Plain English guide to home loans
Mort is Latin for ‘dead’ and amortisation means something’s getting killed off. If you ‘amortise’ over 20 years, that’s how long it will take to unalive your loan.
If you’re ‘in arrears’, you promised to pay something back and are now running behind. If you get ‘into arrears’ on an Up Home loan, don’t stew on it – hit Talk To Us and we can tackle it as a team.
Something valuable. If you own a home, a car or a 1st edition Charizard card, you have an asset. Congrats!
A fee you might have to pay to your lender if you agree to stick with them in exchange for a certain rate, and then decide not to.
Break fees have to be super clear in any contract you sign, so read those docs and you won’t get shocked.
The comparison rate is a way of combining fees and interest into one number you can compare. Every lender’s combination of fees and interest rates is different and a really low rate with high fees might end up costing you more!
The formula for calculating a comparison rate is regulated by the Consumer Credit Code, and anyone who sells home loans has to use the same formula. That way you can compare one comparison rate against another, and not get ripped off.
You know how you might be happy lending money to your super responsible little bro, but absolutely not to your mate Nathan cause he’s just a liability on a Friday night?
When a lender runs ‘credit approval’ they’re getting to know you, your finances, and your saving and spending habits, so they can decide if you’re a good bet to lend to, or… a bit of a Nathan.
When you buy a home, the deposit is the part you personally contribute, as opposed to what you borrow from the bank. Whatever you put down as a deposit, you then own in the home. You got equity, superstar. Speaking of….
Look, we prefer to call it Leaving Home, but this is the official word for when you leave your home loan. Either because you pay it off completely or because you leave one home loan provider for another.
The amount of equity you have in your home is the value of the home, minus what you owe on your loan. It can actually change over time without you doing anything! Say you buy a place for $250,000 and borrow $50,000. You have $200K in equity. If your place goes up in value to $300K you now have $250K in equity.
Household Expenditure Measure (HEM)
The Household Expenditure Measure is a ‘best guess’ method at figuring out what you’re likely to have to spend based on stuff like your age, income, whether you’re single or in a relationship, and whether you have kids. Your real situation is unlikely to be exactly your HEM, but the HEM gives your lender a ballpark to start with.
It’s worked out quarterly and published by the Australian Bureau of Statistics.
This is how much you pay a lender for the right to use their money. The cost goes up and down depending on, for example, how much that lender has to pay to get that money from bigger lenders, like the Australian Reserve Bank.
Lenders mortgage insurance (LMI)
Lender’s Mortgage Insurance is a once off insurance premium (something you have to pay, but only once) that protects your lender in case you can’t make your mortgage repayments. There's a bit more on LMI here if you'd like to dig in.
Loan-to-value ratio (LVR)
The value of your loan divided by the value of the property you’re buying with it.
If you buy a place for say $400K and have $200K to put down as your deposit (woah there fancy pants) then your LVR is 50%. There's a full read on LVR here.
This is just a fancy word for a home loan. Not sure why this word needs to exist, but there you go. English doesn’t always make sense.
Your lender is the business, or really really rich mate, who gives you all the money. If you get an Up Home loan, our parent company Bendigo Bank is officially your lender.
A separate account you can keep your own money in, that your lender treats as if you’d paid on your loan. That saves you $$ in interest and can get you to home ownership faster. If you have an Up Home loan on your own, your personal Up spending and all your personal Up Savers are offsets. If you have a 2Up loan, all your personal and shared spending accounts, and all your 2Up Savers, are offsets. Easy.
This is when a lender gives you a simple idea of what you could likely borrow based on information like your living situation, financial situation (income, expenses, debts, etc.), current interest rates and where you’re looking to buy. Pre-approval usually isn’t a final agreement on a loan. The details of a pre-approval can vary quite a lot between different lenders, and they almost always come with important conditions that you should read carefully. Hit the Up Home button in your Up tab to get simple, conditional pre-approval, without a credit check. When you’re ready to buy and want full approval on a loan, you’ll already be one step ahead.
The actual amount you borrow. As you pay this back, you own more and more of your home. Not all of the money you pay will go on your principal – some goes to your lender as interest – but anything you put on the principal belongs to you as equity.
Principal and Interest (sometimes called ‘P&I’)
Most home loans, and all Up Home loans, are ‘Principal and Interest’. That means that some of the money you pay goes to the bank and some of it pays off your loan so eventually the place can be yours.
Some people, particularly investors, get interest only loans and take a bet that while they’re just paying interest, the property will grow enough in value to justify the purchase. Most people who want to actually live in the house they buy, want to work towards owning it so they can retire in it and fill it with cats. (Just us? OK.)
A home loan rate refers to how much interest gets charged on your home loan.As an example, a rate of 3% means that over a year, you have to pay 3% of the whole amount you borrowed, back to them as interest.(If the rate changes within the year, there’s more maths involved, but you get the idea).
Redraw means ‘drawing’ out money you’ve already paid into your loan. Usually, if you pay extra, you’re allowed to change your mind and have some of the extra money back. More info on how Up gives you free and easy redraw is on this page.
Refinancing is what you do when you already have a home loan, but want a different one. Say you’re on a variable rate with one lender, and you like the look of this new Up Home thing, cause they seem like cool people, so you fire up a chat with Up and get a new loan with them. That’d be refinancing.
Settlement is the bit where the actual, real life ownership of a home goes from one person (or business or whatever) to another. It involves a bunch of money – like your deposit – and legal stuff, so you typically get a conveyancer to help you do it and then do what they say. Then someone gives you some keys!
Stamp duty on a home is a government tax. There used to be actual stamping of documents involved which maybe made people feel better about how expensive it is. Now it all happens online which is easier, but it’s still really really expensive. Sorry.
There are people whose job it is to take a look at a house and decide what it’s worth, based on where it is, what style of place, and other stuff.
You can get a place revalued, too, which can be a good idea. Say you pay a 10% deposit and then fix the place up, which improves the value. The different value might push your equity up higher.
Official Cash Rate
The official interest rate set by the Reserve Bank of Australia that determines the cost of loans between banks (yeah, they do this!). The cash rate changes based on economic strength and activity. It then affects the interest rates on borrowing and savings that banks and financial institutions pass onto their customers. Nerd out on the cash rate here.
Remember, any advice provided on this website is of a general nature only and does not take into account your personal needs, objectives and financial circumstances. You should consider whether it is appropriate for your situation.
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