary. Such subsidy home loan is normally provided to government employees, municipality, etc.

G

Guarantee

A guarantee is a promise made to pay a certain amount when a certain event occurs, e.g. when a bank provides a guarantee to a conveyancer to pay the home loan amount when the transfer of a property is registered.

H

Household Contents Insurance

A type of insurance, provided by insurance companies, to cover the loss or damage to contents of a home, e.g. furniture, appliances, clothing etc.

I

Interest Rate

This is the rate that is charged to a lender by a bank or financial institution providing a loan. This rate is calculated daily on the daily balance and is then capitalised every month.

Instalment Amount

The instalment amount is your basic monthly repayments on your home loan. This amount includes the monthly interest and a certain amount of the capital amount of your home loan. This also includes any monthly costs and insurance premiums.

Initiation Fees

The initiation fees are a set once-off amount that is paid towards a new loan. This amount covers the administrative costs that are associated with a home loan.

Please Note: This amount is not payable to Homeside Home Loans – our services are 100% free.

J

JIBAR

JIBAR is an acronym for “Johannesburg Interbank Agreed Rate”. As a South African money market rate, a number of local and international banks determines the rate, which is updated on a daily basis on Reuters and SAFEX. This rate is a 3-month deposit rate and is shown in a yield form.

L

Loan to Value (LTV)

The Loan to Value amount is basically the value of the home loan in comparison to the market value or estimated value of the property. This value is always shown as a percentage (%).

As an example, if a property value is R1 000 000 and the bank only provides an 80% LTV, this means that the bank is willing to provide a home loan of R800 000 for the property. The difference must then be covered by the buyer.

M

Market Value

The amount that a willing and financially able buyer is able to pay a willing and able seller only if the property has effectively been exposed to the market for a reasonable period of time

Mortgagor

A mortgage is basically the lender. A mortgage borrows money from a bank or financial institution to buy a property and offers the property as security towards the loan.

Mortgagee

A mortgage is a bank or financial institution that lends a certain amount to the lender, or mortgagor, and uses the property as security towards the loan.

Mortgage Loan

A mortgage loan, also called a home loan, is the loan a buyer takes out from a bank or financial institution and offers the property as security towards the mortgage loan.

Mortgage Originator

A mortgage originator is a middle man between a lender and a bank. As a mortgage originator, Homeside Home Loans negotiate on your behalf with the banks to give you the best loan in regards to LTV (Loan to Value) and interest rate. A mortgage originator’s services are 100% free of charge and no commission is paid by the buyer.

The mortgage originator is also responsible to follow up with the transfer attorney and notify the buyer when he/she is able to take possession or move into his/her new property. As soon as the transfer completes the work of the mortgage originator ends until such time that the buyer wants to buy a new property, wants to take out a further loan or wishes to switch to another bank or mortgage financial institution.

Mortgage Protection Insurance

A mortgage protection insurance policy is an alternative to a life insurance policy and covers the outstanding amount in the event the buyer dies before the property has been paid in full. This policy is specifically designed towards each buyer’s home loan.

This type of insurance might increase a buyer’s chances of approving a home loan as it is a guarantee that the property will be paid in full in the event of the buyer’s death.

N

Non-liquid Assets

This is assets that can’t easily be converted into cash.

Net Present Value (NPV)

This is a value of a future sum of money, which is calculated and expressed in today’s terms.

S

Securitisation

The packaging of home loans in an insolvency remote entity, and the simultaneous issue of financial securities to investors at a lower interest rate than would be payable if a bank were providing funds. The risk to investors is negligible and therefore they are willing to accept a lower return on their investment.

Service Fee

This is a fee that may be added to your home loan to fund the monthly administration costs to maintain your home loan.

Suspensive Condition

A suspensive condition is a clause found in an agreement of sale to validate the contract subjected to the occurrence, or non-occurrence, of a future event e.g. the granting of a home loan or a certain amount before a certain date.

Switch Bond

A switch bond is a bond that you previously had with a bank or financial institution and moved (switched) to another bank or financial institution.

T

Term

The term is the period, in months, that the buyer is willing to pay off the home loan. Usually 20 years, or 240 months, the buyer pays interests, capital, legal fees and any fees associated with a home loan.

The term can be anything between a minimum of 5 years or a maximum of 30 years. The shorter the term, the higher the instalment amount and lower interest paid on the home loan. A longer term means a lower instalment but increases the total interest paid on the home loan.