Thinking About Your First Home? Key Mortgage Terms Every First Home Buyer Should Know
If you’re thinking about buying your first home, chances are you’ve already come across a lot of unfamiliar mortgage language. LVR, offset, redraw, pre-approval — it can feel like a completely new world, and it’s easy to feel overwhelmed.
You don’t need to become an expert overnight. But understanding a few key mortgage terms will help you feel more confident, compare loan options properly, and avoid costly misunderstandings later.
Below is a plain-English guide to some of the most important mortgage terms every first-home buyer should understand before committing to a loan.
Mortgage
A mortgage is the loan you take out to purchase a property. The property itself is used as security for the loan, which means the lender has the right to sell it if repayments aren’t met.
Because a mortgage is a long-term commitment, it’s important that the loan structure suits both your current situation and your future plans.
Deposit
Your deposit is the amount of money you contribute upfront toward the purchase price of your home. The larger your deposit, the less you need to borrow.
Many buyers aim for a 20% deposit to avoid additional costs, but there are options available for buyers with smaller deposits depending on their circumstances.
Loan-to-Value Ratio (LVR)
LVR is the percentage of the property’s value that you’re borrowing. For example, if you buy a home for $500,000 and borrow $450,000, your LVR is 90%.
Higher LVRs generally mean more risk for the lender, which can affect interest rates, fees, and whether Lenders Mortgage Insurance is required.
Lenders Mortgage Insurance (LMI)
LMI is a one-off cost often charged when your deposit is less than 20%. It protects the lender — not the borrower — if the loan goes into default.
While LMI can allow you to enter the market sooner, it’s important to understand how much it costs and whether it can be added to your loan.
Pre-Approval (Conditional Approval)
Pre-approval is an indication from a lender of how much they may be willing to lend you, based on your financial position at the time.
It’s a useful step before house hunting, as it helps set a realistic budget. However, it’s not a final guarantee — the property itself and final checks still matter.
Principal and Interest vs Interest Only
With principal and interest repayments, each payment reduces both the loan balance and the interest charged. This is the most common option for first-home buyers.
Interest-only repayments cover just the interest for a set period, meaning the loan balance doesn’t reduce during that time. While this can lower repayments initially, they usually increase later.
Fixed Rate vs Variable Rate
A fixed rate locks in your interest rate for a set period, giving certainty around repayments. A variable rate can move up or down with the market and often offers more flexibility.
Some borrowers choose a split loan, which combines both fixed and variable components.
Loan Term
The loan term is the length of time you have to repay your mortgage, commonly 25 or 30 years.
Longer loan terms usually mean lower repayments but more interest paid over time, while shorter terms increase repayments but reduce total interest.
Offset Account
An offset account is a transaction account linked to your home loan. The balance in the account reduces the loan amount used to calculate interest.
For example, if your loan is $400,000 and you have $20,000 in offset, you only pay interest on $380,000. Used consistently, this can save significant interest over time.
Redraw Facility
A redraw facility allows you to access extra repayments you’ve made on your loan.
While redraw can provide flexibility, it’s important to understand any limits, fees, or delays involved, as redraw conditions vary between lenders.
Fees and Charges
Home loans often come with additional costs such as application fees, ongoing package fees, valuation fees, and exit fees.
Understanding these costs upfront helps you compare loans accurately — not just based on interest rate.
Stamp Duty and First Home Buyer Concessions
Stamp duty is a government tax applied to property purchases and varies by state and property value.
Many first-home buyers may be eligible for concessions or exemptions, which can make a significant difference to upfront costs.
Feeling Overwhelmed? You’re Not Alone
If these terms feel like a lot to take in, that’s completely normal. Most first-home buyers feel exactly the same — especially when everything seems to happen at once.
Chase Douglas has extensive experience in mortgage lending and works closely with first-home buyers to explain these terms in plain English, compare loan options, and guide them through every step of the journey.
Whether you’re just starting to think about buying, saving for a deposit, or ready to apply for your first loan, speaking with Chase can help you move forward with clarity and confidence.
If you’re thinking about your first home, now is the perfect time to
talk to Chase
and make sure your first mortgage is set up right from the start.
