Its My Home : 2015
IT’S MY HOME - Summer 2015 | 12 FIXED INTEREST RATE Fixed interest rate loans lock your monthly interest repayments at a set rate for a period (typically one, three or five years), after which they will revert to the standard variable rate. They can be a good choice for buyers who want certainty around interest payments, but beware of early repayment charges if you try to change your loan or want to make additional repayments. As rates remain at historically low levels in Australia, these loans are currently popular with many borrowers. LENDERS MORTGAGE INSURANCE Lenders Mortgage Insurance (LMI) provides a safety net to the lender in the event that you default on your loan repayments. The cost of the insurance premium is usually added to your loan and paid off along with the rest of the loan. With LMI, a lender may accept a smaller deposit than the 20 per cent usually required, which can get you into your home sooner. LOAN AGREEMENT This is a formal contract between you and a lender which sets out the terms and conditions of your loan. LOAN-TO-VALUE RATIO The Loan-to-Value Ratio (LVR) is the proportion of the loan amount to the lender’s valuation of your property. If your property is valued at $500,000, you put down a deposit of $50,000 and require a loan of $450,000, the LVR will be 90 per cent (calculated as $450,000 ÷ $500,000 x 100). If your LVR is higher than 80 per cent, your lender will usually require that LMI be obtained for the loan. MORTGAGE A mortgage is a legal document between a borrower and a lender. It gives the lender a conditional right to the property that is held as security for the repayment of the money that has been lent. MORTGAGE DUTY Mortgages may attract duty based on the amount secured by the mortgage. This duty is usually paid to the applicable state authority on your behalf by your lender and added to your loan. The rate and amount of duty payable varies in each state and territory. MORTGAGE PROTECTION INSURANCE This covers your loan repayments if you fall sick, suffer an injury or lose your job. If you die prematurely, the loan will generally be paid off. Policies differ widely and can be a combination of life insurance, income protection and permanent disability insurance. OFFSET ACCOUNT A mortgage offset account is a bank account that is linked to your home loan. The savings in your bank account reduces the balance of your loan on which interest is calculated. This reduces the amount of interest you will be charged and can assist you to pay your loan off sooner.