Basic Mortgage Terms in Australia
Thinking about buying a home in Australia? Understanding mortgage terms can make the process easier. Here’s a simple guide to help you with the basics.
1. Mortgage
A loan used to buy a property. The lender provides money, and you pay it back with interest over time.
2. Loan-to-Value Ratio (LVR)
LVR is the percentage of the property’s value that you borrow. For example, if a house costs $500,000 and you borrow $400,000, your LVR is 80%.
3. Deposit
The money you pay upfront when buying a home. A higher deposit usually means better loan terms.
4. Interest Rate
The cost of borrowing money, shown as a percentage. A lower rate means lower repayments.
5. Fixed Rate Loan
A home loan where the interest rate stays the same for a set period (usually 1-5 years).
6. Variable Rate Loan
A home loan where the interest rate can go up or down based on the market.
7. Split Loan
A mix of fixed and variable rate loans, giving flexibility in repayments.
8. Offset Account
A bank account linked to your loan. The money in the account reduces the interest you pay on your mortgage.
9. Redraw Facility
Allows you to withdraw extra repayments you’ve made on your mortgage.
10. Lender’s Mortgage Insurance (LMI)
A fee you pay if your deposit is less than 20% of the property’s value. It protects the lender, not you.
11. Pre-Approval
A lender’s confirmation of how much you can borrow before you buy a property.
12. Stamp Duty
A tax on property purchases. The amount depends on the property’s price and location.
13. First Home Owner Grant (FHOG)
A government grant for first-home buyers to help with the purchase. Rules vary by state.
14. Principal & Interest Loan
A loan where you repay both the amount borrowed (principal) and interest over time.
15. Interest-Only Loan
A loan where you only pay interest for a set period before starting to repay the principal.
16. Refinancing
Switching your loan to a different lender or a better loan to save money or access new features.
17. Mortgage Broker
A professional who helps you find and apply for a home loan that suits your needs.
18. Repayment Frequency
How often you make loan payments—monthly, fortnightly, or weekly. Paying more often can reduce interest costs.
19. Default
When you miss repayments on your mortgage. This can lead to penalties or losing your home.
20. Equity
The difference between your home’s market value and what you still owe on the mortgage. More equity can help with refinancing or getting another loan.
Final Thoughts
Understanding these basic mortgage terms can help you make better financial decisions. Have questions? Reach out to a mortgage broker for expert advice!
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