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A mortgage is used to finance the purchase of a home or investment property, so you don’t need the entire required amount upfront. Most lenders will require a 20% deposit of the purchase price, and the loan will be the remaining 80% of the property’s value. Some lenders and home loan schemes only require a 10% deposit, and the purchaser pays Lender’s Mortgage Insurance.

The borrower must make repayments that can be made weekly, fortnightly, or monthly and consist of principal interest. The principal is the amount borrowed from the lender to buy the property. The interest is the cost of borrowing the money.

The lender is listed on the property’s title, and the title is not released to the borrower until the loan is paid off in full.

There are two primary home loan rate types:

Variable-rate loans: Allow for additional features such as unlimited extra repayments, redraw facility, full interest offset and if interest rates decrease, so do the repayments.

Fixed-rate loans: Provide certainty over the repayments during the fixed-rate period, but if interest rates decrease, you are locked in for the remainder of the agreed term. Borrowers have to be aware that breaking the fixed-rate term if interest rates increase, additional repayments are made if you decide to sell the property, and you will be required to pay break costs.

Principal and Interest (P&I)
Principal and interest repayments are higher as principal is being repaid and your loan is being paid off, meaning you will pay less interest over time and pay your loan off by the end of the term.

Interest-Only (IO)
Interest-only repayments require smaller monthly payments because no principal is paid off. Once the interest-only term is over, your repayments will be higher due to repaying the principal over the remaining shorter period. Investors commonly use interest only to ensure they maximize their tax deductibility benefits.

Lines of Credit (LOC)
The financial institution provides a line of credit, enabling the borrower to draw on the facility when the customer needs the funds. Interest rates are typically much higher. It is common for businesses to use this facility to enhance their cash flow.

Lenders Mortgage Insurance is insurance that a lender takes out to protect itself against risk due to the borrower requiring to borrow more than 80%. The insurance would cover the lender if you, the borrower, could not meet the loan repayments. There are ways to avoid this insurance: having the total 20% deposit amount or receiving a family pledge, also known as a guarantor.
Most big lenders offer home loan packages and are services combined with your home loan. They usually include the mortgage, an offset account, savings and transactions account, credit card, and possibly other discounts. People choose a home loan package because it gives the borrower a discount on variable and fixed rates.