- 1 Jun, 2015

Home Loan Glossary: What You Need to Know

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Jargon or terminology exists in any industry. Real estate is no exception. But, if you take the time to get to know and learn this new area of expertise, and conduct your own independent research then you’ll save yourself from making costly mistakes. Some common terms you’ll encounter are as follows:

Comparison rate: Many people think this rate is the rate that a lender’s competitor is offering, but this is not the case. A comparison rate reflects the true cost of a home loan after fees and other charges have been added.

Variable rate: A home loan interest rate that goes up and down depending on economic factors, such as the official cash rate also known as the rate that a lender borrows money at.

Fixed rate: A home loan interest rate that is fixed for 1-5-years. You also have the option of splitting your home loan between fixed and variable.

Lenders mortgage insurance (LMI): When you borrow over 80 percent of the purchase price of a property, which is not secured against another asset, then you’ll be asked to pay LMI, which can add thousands to the cost of your home loan.

Loan to value ratio (LVR): This is the ratio of the loan amount to the value of a property that you are seeking to purchase.

Offset account: This is a savings account that is linked directly to your mortgage, which allows you to reduce your home loan interest by using the funds that are held in your account. For instance, if you leave $10,000 in your offset account at all times this will reduce your home loan principal by $10,000.

Do you want to know more about home loans? Then contact eChoice. We’ll help you to understand the jargon.

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