GLOSSARY

BASIC HOME LOAN

A home loan that offers a low interest rate and little or no fees but does not offer any additional features that are provided in other types of home loans.

FIXED RATE LOANS

A loan where the interest rate does not change with the current variable rate for a fixed term of usually up to 5 years. After the 5 year term the interest rate will revert to the standard variable interest rate.

HONEYMOON/INTRODUCTORY RATE LOAN

A loan with a special introductory low interest rate or low repayments for a fixed period of time (usually 6-12 months). After the end of the introductory term the loan rates return to the standard variable interest rate. This type of loan allows you to save money on your loan repayments in the short term but it is important to ensure you can afford the repayments after the introductory period ends.

INTEREST ONLY LOAN

A loan where only the interest is paid on the loan without paying off the principal amount. The interest only term is only for a short period (usually between 1-5 years) after which the loan reverts to Principal and Interest.

LINE OF CREDIT LOAN

A flexible loan providing you access to a predetermined amount of credit from your lender whenever you need it allowing you to use or repay credit amounts up to an approved limit. Line of Credit loans are secured with the equity in your home with interest paid on the outstanding balance of your credit amount.

LENDERS MORTGAGE INSURANCE (LMI)

A type of insurance you pay for your mortgage if you need to borrow greater than 80% of your property value.

LOAN TO VALUE RATIO (LVR)

The percentage of the loan amount you would like to borrow divided by the value of the property to be used to secure the loan.

LVR is used by lenders to determine the risk associated with the loan. The lower the LVR is the lower the risk of the loan. A loan which is over 80% LVR will usually require the applicant to take out Lenders Mortgage Insurance as LVR’s above 80% are considered high risk.

OFFSET ACCOUNT

A transaction or savings account that is linked to your loan account allowing you to save interest on loan repayments based on how much money you have in that savings account. When your loan repayments are due the bank calculates the interest on your repayments by charging interest on the difference between the loan amount and the amount in the linked savings or transaction account. For example if you owe $500,000 and you have $50,000 saved in your linked transaction account the bank will only charge interest on $450,000 ($500,000-$50,000).

REDRAW FACILITY

A facility attached to your home loan that allows you to make extra repayments in addition to your loan repayments and redraw those funds when required. For example if your monthly repayments are $1200 and you pay $3000 into your loan per month, you will have the ability to redraw the excess amount of $21,600 at the end of the year should you need to.

SPLIT LOAN

A loan where part of your loan is charged interest on a fixed rate and the rest is charged interest at the standard variable rate.

STANDARD VARIABLE RATE

The interest rate set by the lender for their standard home loan and usually includes most loan features the lender has to offer. This rate fluctuates based on the cash rate set by the Reserve Bank of Australia (RBA).

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