Your home loan terminology explained

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The mortgage process comes with a lot of confusing jargon. So if you don’t know the difference between LMI and LVR or fixed rates and variable rates – we’ve written this guide just for you

Comparison rate

A comparison rate is designed to help you understand the true cost of a loan, as it combines the advertised interest rate as well as certain upfront and ongoing fees and charges related to the loan. Lenders are legally required to show you a comparison rate next to a product’s advertised interest rate.

Conditional approval

Conditional approval (also known as pre-approval or approval in principle) is when a lender agrees, in principle, to lend you money towards buying your new home. However, you will still need to meet certain conditions or provide the lender with more information before you can be granted formal approval (also known as unconditional approval).


Equity is the difference between the value of your home and the mortgage outstanding on the property. For example, if your home is worth $800,000 and you still owe $500,000 on your mortgage, your equity would be $300,000.

Fixed interest rate

An interest rate that stays the same for a set period (usually one to five years).

Interest-only mortgage

Normally, when you pay back a loan, your regular repayments go towards both the principal (the original loan amount) and the interest charged by the lender. However, with an interest-only mortgage, you make only interest payments, for a set period of time (usually one to five years). After this, the loan usually reverts to principal-and-interest payments – so your repayments will likely increase.

Lender’s mortgage insurance (LMI)

Lender’s mortgage insurance (LMI) is a one-off insurance premium a lender will generally charge when you have less than 20% equity in your property. LMI protects the lender from financial loss should you subsequently default on your mortgage.

Unfortunately, if you paid LMI on your existing mortgage and your equity is still less than 20% of the property’s value, you will likely have to pay it again when you refinance.

Loan-to-value ratio (LVR)

Your LVR is the amount you need to borrow expressed as a percentage of the value of the property you want to buy. For example, if you want to borrow $600,000 to buy an $800,000 property, your LVR would be 75% (as $600,000 is 75% of $800,000).

We even provide a handy LVR Calculator for you to use

Offset account

An offset account is a transaction account linked to your home loan. The balance in the account reduces the interest payable on your home loan. For example, if your loan is $600,000 and you have $100,000 in your offset account, you will be charged interest only on $500,000.

Principal-and-interest mortgage

A home loan in which your repayments go towards both reducing the principal and paying interest. The principal is the sum of money you borrow to buy a home. Interest is what the lender charges for lending you the money.

Redraw facility

A feature available on some home loans that gives homeowners the option to withdraw (or redraw) any extra payments they make on their mortgage.  A Well Balanced home loan has some caveats on redraw to be aware of that it requires you to be ahead by one month’s payment in order to access redraw.  For some people an offset account might be a better choice.


Refinancing is when you replace an existing loan with a new loan. Borrowers commonly refinance to get a better deal on their mortgage, free up equity or when their personal circumstances change.

Split rate loan

This is when a loan is divided into two parts. A portion of the loan has a fixed rate while the remainder is charged at a variable rate.

Variable interest rate

An interest rate that goes up or down depending on market moments.

Thinking about buying a property or refinancing an existing loan? Contact Well Money on 1300 899 724 for more information or click here to start the refinancing process and get your personalised borrowing scenario in less than 2 minutes!

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