Median House Price

‘Median price’ is a term that you hear a lot about when people are talking about house prices but what exactly does it mean?

The median value with any figures is the middle value in that range of figures so the median value in the set of figures 5, 7, 12, 15 and 16 is 12 – it’s simply the middle figure.

When people are using this information in connection with property, they are simply talking about the middle price of all the houses sold in the area and timeframe being monitored.

Mortgage Insurance

This can be a huge cost when taking out a loan although it does depend on the LVR (see above). For clients who can prove their income, it is usual for Mortgage Insurance to be payable if they are borrowing more than 80% of the value of the property but for self employed borrowers who don’t have up to date financial statements or tax returns, it can apply from a lower LVR.

Mortgage Insurance only provides protection for the lender in case the borrower defaults. Contrary to what many borrowers assume, it does not provide any insurance at all for the borrower even though the cost of it is worn by the borrower!

Mortgage Broker

A mortgage broker is a person who acts as an intermediary between the borrower and the lenders. They are able to compare lenders to identify a suitable product based on the needs and financial position of the borrower and to work with the borrower to arrange for all paperwork to be completed and submitted to the lenders. Mortgage brokers also have a significant role to play in introducing strategies for wealth building through investing in properties.

Negatively Geared

This is the situation that exists when the cost of owning an investment exceeds the income received from it. When talking about an investment property, it means that the tax deductible expenses and interest costs exceed the gross rent received for that property. In general terms, this would generally result in the taxpayer being able to reduce their taxable income and therefore the amount of tax that would otherwise be paid.

PAYG Variation

This is a form submitted to the Australian Taxation Office to vary the amount of tax that would otherwise be deducted from an employee’s wages. It is commonly linked to having a negatively geared property but can apply in other situations as well. If a PAYG Variation is not completed, then any tax savings will be included by the ATO when calculating the amount of tax to be paid at the end of the year.

Principal & Interest (P&I)

When a home loan has been set up as a Principal & Interest loan, the home loan balance reduces with each repayment that is made. This is the opposite of an Interest Only home loan outlined above but it does mean that the home loan repayments are higher than under an Interest Only home loan as the debt is actually being reduced.

Principal Place of Residence (PPOR)

A term used to distinguish the place that a person lives in from an Investment Property.

Redraw

A redraw facility on a home loan lets the borrower make extra repayments that can be redrawn at a later date. Different lenders have different policies on redraws and it is important to understand factors such as minimum and maximum amounts that can be redrawn as well as any fees involved and how the redraw can be arranged. Making extra payments by utilizing funds that are not otherwise required on a day to day basis can significantly reduce the payments or the term of the loan.

Settlement

When talking about a home loan, this is the funding date of the home loan be it for a purchase or a loan refinance.

Tax Deductible

In general terms, when talking about a home loan on an investment property, it signifies that the interest and other costs associated with that home loan and the property that the home loan is in respect of, can be used to reduce the tax that would otherwise be payable by the tax payer. This, in turn, lowers the tax that the taxpayer is required to pay. It follows that if the taxpayer has two home loans – one that is tax deductible and one that isn’t – then the non-tax deductible home loans should be paid off first as no tax deduction can be claimed on this loan.

This is a very general definition and may not apply if every situation. You should check with your advisor to ensure that this applies to your circumstances.

To return to the definitions home page, click here.

To visit the A – L Page, click here.