Here are some standard mortgage terms you may come across when applying for a home loan in Australia:
- Principal: The amount of money borrowed to purchase the property.
- Interest: The cost of borrowing money, expressed as a percentage of the loan amount.
- Fixed-rate mortgage: A mortgage with a fixed interest rate that remains the same throughout the life of the loan, typically for 1 to 5 years in Australia.
- Variable-rate mortgage: A mortgage with an interest rate that can fluctuate over time based on market conditions.
- Comparison rate: A rate that includes both the interest rate and fees associated with the loan, expressed as a percentage.
- Loan-to-value ratio (LVR): The percentage of the property’s value that is being borrowed. For example, if the property is valued at $500,000 and the borrower borrows $400,000, the LVR is 80%.
- Equity: The difference between the property’s value and the mortgage amount.
- Offset account: A savings account linked to the mortgage, where the balance is used to offset the interest charged on loan.
- Redraw facility: A feature that allows the borrower to withdraw extra payments made on a loan, typically up to a specific limit.
- Lender’s mortgage insurance: Insurance required for borrowers with an LVR greater than 80% protects the lender if the borrower defaults on the loan.
Understanding these and other standard mortgage terms in Australia can help you make informed decisions when applying for a home loan and ensure you get the right loan.