MORTGAGE TERMS YOU NEED TO KNOW..
Here at Lime Mortgage Brokers we wanted to help you understand some of the Mortgage terms that are often used but often misunderstood. We hope you find these useful and that they give you some clarity.
- LOAN TO VALUE RATIO OR LVR
Loan to Value Ratio basically means the proportion of your home loan from the total value of your home. This term is very common amongst lenders and is used to assess the risk they are taking. If you are looking at a property that is $700,000 and you need to borrow $500,000 then your LVR is 71% ($500,000/$700,000 x 100).
Most lenders will allow you to borrow up to 80% of the property’s value. If you happen to exceed this amount you may have to pay Lenders Mortgage Insurance (see explanation below).
- LENDERS MORTGAGE INSURANCE OR LMI
Lenders Mortgage Insurance is an insurance policy that covers your lender if you default on your home loan.
For most lenders in Australia, Lenders Mortgage Insurance is compulsory for any borrower with an LVR above 80%. This basically means that if you do not have a 20% deposit you may be subject to pay the LMI. So, it’s always best to start a savings plan as soon as possible,
LMI is a one-off premium that is paid up front when you receive your home loan. You also have the option to have it added onto your home loan. This allows you time to pay the insurance off over a certain number of months. If you do add this to your home loan you will pay interest on this amount over the life of your loan.
- COMPARISON RATE VS LOAN INTEREST RATE
When searching for the best home loan rates it can be very confusing for most, especially because lenders have different terms, rates and offer different features. A comparison rate can help you figure out which mortgage product can save you the most.
Comparison rates were made mandatory to stop lenders from advertising ridiculously low interest rates and luring customers into loans that cost them a lot more than was expected.
A comparison rate considers some of the fees and charges of your home loan and gives you a more accurate representation of the rate you will be paying when all the costs have been considered.
- OFFSET ACCOUNTS
An offset account works a lot like a high interest savings account. The difference, though, instead of earning you interest the balance of the account (or a proportion of it) is offset against your home loan meaning you will only be charged interest between the total loan amount and the offset amount.
So, for example, if you had a home loan of $350,000 with $100,000 in a linked 100% offset account, you will only pay interest on $250,000 of your balance.
- REDRAW FACILITY
When it comes to home loans these are a common offering from most lenders. This allows you to access extra money that you have paid off your home loan.
For example, if your repayments are $1500 a month and you pay off $1900 instead you are paying an extra $400 a month towards your home loan. This money is built up over time and over a period of 24 months means you could have approximately $9600 to redraw. You can access this for things like a holiday or some minor home renovations.
When applying for a loan ask about the terms of a redraw facility and if there is a limited amount of times you can redraw or if there are any fees associated with this facility.
As you can see from the above information applying for a home loan can be a tedious process and this is why it always good to seek advice from a Mortgage Broker. We will answer all these questions for you and help you find a great deal to suit your circumstances and needs. So why not take the hard work out of the process and get in contact with us today so we can help you with your journey.
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The information contained on www.limemortgagebrokers.com.au website and posts is for general information purposes only. Lime Mortgage Brokers assumes no responsibility for errors or omissions in the contents of this publication. The information we provide may not be relevant for all individual circumstances. You should always seek professional advice before you take action in relation to any of the matters in this publication.