MORTGAGE TERMS YOU NEED TO KNOW
Mortgage Terms You Need to Know
Buying a home is an exciting milestone, but understanding the language used throughout the home loan process can sometimes feel overwhelming. From Loan-to-Value Ratio (LVR) to Lenders Mortgage Insurance (LMI), mortgage terminology can quickly become confusing, especially if you’re purchasing your first property.
The good news is that learning a few key mortgage terms can help you make more informed decisions and feel more confident when comparing home loan options. At Lime Mortgage Brokers, we believe that understanding how your loan works is just as important as finding the right lender.
Whether you’re buying your first home, upgrading, investing, or refinancing, here are some of the most common mortgage terms you should know.
Table of Contents
Loan-to-Value Ratio (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 (LMI)
Lenders Mortgage Insurance (LMI) protects the lender if a borrower defaults on their home loan. It does not protect the borrower.
Many lenders require borrowers with an LVR above 80% to pay LMI. Although it increases the upfront cost of purchasing a property, paying LMI can allow eligible buyers to enter the property market sooner rather than waiting years to save a larger deposit.
Depending on the lender, LMI may be paid as an upfront cost or added to the home loan, allowing it to be repaid over time. If it’s capitalised into the loan, interest will also be charged on that amount.
Comparison Rate vs Interest Rate
When comparing home loans, it’s important to understand the difference between the advertised interest rate and the comparison rate.
The interest rate is the percentage charged on your loan balance.
The comparison rate includes the interest rate plus many of the standard fees and charges associated with the loan, providing a more realistic indication of the overall cost.
Because lenders may charge different fees, comparing comparison rates can help you evaluate loans more accurately rather than focusing solely on the advertised interest rate.
What Is an Offset Account?
An offset account is a transaction or savings account linked to your home loan.
Instead of earning interest like a traditional savings account, the balance in your offset account reduces the amount of your home loan that interest is calculated on.
For example, if your home loan balance is $500,000 and you have $50,000 in your 100% offset account, you’ll only pay interest on $450,000.
Over time, this can reduce the amount of interest you pay and may help you repay your home loan sooner.
What Is a Redraw Facility?
A redraw facility allows you to access additional repayments you’ve made on your home loan above the required minimum repayments.
For example, if your required monthly repayment is $2,000 but you consistently pay $2,300, the additional $300 contributes to your available redraw balance.
Many borrowers use redraw facilities for unexpected expenses, renovations, or other major purchases without needing to apply for a separate loan.
Before choosing a loan with a redraw facility, it’s worth checking whether your lender limits the number of redraws or charges fees for accessing your extra repayments.
If you’re considering using your available equity to fund a property improvement such as a granny flat, read our guide on granny flat finance and loans to understand the different financing options available.
Why Understanding Mortgage Terms Matters
Understanding mortgage terminology helps you compare loan products with greater confidence and avoid unexpected costs throughout the borrowing process.
Knowing the difference between LVR, LMI, comparison rates, offset accounts, and redraw facilities allows you to ask better questions and choose a loan that suits your financial goals rather than simply selecting the lowest advertised interest rate.
Working with an experienced mortgage broker also means you don’t have to navigate complex lending terminology alone. Your broker can explain each option clearly and recommend loan features that match your circumstances.
Mortgage Advice for Home Buyers in Perth
Whether you’re buying your first home, upgrading to a larger property, refinancing your existing loan, or investing, understanding mortgage terminology can make the lending process much less stressful.
At Lime Mortgage Brokers, we take the time to explain your options in plain English, helping you compare lenders, understand loan features, and make informed financial decisions.
Our goal is to help you secure a home loan that supports both your current needs and your long-term financial goals.
Contact Lime Mortgage Brokers Today
Choosing the right home loan is about more than finding a competitive interest rate—it’s also about understanding the loan features and terminology that can affect your financial future. At Lime Mortgage Brokers, we’re here to simplify the process and provide clear, personalised advice every step of the way.
Whether you’re purchasing your first home, refinancing, or investing, our experienced team can help you compare lenders, understand your options, and find a loan that suits your needs.
Contact Lime Mortgage Brokers today to discuss your home loan goals and take the next step with confidence.
FAQs
What does LVR mean?
LVR stands for Loan-to-Value Ratio. It compares the amount you’re borrowing with the value of the property and helps lenders assess lending risk.
Do I always have to pay Lenders Mortgage Insurance?
Not always. Many lenders require LMI when borrowing more than 80% of a property’s value, although some government schemes and lender policies may allow eligible borrowers to avoid it.
What is the difference between an interest rate and a comparison rate?
The interest rate is the rate charged on your loan balance, while the comparison rate includes the interest rate plus many standard fees and charges, giving a better indication of the overall loan cost.
Is an offset account worth having?
For many borrowers, an offset account can reduce the amount of interest paid over the life of the loan and may help pay off the mortgage sooner.
Should I choose a redraw facility?
A redraw facility can provide flexibility by allowing you to access additional repayments you’ve made. Whether it’s suitable depends on your financial goals and the lender’s terms.
Conclusion
At Lime Mortgage Brokers we want to help guide you through the loan process and beyond and ensure you get the right deal for your circumstances. We are always here to assist new and existing clients and love to give you advice and answer any questions you may have. Give us a call today so we can review your circumstances and help you get the home of your dreams!
“our knowledge and experience is yours”
Shawn Swart
t. 0415 761 799
t. 0415 761 799
e. shawn@limemortgagebrokers.com.au
w. www.limemortgagebrokers.com.au
Disclaimer
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.