Key Mortgage Terms Explained (In Plain English)
When you’re reading your mortgage statement or home loan documents, it can feel like you’ve stumbled into a different language.
Below are some of the most common mortgage terms you’ll see — along with simple, plain-English explanations so everything makes a bit more sense.
Loan Balance
This is the amount you still owe on your home loan.
Early in the loan, the balance doesn’t drop quickly — that’s normal. Over time, as more of your repayments go toward the principal, you’ll see this number reduce faster.
Principal
The principal is the original amount you borrowed, plus or minus any repayments you’ve made.
When you “pay down the principal”, you’re reducing the actual debt — not just covering interest.
Interest
Interest is the cost of borrowing money from the lender.
It’s calculated daily based on your loan balance and interest rate. Early in the loan, a larger portion of your repayment goes toward interest.
Interest Rate
This is the percentage the lender charges to lend you the money.
Your rate can be fixed, variable, or a combination of both — and changes here affect how much interest you pay.
Repayment
A repayment is the regular amount you pay toward your loan.
Each repayment is usually made up of both principal and interest.
Offset Account
An offset account is a savings or transaction account linked to your home loan.
The balance in the offset reduces the amount of your loan that interest is calculated on — helping you save interest over time.
Redraw Facility
Redraw allows you to access extra repayments you’ve made on your loan.
It’s useful for flexibility, but the money isn’t sitting in a separate account like an offset — it’s part of your loan.
Loan Term
The loan term is how long your loan is scheduled to run, often 25–30 years.
Extra repayments can shorten this term significantly.
Amortisation
This refers to how your loan is structured to be paid off over time.
An amortisation schedule shows how much of each repayment goes to interest versus principal across the life of the loan.
Lenders Mortgage Insurance (LMI)
LMI is insurance that protects the lender (not you) when a borrower has a smaller deposit.
It’s often required when borrowing more than 80% of the property’s value.
Variable Rate
A variable rate can change over time based on market conditions.
This means your repayments may go up or down.
Fixed Rate
A fixed rate stays the same for a set period.
It offers certainty but often comes with restrictions on extra repayments.
Extra Repayments
Extra repayments are payments you make on top of your required repayment.
They can reduce interest and shorten your loan term — even small extra amounts can make a big difference over time.
Statement Period
This is the timeframe covered by your mortgage statement.
It shows what’s happened on your loan during that specific period.
Want Help Understanding Your Loan in Plain English?
If any of these terms still feel unclear — or you want to understand how they apply to your own loan — a short conversation can help you feel confident and in control.
