Mortgage Terms Explained: Frequently Asked Questions
If you’re new to home loans, the language can feel confusing fast. Mortgage statements and loan documents are full of terms that sound technical — but most are simpler than they look.
Here are some of the most common questions first home buyers ask about mortgage terms, answered in plain English.
What does “loan balance” actually mean?
Your loan balance is the amount you still owe on your home loan.
Early on, this number doesn’t drop quickly — that’s normal. Over time, as more of your repayments go toward the loan itself (not just interest), you’ll see it reduce faster.
What’s the difference between principal and interest?
The principal is the amount you borrowed.
Interest is the cost charged by the lender for lending you that money.
Each repayment usually includes both. Early in the loan, more goes toward interest; later, more goes toward the principal.
Why does it feel like I’m paying mostly interest at the start?
Because interest is calculated on your loan balance, which is highest at the beginning.
This is completely normal and part of how home loans are structured. It doesn’t mean you’re doing anything wrong.
What is an offset account?
An offset account is a savings or transaction account linked to your home loan.
The money sitting in it reduces the amount of your loan that interest is calculated on — which can save you a lot of interest over time.
What’s the difference between an offset and redraw?
With redraw, extra repayments sit inside your loan and you can access them later.
With an offset, your money stays in a separate account but still reduces interest.
Both can be useful — the right option depends on how you like to manage your money.
What is Lenders Mortgage Insurance (LMI)?
LMI is insurance that protects the lender when you have a smaller deposit.
It doesn’t protect you as the borrower, but it can help you buy sooner if you don’t have a 20% deposit.
What does “loan term” mean?
The loan term is how long your loan is set to run — usually 25 or 30 years.
Making extra repayments can shorten this term significantly and reduce interest over time.
What’s the difference between a fixed and variable rate?
A fixed rate stays the same for a set period, giving certainty.
A variable rate can change over time, meaning repayments may go up or down.
Some loans use a combination of both.
What are extra repayments and do they really help?
Extra repayments are payments made on top of your required repayment.
Yes — they can make a big difference. Even small extra amounts can reduce interest and shorten your loan term over time.
What is an amortisation schedule?
This is a breakdown of your loan over time.
It shows how much of each repayment goes toward interest versus principal across the life of the loan.
What should I check on my mortgage statement?
It’s worth checking:
- Your loan balance
- Interest charged
- Repayments made
- Any fees
- Your current interest rate
It helps you stay informed and spot anything unexpected early.
What if I don’t understand something on my statement?
You’re not alone — and you don’t need to guess.
A quick explanation can usually clear things up and help you feel more confident about how your loan is working.
Want Help Understanding Your Loan in Plain English?
If mortgage terms still feel confusing, a short conversation can help you understand how everything works together — without the jargon.
