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A mortgage is a loan that a financial institution provides to help you purchase a property. It is paid off over the agreed term, typically over 25 to 30 years.
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.

An interest offset account is linked between a transaction account and a home loan and reduces the interest charged on the home loan. A complete interest offset account means the home loan interest is only charged on the net balance (Home loan balance minus the transaction account balance). Principal and interest repayment amount remains the same but less if allocated to interest, meaning more principal is being paid off.
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.
Equity is calculated by finding out the property’s value less the balance of the current loan secured by the property.

Equity can be accessed for several reasons, like purchasing additional property, investing in shares, traveling, or buying something personal like a car or boat.

Borrowing the additional funds to access equity depends on several factors such as your living expenses, income, how much you owe, and repayment history. LMI may be required depending on the amount to want to borrow.

Redraw is the ability to withdraw money from your variable home loan when you need it. Redraw comprises the additional repayment you have made and is only available on some home loans, typically part of a “home loan package”. The redraw is the difference between your current balance and what the balance would have been before additional repayments.
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.
The beauty of a broker is helping you find the best lender to suit your financial needs and goals. Our brokers have immense knowledge of current deals, lending requirements, and advantages to each financial institute. We begin by finding out and understanding what you want and need and then negotiating with the best lenders and coming back to you with several options.