Applying for a home loan can be a daunting process, especially for first home buyers who’ve never done it before. On top of the huge financial commitment it demands, an assortment of finance jargon and phrases are constantly thrown around, leaving the unprepared very confused. Being anxious of the unfamiliar is normal, but we’re here to alleviate some of the mystery and help you understand what you’re getting yourself into. We go through some basic terms and phrases you may encounter when applying for a home loan.

The lender charges borrowers a percentage of the amount borrowed known as interest – the rate in which this is charged is the ‘interest rate’. 

It is the percentage amount calculated by adding the interest rate plus additional fees and charges that apply to the loan. Pay attention to low advertised interest rates that have high comparison rates.

Lenders may offer a competitive introductory rate that may last for the first year/s of the loan.

If the loan has a variable interest rate, it is subject to change at the discretion of the lender. It normally changes with the cash rate set by the Reserve Bank of Australia as the main form of monetary policy linked to our economy. Borrowers with a variable rate benefit from lower mortgage repayments when interest rates decrease, but are required to pay more when interest rates increase.

Unlike the variable interest rate, mortgage repayments for a fixed interest home loan do not change. The rate is locked in at a specific rate regardless of the cash rate or the state of our economy.

There are home loan products available that have two or more parts, with varying interest rate types attached. Borrowers can have some of your loan with a fixed rate with the rest of it being variable.

A mortgage rate lock ensures you get the agreed upon interest rate for a given period.

The purchaser intends to live in the property being purchased. Generally speaking, owner occupier home loans tend to have lower fees and interest rates.

The purchaser intends to purchase the property for investment purposes. Generally speaking, investment home loans tend to have higher fees and interest rates plus stricter lending criteria. However, investors are able to claim a tax deduction on the repayments.

The Loan to Valuation Ratio is the percentage of the amount to be borrowed against the price of the asset. Home loans with higher LVRs are usually accompanied by higher interest rates and fees because it is associated with more risk for the lender.

This refers to a type of home loan repayment that covers only the interest on the amount borrowed for a set period of time. There is no reduction to your overall principal loan balance which will still need to be paid off after the interest only period ends.

This refers to a type of home loan repayment that includes the loan amount and interest rate charged by your lender. Loan balance will reduce.

Lenders Mortgage Insurance is paid by mortgage owners who took out a loan with a deposit of less than 20% of the amount borrowed. It can be a lump sum payment or added to your loan amount that protects lenders in case the loan is defaulted.

Speak to a financial professional today if you are ever feeling lost or confused about your home loan. Our lending specialists can assist you every step of the way. Alternatively, contact your mortgage broker today and ask about WLTH. 

Any advice provided is general in nature and should be considered in line with your financial situation, needs and objectives.