A Guide To Mortgage Terminologies

Introduction

Buying your first property can be an exciting time, but it can also be very confusing when you’re confronted with all the mortgage loan jargon. Understanding how home loans work in Australia and trying to navigate all the terminology can be tough for even the most experienced home buyers, but for first home buyers who are learning as they go, it can be totally overwhelming. The good news is once you’ve got an understanding of some key basics, you’re well on your way to cutting through the jargon and securing your first home loan.

#1. Stamp Duty

Stamp duty is a government tax on property purchases and pays for the transfer of property from one owner to another. How much you pay depends on which state your property is in, but it can be a big up-front cost that could cost you tens of thousands of dollars. Factors such as purchase price or whether it’s an investment property can affect the fee, but if you’re a first home buyer, most states do offer concessions. 

#2. Loan to value ratio (LVR)

According to Emilia Flores, the co-founder of UkBadCreditLoans, “the loan to value ratio (LVR) is the percentage of the total property price paid for by your home loan.” This figure is one of the main ways lenders assess the risk that comes with lending you money. The LVR is calculated by your lender dividing your property’s value against your deposit to see how much you need to borrow from them.

#3. Lender’s Mortgage Insurance (LMI)

Lender’s Mortgage Insurance (LMI) is a one-off payment on all home loans that protects lenders from a borrower who defaults on their loan repayments. Most of the time, if you have an LVR of under 80%, the lender will pay on your behalf. If you haven’t saved up a 20% deposit and your LVR is over 80% though, you will be charged this fee. 

#4. Interest Rates

When you borrow money for a home loan, you’ll pay a percentage of your mortgage as interest until it’s completely paid off. This rate changes based on the market, but has typically fluctuated between around 4% and 6% over the last 20 years. 

#5. Variable-rate loan

This is the most common type of home loan in Australia and means that your interest rate will fluctuate over the life of your mortgage depending on the current rate of interest offered by your mortgage provider. Some months you may pay less interest, while others those payments can be higher.

#6. Fixed-rate loan

A fixed-rate means your interest rates are set, no matter how much the market changes. These rates are generally fixed for two to five years and then they revert to a variable rate for the rest of the life of your mortgage. 

#7. Offset Account

An offset account is a savings account that’s linked to your home loan. The money sitting in that account is used to offset your home loan balance which means the higher your savings, the less interest you pay. 

 If you’d like to know more, or need something explained to you, talk to one of our first home buyer specialists who will be happy to help with any questions you may have.

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