The A to Z of home loans.

When you’re ready to apply for a home loan, it can seem like everyone is talking mumbo jumbo. We clear the air and explain the home loan A-Z in simple terms.

Comparison rate.

How do you compare between different home loans? Easy – you use the comparison rate. That’s because the comparison rate includes most of the fees and charges you’ll pay on a loan, as well as the loan rate. It makes the comparison rate a great way to compare apples with apples.

Deposit.

When you want to buy a home, you’ll need to put some money on the table. How much? Plenty of banks like to see a 20% deposit. At Australia’s Defence Bank, we understand how hard it can be to grow a big deposit. So, you could be eligible for a Defence Bank home loan, even if you only have a 5% deposit.

Equity.

Home equity is the difference between your home’s market value and the balance of your home loan. If your place is worth, say, $500,000 and there’s $200,000 remaining on your home loan, you have equity of $300,000.

Fixed rate.

When you choose a home loan with a fixed rate, the interest rate you pay will stay the same - no matter whether market rates go up or down during the fixed term. This makes it easy to budget for your loan repayments because they won’t change at all. Fixed rate terms are usually available for 1-5 year terms. After that, your home loan will usually switch back to a variable interest rate. If you find yourself wanting to get out of the fixed rate but the term of your loan hasn’t ended, it’s important to consider any fees that come with doing this so have a chat with your home loan consultant before you make a decision.

Interest rate.

The interest rate is basically the price a lender charges you for your home loan. And like any other price you pay, it makes sense to look for value. That’s why Defence Bank home loans offer the perfect combo of competitive rates plus plenty of features.

Interest-only payments.

Most homeowners choose to make principal-plus-interest repayments. But there can be times when you may only want to pay loan interest. This will lower the regular repayments – and it can sound tempting. But interest-only payments are best suited to property investors. You won’t pay off any of the loan balance, and you may have to sell the property to repay the loan, which is not what the average homeowner has in mind. Learn more about interest-only home loans.

Lenders mortgage insurance (LMI).

If you pay less than 20% deposit for your home, you’re likely to be asked to pay lenders mortgage insurance (LMI). The catch is that this insurance protects the lender – not you – if you can’t keep up the repayments. On the plus side, LMI can be the thing that gets you into the market sooner.

Loan to value ratio (LVR).

The loan to value ratio (LVR) is the value of your loan as a percentage of your property’s value. If you buy a place worth, say, $500,000 with a home loan of $400,000, your loan is worth 80% of the property’s value. So your LVR is 80%. Why does it matter? Because some lenders set maximum LVRs.

Offset home loan.

An offset account is simply a bank account linked to your home loan. You won’t earn interest on the offset account; however, the balance is deducted from (or ‘offset’ against) the value of your home loan when loan interest is calculated. For instance, if you have a home loan of $500,000 and a balance of $50,000 in an offset account, loan interest will be based on a loan of $450,000. It can make an offset account a handy way to make spare cash work harder and help pay off your home loan sooner.

Package home loan.

A package home loan is a chance to bundle plenty of value into your home loan in return for an annual package fee. Along with a super-low interest rate, a Defence Bank package loan comes with:

• No annual fee on our Defence Bank Foundation credit card.
• No fees for extra repayments.
• 15% discount on CGU home, contents, and landlord insurance.
• No application fee on personal loans.
• 0.15% p.a. bonus rate on term deposits – plus plenty of other extras.

Principal.

No, it’s not ol’ Miss Hargreaves your principal from primary school days. When it comes to home loans, the principal just means the loan balance.

Principal-plus-interest payments.

Each time you make a regular loan repayment, you pay off a slice of the loan balance (or principal) plus a slice of interest. It’s a proven way to steadily pay off your home loan.

Redraw.

A home loan redraw is a loan feature that lets you withdraw any extra repayments you’ve made if you need cash in an emergency.

Refinance.

Sounds complicated, right? Well, it’s really not. Refinancing just means swapping your old home loan for a new one. Why would you do that? Plenty of reasons, including:

• A chance to save at a lower rate.
• To score better loan features.
• To tap into the home equity you’ve built up without having to sell your home.

Stamp duty.

No, it’s nothing to do with the post office. When you’re planning to buy a home, it’s important to budget for stamp duty. How much you pay depends on the state you buy-in and the price of the property – but in some states, first home buyers can pocket valuable savings on stamp duty. Head to our stamp duty calculator to know what you could be up for.

Term.

The term is the length of time your home loan runs for. The longer the term, the lower the repayments - but the bigger the overall interest cost. That’s why it’s worth looking for a loan that lets you make fee-free extra repayments. They can be the key to paying off your loan sooner – and save a motza in loan interest.

Variable rate.

A variable interest rate will likely go up – and down – over the course of your loan as market interest rates change over time. This can mean your loan repayments also alter, but you’ll get the full benefit of any falls in market rates.

Important note: This information is of a general nature and is not intended to be relied on by you as advice in any particular matter. You should contact us at Defence Bank to discuss how this information may apply to your circumstances.