Mortgage Glossary: Home Loan Terms Explained
Welcome to the Redlend Home Loans Mortgage Glossary. Whether you're buying your first home, refinancing or investing, the home loan process can be full of unfamiliar terms and acronyms. We've explained the most common mortgage and property jargon in plain English, helping you understand how home loans work so you can make informed decisions with confidence.
What is LMI?
Lenders Mortgage Insurance (LMI) is insurance that protects the lender if a borrower can't repay their home loan. It's commonly required when you're borrowing more than 80% of a property's value (an LVR above 80%). While LMI can add to the cost of buying a home, it also allows many buyers to purchase sooner with a smaller deposit rather than waiting years to save 20%.
What is LVR?
Loan to Value Ratio (LVR) is the percentage of a property's value that you're borrowing. For example, if you buy a home for $800,000 and borrow $640,000, your LVR is 80%. LVR is an important factor because it can affect your interest rate, whether you'll need to pay Lenders Mortgage Insurance (LMI), and which lenders or loan products are available to you.
What is an Offset Account?
An offset account is a transaction account that's linked to your home loan. The balance in the account is offset against your loan balance when interest is calculated. For example, if you have a $600,000 home loan and $30,000 in your offset account, you'll only pay interest on $570,000. An offset account can help reduce the amount of interest you pay while still giving you access to your savings.
What is a Redraw Facility?
A redraw facility allows you to access any extra repayments you've made on your home loan. If you've paid more than your minimum repayments, those additional funds may be available to redraw if you need them, depending on your lender's policy. A redraw facility can provide flexibility while still helping you pay off your loan sooner.
What is Equity?
Equity is the difference between your property's current value and the amount you still owe on your home loan. As your property increases in value or you pay down your loan, your equity grows. Many homeowners use equity to renovate, invest in another property, or refinance to achieve other financial goals.
What is Pre Approval?
Pre approval is an indication from a lender that they're prepared to lend you up to a certain amount, subject to conditions. It gives you a clearer idea of your budget before you start house hunting and can make you a more confident buyer when making an offer. Keep in mind that pre approval isn't a guarantee of finance, as the lender will still need to assess the property and complete final checks before formally approving the loan.