Mortgage and Home Loan Glossary

Understand the terms before you compare loans

Mortgage paperwork and lender websites use a lot of shorthand. This glossary explains the terms you are most likely to come across while using the Mortgage Repayment Calculator, reading a lender's Key Facts Sheet, or comparing home loan offers.

These definitions are general information only and are not personal financial advice. For guidance on your own situation, speak with a lender, a licensed mortgage broker, or another qualified professional, or read the full Disclaimer.

Loan Types and Repayments

Principal and Interest

A principal and interest loan is a home loan where each scheduled repayment covers the interest charged for that period and also reduces the amount borrowed. Over the loan term the balance gradually falls to zero, provided repayments are made as scheduled. Model this repayment type directly in the Mortgage Repayment Calculator.

Interest-Only Loan

An interest-only loan requires repayments that cover only the interest charged for a set period, without reducing the principal. Once the interest-only period ends, repayments typically increase because the remaining balance must be repaid over a shorter time. Compare interest-only and principal and interest scenarios side by side using this calculator.

Offset Account

An offset account is a transaction account linked to an eligible home loan. Its balance is offset against the loan balance when interest is calculated, so money held in the account can reduce interest charged without reducing the loan balance directly. See the offset account question in the FAQ for a worked comparison.

Redraw Facility

A redraw facility lets a borrower access extra repayments already paid into a home loan, subject to the lender's terms. It differs from an offset account because the funds sit inside the loan itself rather than in a separate linked account.

Extra Repayments

Extra repayments are additional amounts paid above the minimum scheduled repayment. They reduce the outstanding principal, which can lower future interest charges and shorten the loan term. Enter an extra repayment amount and start month in Advanced Options on the calculator to see the effect.

Lump Sum Repayment

A lump sum repayment is a one-off payment made toward the loan balance, separate from regular scheduled repayments. It reduces principal immediately, which can lower total interest, though the scheduled repayment amount usually stays the same unless the lender agrees to recalculate it.

Repayment Frequency

Repayment frequency is how often scheduled repayments are made, commonly weekly, fortnightly, or monthly. Some lenders offer an accelerated weekly or fortnightly amount calculated from the monthly repayment, which results in extra annual repayments compared with a true weekly or fortnightly schedule.

Amortisation Schedule

An amortisation schedule is a period by period breakdown of a loan showing the interest charged, principal repaid, and remaining balance for each repayment. The detailed payment schedule produced by this calculator is an example of an amortisation schedule.

Rates and Costs

Comparison Rate

A comparison rate combines a loan's interest rate with certain fees and charges into a single percentage, calculated for a prescribed loan amount and term. It is intended to help compare loan products, though it may not reflect the actual amount, term, or features of a specific loan. See ASIC's MoneySmart website for more on how comparison rates work.

Fixed Rate

A fixed interest rate is set for an agreed period, which keeps the repayment amount predictable during that time. Fixed-rate loans often restrict extra repayments and may charge a break cost if the loan is repaid or refinanced before the fixed period ends.

Variable Rate

A variable interest rate can move up or down at the lender's discretion, often in response to changes in funding costs or the official cash rate. Repayments on a variable-rate loan can change during the loan term.

Introductory Rate

An introductory rate, sometimes called a honeymoon rate, is a temporary interest rate offered for a set period at the start of a loan, after which the rate reverts to the lender's standard rate. Model an introductory or fixed period using the Intro / Fixed Rate fields in this calculator.

Loan-to-Value Ratio (LVR)

Loan-to-value ratio, or LVR, is the loan amount divided by the lender's assessed value of the property, expressed as a percentage. A higher LVR can affect the interest rate offered, approval conditions, and whether lenders mortgage insurance is required.

Lenders Mortgage Insurance (LMI)

Lenders mortgage insurance protects the lender, not the borrower, if a loan cannot be repaid and the sale of the property does not cover the debt. It is commonly required on loans with a higher loan-to-value ratio, though thresholds and premiums vary between lenders. See ASIC's MoneySmart website for independent guidance.

Cash Rate

The cash rate is the interest rate set by the Reserve Bank of Australia for overnight loans between banks. Changes to the cash rate can influence, though do not automatically determine, the variable interest rates lenders charge on home loans. See the Reserve Bank of Australia's website for the current cash rate.

Eligibility and Approval

Home Loan Pre-Approval

Home loan pre-approval is an indication from a lender of how much it may be willing to lend, based on the information available at the time. It is usually conditional and time-limited, and remains subject to a full credit assessment, property valuation, and final approval.

Borrowing Capacity

Borrowing capacity, sometimes called serviceability, is a lender's assessment of how much a borrower can responsibly repay based on income, expenses, existing debts, dependants, and interest rate buffers. This calculator estimates repayments for a given loan amount but does not assess borrowing capacity.

Guarantor Loan

A guarantor loan involves a third party, often a family member, offering additional security, usually equity in their own property, to support a borrower's home loan application. This can reduce or remove the need for lenders mortgage insurance, but it places the guarantor's asset at risk if repayments are missed.

First Home Buyer Scheme

Australian governments periodically offer schemes intended to help eligible first home buyers, such as reduced deposit requirements, guarantees in place of lenders mortgage insurance, or grants. Eligibility rules, property price caps, and availability change over time, so current details should be confirmed with a lender, broker, or the relevant government agency.

Settlement

Settlement is the point at which a property purchase is finalised and legal ownership transfers to the buyer, generally including the drawdown of the home loan. Settlement typically involves the buyer's and seller's legal representatives and, where applicable, the lender.

Refinancing, Fees and Professionals

Refinancing

Refinancing means replacing an existing home loan with a new loan, either with the same lender or a different one. Borrowers commonly refinance for a lower rate, different features, or a more suitable loan structure, though switching costs and any fixed-rate break cost should be weighed against the expected benefit. See the refinancing questions in the FAQ for more detail.

Mortgage Discharge Fee

A mortgage discharge fee is an amount a lender may charge to prepare and process the release of its mortgage once a loan is repaid in full or refinanced elsewhere. It is separate from government registration charges and any fixed-rate break cost.

Fixed-Rate Break Cost

A fixed-rate break cost is an amount a lender may charge when a fixed-rate loan is repaid, refinanced, or switched before the end of the fixed period. It is intended to cover the lender's cost of unwinding the fixed-rate arrangement and can vary significantly depending on rate movements since the loan was fixed.

Mortgage Broker

A mortgage broker is a licensed professional who helps borrowers compare and apply for home loans across multiple lenders, rather than representing a single lender. Brokers in Australia are commonly members of an industry body such as the Mortgage & Finance Association of Australia.

Put these terms into practice

Once a term makes sense, the fastest way to see it in action is to change the matching field in the calculator and watch the repayment, total interest, and term update. Start with the Mortgage Repayment Calculator, or read the frequently asked questions for worked explanations of how these terms interact.

If a lender or broker uses a term that is not covered here, or you would like a term added, let us know through the Contact Us page.