Home loan terms explained.

A fixed rate home loan has an interest rate that’s fixed for a specific period of time, typically up to five years. It means you’ll know exactly what your monthly repayments will be and you won’t be affected by interest rate changes.  

A variable rate home loan mirrors market interest rates. As interest rates rise and fall, so do your repayments. Both options have their pros and cons, it all depends on how much stability you need. 

A comparison rate represents the true cost of your home loan as it factors in most of the costs associated with the loan, including the interest rate, fees, and charges. How to use a comparison rate in your search for a loan  

A redraw facility allows you to access any additional repayments you have made on your loan. It’s important to note that only the amount over and above the minimum required repayments will be available for withdrawal, and that some redraw facilities are subject to fees. Understanding redraw vs offset  

An offset account is an everyday transaction or savings account linked to your home loan. The more money you hold in your offset account, the less interest your lender will charge you on your loan. Learn how offset accounts work  

Lenders' Mortgage Insurance (or LMI) is insurance banks take out to protect against the risk of not recovering the full loan balance if you (the buyer) default on your loan or become bankrupt.  

Banks will typically use LMI if the loan to value ratio (LVR) calculation is above 80%. The cost is passed on to you in a one-off premium, calculated as a percentage of your loan amount.  

It’s good to remember that this insurance protects the banks not you – even though you’re paying for it. So try to avoid LMI if you can! Learn more about LMI 

A loan to value ratio (LVR) is the amount you’re borrowing divided by the value of the property you are planning to buy. For example, if you are borrowing $600,000 to buy a property valued at $800,000 then the LVR is 75%. 

The LVR is important because lenders will often have LVR limits for loans they provide and loans with higher LVR’s may have higher interest rates and/or require Lenders’ Mortgage Insurance. How to calculate your LVR 

Stamp duty is a tax paid on the purchase of property in Australia. It’s calculated based on the price of the property, the State in which the property is located and sometimes the proposed use of the property. Learn more about stamp duty and how it’s calculated  

A split home loan combines the security of a fixed interest rate with the flexibility of a variable rate of interest. Basically, a split home loan splits your loan into two parts – fixed and variable.  

You get to decide what portion of your home loan repayments are to be charged at a fixed rate, and what portion will fluctuate with market interest rates (variable). See what your repayments might look like with a split loan.

If you’re looking to buy a new home but haven’t yet sold your existing one, a bridging loan could provide the money to make your purchase. 

Bridging loans are granted under the assumption that your existing home will be sold soon and you’ll be in a position to repay the loan quickly. Explore our bridging loan options  

A principal and interest loan is your standard home loan. With this type of loan, your monthly mortgage repayments will be a combination of paying down your principal (the amount you borrowed) and interest payments on your loan. 

With an interest only home loan, each month you’re only paying the interest on your loan. Because you’re not paying down your principal, your monthly payments will be lower. Whilst this might help you in the short term, bear in mind you won’t be paying any of the principal off and could end up paying more interest in the long run.

An interest only loan is typically only available on construction loans during the building period and investment loans.  

A Contract of Sale is the document that contains all the terms and conditions, agreed between the buyer and seller, for the sale of the property.  

It will contain details such as the purchase price, the settlement period, the deposit amount, things included in the sale and whether adjustments will be made for things such as Land Tax and Council Rates. It’s a good idea to have this document reviewed by your solicitor or conveyancer before you sign it. 

Settlement is the legal process where you become the new property owner. The process is managed by a settlement agent (usually your solicitor or conveyancer) and typically takes between 30 and 90 days. On settlement day, generally your agent meets with the seller’s agents to finalise the paperwork and pay the outstanding balance on the property.