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You’re ready to buy your first home, but working out which mortgage is right for you can be confusing. Here’s our list of jargon busting mortgage terms you'll want to know before you start looking at mortgage options.  

1. Honeymoon rates

This is an introductory interest rate which is lower than typical home loan products. It lets you ease into loan repayments by first learning how the mortgage works. However, it’s important to remember that once the honeymoon period is over, the rate will increase and you could potentially be stuck with a rate that isn’t as competitive.

2. Guarantor loan

If have a willing parent or close family member to guarantee the loan for you, this allows you to borrow as much as 100% of the purchase price of the property. But, if you’re unable to make the repayments or default on the loan, the guarantor becomes responsible for the loan. 

3. Lender’s Mortgage Insurance (LMI)

This is a one-off, non-refundable insurance payment that’s due at settlement. It protects the lender from financial loss if you are unable to make your home loan repayments. The advantage of LMI is it allows you to buy a home sooner by letting you borrow up to 95% of the value of the property. But bear in mind the smaller your deposit, the higher the LMI, which can add up to many thousands of dollars.

4. Deposit bond

You may not have the right amount of cash required for the deposit of your dream home, but don’t won’t to miss out on the property. A deposit bond is an insurance policy guaranteeing you will pay the agreed cash deposit at the time of settlement.

5. Offset account

A savings or transaction account that is linked to your mortgage that helps you save by reducing the interest you pay on the balance of the loan. The interest you pay is calculated each month on the principal remaining minus your current offset balance. You can redraw your offset balance at any time and the interest will readjust accordingly.

6. Comparison rate

This percentage figure is used to understand the true cost of your home loan, by combining the interest rate with the fees and charges associated with the loan. This makes it easier to compare like for like home loan products between lenders. 

7. Fixed loan

A fixed rate loan means that it won’t change over the fixed period, typically 1-5 years, even if variable interest rates increase or decrease. While this provides certainty, repayments are often fixed so you can’t pay extra and if you refinance while in the fixed period there may be break fees. At the end of the fixed period the loan will become variable or you may choose to fix it again. 

8. Variable loans

With a variable loan the rate will fluctuate, usually (but not always) in line with the Reserve Bank of Australia’s cash rate. Typically with a variable loan you can make extra payments to pay off your mortgage faster or redraw from later. 

9. Split loans

A split loan gives you the benefits of both, literally splitting the loan into portions. So, the fixed portion will help protect you from rate increases while the variable portion of the loan gives you the ability to make additional payments. The fixed rate may be either above or below the variable rate, depending on various factors including the financier’s views regarding future rate movements.

There’s a lot to take in as a first home buyer, so instead of trying to figure it out yourself, get in touch with our friendly home loan specialists who will help find you the right mortgage option. 

Couple looking over paperwork with specialist

 
The information in this article has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained in the document is general advice and does not take into account any person’s particular investment objectives, financial situation or needs. Before acting on anything based on this advice you should consider its appropriateness to you, having regard to your objectives, financial situations and needs. You should obtain and consider the Product Disclosure Statement or terms and conditions relating to the products mentioned, before deciding whether to acquire any products.

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The information in this article has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained in the document is general advice and does not take into account any person’s particular investment objectives, financial situation or needs. Before acting on anything based on this advice you should consider its appropriateness to you, having regard to your objectives, financial situations and needs. You should obtain and consider the Product Disclosure Statement or terms and conditions relating to the products mentioned, before deciding whether to acquire any products.

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