Some loans let you make extra repayments above what you’re required to (mostly variable ones), so that you can reduce the amount you owe earlier. (Handy for reducing the amount of interest you need to pay).
When interest is charged at the beginning of a period of time instead of at the end. (Only investors can do this on investment properties. It is a way of lowering their tax payments by bringing forward expenses into a tax year.)
This is when a loan’s interest has been ‘fixed’ at a rate that won’t change for an agreed length of time – no matter how much general interest rates are going up or down. Commonly though, you are restricted to be able to make extra repayments or changes to your loan. There is likely to be a break fee if you want to get out of it which can be quite high, e.g. you want to sell your house and close your loan.
This is insurance that banks take out – at extra cost to the borrower – to protect themselves in case the borrower ends up not being able to pay what they owe. This kind of insurance is generally only needed if you’re borrowing 80% or more of the property’s value.
This value compares the amount you have owing on your loan against the actual value of your property. For example, if your property was valued at $400,000 and your loan amount was $340,000, your LVR would be 85%.
Also sometimes known as an ‘offset transaction facility’, this kind of account lets you reduce the interest you need to pay on a loan, by using your savings to ‘offset’ the interest.
When you apply for a fixed rate home loan, you will receive the fixed rate that applies at the time your loan is settled. This might be different to what the fixed rate was when you applied. To lock in the rate you had before settlement, you can purchase rate lock. At settlement you will get the better of the two rates.
If you’re ahead on your repayments, some loans let you take money back out of your loan, to use it for something else – which can be useful in an emergency….or a new car or extension. (Of course, that adds to the amount left owing on your loan, which you will have to pay back.)
This means closing down one home loan and creating a new one – the new loan pays off the old loan, effectively rolling the debt into a new loan. Refinancing can be used to move a loan to a different bank.
If you’re ahead on your loan repayments, some loans let you apply to take a break from making repayments for a while, e.g. for a new baby or career break.
This is when you split a home loan into different accounts, each with their own separate arrangements. People often do this so that they can set one part of a loan to a fixed interest rate, and the other part to the variable rate.
A simple way to borrow extra money – for a holiday, a renovation, a new car or anything else you might need – by increasing what you owe on your existing home loan.
Loans with variable interest will have their interest rates go up or down, in response to whatever’s happening in the market. In most cases, they have the advantage of enabling you to make as many extra repayments as you want to reduce your interest bill.