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Like any professional industry, property jargon can be tricky to get one's head around, which is why the Leapfrog Property team have compiled a handy glossary.
Amortization calculator
Also known as a loan calculator, an amortization calculator calculates the estimated monthly loan repayments, including how much of the loan repayment goes towards the principal amount and how much towards the interest.
Bond Originator
Speaking on bond origination, this refers to a company that assists individuals in obtaining a bond at the most favourable interest rate. The service usually includes bond applications to all the major banks in South Africa and is free to the user. BetterBond, ooba and Mortgage Max are examples of local originators. Their goal is to negotiate the best rate for your bond, as well as take the hassle and headache out of the bond application process for you, the property buyer.
Commission
Property agents earn commission - or fees - as compassion for managing the property transaction. The amount is usually calculated as a fixed percentage on the sale price of the property.
(Title) Deeds
Title deeds denote a final deal as they are proof of property ownership. The title deeds of a property that is bonded is held by the bank (or lender) and is only transferred into the name of the owner once the property is fully paid up. Guard these in a space place - it usually takes years to acquire them!
Equity
Definitely a term a serious property investor wants to slip into conversation, equity refers to the difference between the market value of a property and the amount still owed to the bank (or other lender) that holds the bond. Once the bond has been paid up, the property owner has 100% equity.
Foreclosure
A less than ideal situation, foreclosure is when the bank forces the sale of a property because the bond holder is no longer able to make the monthly bond repayments. The best practice in such an event is to contact a trusted property advisor the moment you suspect you may not be able to service the bond so that they can give you expert advice on how to best manage and mitigate the situation to reduce damage and loss.
Gross income
Gross income refers to the total amount of income an individual receives from all sources, before tax and other deductions. Your gross monthly income will be taken into account in determining the size of a bond you're able to afford, for example.
Homeowners insurance
The grudge purchase you don't want to be caught without. Homeowners insurance is financial protection in the case of loss or damages related to the property. There are also a number of possible advantages to insurance, including emergency repair services and cover for temporary living expenses in the event of property needing to be evacuated.
Interest
Interest refers to the cost of debt. It is a particular rate that is paid at regular intervals as compensation for the delay of a repayment of debt. Interest on a property can amount to more than the value of the property over the years, which is why paying extra into a mortgage is strongly advised.
Joint income
The combined gross income of all parties, such as spouses, intended on purchasing a property together. A joint application can strengthen the chances of getting a bond approved as it represents a larger total income.
Key Tenant
The key tenant is the main leaseholder on a property. In a commercial development, the key tenant is also known as the anchor tenant and is often regarded as the one that attracts the others.
Lease
The contract between a property owner (landlord) and a tenant. The contract specifies the time period, the payment amount, as well as the obligations of the parties.
Mortgage
More generally known as a bond in South Africa, it's the legal agreement whereby the bank lends money to an individual or company to purchase property. The loan is paid back to the bank in monthly installment, with interest, over a period of time, usually 20 or 30 years.
Net asset value
The total value of all assets, minus all liabilities. Both an individual and a property can have a net asset value.
Offer to purchase
Often shortened to OTP, the offer to purchase is a very important legally binding agreement between the buyer and the seller in a property agreement. It outlines the terms and conditions pertaining to the sale of the property and is designed to protect the interests of both parties in the transaction.
Pre-approval
A buyer that has pre-approval already has a guarantee from the bank that they are eligible for a home loan. Pre-approval helps to increase your chances of having an offer on a property accepted.
Qualified buyer
A qualified buyer is one who has proved to be in a financial position to afford a specific property within a particular price range. The strength of this qualification is determined by the bank granting the bond. Bond originators play a key role in helping potential buyers get qualified.
Repayment term
The time allowed for the repayment of a bond, usually 20 or 30 year. The goal should always be to reduce the repayment term by paying more than the minimum monthly requirement as this can mean an enormous saving on interest over time.
Sole mandate
The agreement that mandates that only one property agency may market and sell a property. The instruction must specify details of the agreement, including the time period the mandate is valid for and the commission structure whereby the agent will earn their fees. The benefit of a mandate to the seller is that it helps to streamline the selling process by avoiding buyer duplication, and has proved time and again to be key in moving a property faster.
Transfer duty
Transfer duty is the tax levied on any immovable property that is bought or sold. It's a tax payable to SARS in terms of the Transfer Duty Act and is the responsibility of the buyer. The amount is calculated as a percentage of the value of the property.
Utilities
Utilities refer to the services provided to a property, typically by the municipality, and includes water, electricity and refuse removal. The homeowner is responsible for the payment thereof, which is via monthly levies and taxes paid to the local authorities.
Voetstoots
The widely accepted colloquial term that means "as it stands" and refers to the understanding that something is being purchased with the acceptance of its current conditions, thus defects and all. The voetstoots clause in a contract is designed to protect the seller and forewarn the buyer to avoid action being taken further down the line when a problem or fault arises.
Will
Property owners must have a valid, signed will in place. The legal implications around what happens to a property when the owner or bondholder passes can be onerous but having a will in place helps to reduce the associated hassle and administration for the next of kin. Consider having a will professionally drafted by a financial or legal expert.
X-factor
The variable that differentiates a so-so property from a superb one! It could be a physical feature, the location, the price, or even the service the trusted property advisor gives.
Yield
Yield is the percentage return on an investment, which is classified as profit. The rental yield on an investment property, for example, refers to the amount tenants pay for the occupation of that property.
Zoning
Zoning determines and regulates the kind of properties allowed to be constructed in designated zones, and includes guidelines on the type of structure permitted, the height of the building and the limitations on the use thereof, for example.
Author: Leapfrog Property Group
