Frequently Asked Questions

Lenders Mortgage Insurance (LMI) is an insurance policy taken out by a lender to protect themselves for the instances where a borrower defaults on their loan and the sale of the property does not recover the full outstanding balance.

LMI is paid by the borrower, but the insurance protects the lender not the borrower. This is not to be confused with mortgage protection insurance, which a borrower could take out to protect themselves.

LMI is generally applicable when the Loan to Value Ratio (LVR) of the loan is 80% or greater. If you do not have a substantial deposit (20%), LMI will allow for you to purchase a property sooner but with the added insurance cost.

For First Home Buyers, the Australian Government's First Home Guarantee will support a borrower in purchasing their first property with as little as 5% deposit. The government will guarantee up to 15% of the property removing the need for LMI costs. Contact us to discuss your eligibility for this scheme.

Fixed Rate 

• An interest rate that will not change for a specific term.
• For mortgages, fixed rates of 1 to 5 years are common. 
• Fixed rates will provide certainty of repayments over the set period, allowing for easier budgeting.
• You are protected from increases if interest rates rise, but likewise will not receive decreases during the fixed period.
• Fixed rates can often be higher than variable rates.
• Fixed rate loan products often have less features such as offset accounts and redraw.

Variable Rate 

• A interest rate that can fluctuate at the discretion of the lender. 
• The rate will increase or decrease at lender discretion, but is often directly linked to changes in the Reserve Bank of Australia's Official Cash Rate.
• Variable rates can make budgeting harder.
• Variable rates are often lower than fixed rates, but can increase over time.
• Variable rate products often have more features available such as offset accounts.

Through a detailed assessment of your financial position and an understanding of your needs and objectives, we can support your in determining the right product for you.

The Loan to Value Ratio (LVR) is a calculation that shows what percentage of the property value is borrowed. This ratio is one metric used to determine the risk of the loan.

It can be calculated as "Amount borrowed" divided by "Property Value" times by 100.

Example - "Loan of $400,000" divided by "Property value of $500,000" times by 100 = 80%

Loan repayments are made up of two components - principal and interest.

• The loan principal refers to the amount borrowed in the loan.
• Interest is the amount the lender is charging for the borrowed funds.
• Having principal and interest repayments will ensure you decrease your loan from the beginning and begin building equity. 

When you make a principal and interest repayment, a portion of the repayment goes to reducing the loan principal (amount borrowed), and the remainder is the interest charge. In each payment over time the amount paid towards the principal increases and the interest amount decreases.

Think of it like renting money. The interest is the rent you pay on the loan, and as you repay it the rent is calculated on the remaining balance so it will decrease over time.

For example - loan principal of $500,000 borrowed at 6% over 30 years has a monthly repayment of $2,998. The repayment will stay the same but the breakdown changes. See  below amortisation schedule:

Year 1 - Interest $2,500 Principal $498

Year 2 - Interest $2,469 Principal $528

Year 3 - Interest $2,436 Principal $561

Year 4 - Interest $2,402 Principal $595

Year 10 - Interest $2,902 Principal $905

Year 15 - Interest $1,847 Principal 1,150

Year 30 - Interest $174 Principal $2,823

In an interest only home loan, your repayments will only cover the interest on the amount borrowed. This means, that for the interest only period you would not be reducing the actual loan balance (principal). Interest only periods are usually available for terms of 1 to 5 years and they are often utilised to support borrowers through periods of reduced servicing and are also popular with property investors.

At the end of an interest only period, you will return to Principal and Interest repayments which will be higher than the amount you had been paying.

For example, you have a 30 year loan with 5 years interest only. At the beginning of year 6 you will begin Principal and Interest repayments that are calculated to repay the loan in full in the remaining 25 years.

For example, you borrow $500,000 at 6% over 30 years, with 5 years interest only. 

• The monthly repayment for the first 5 years is $2,500
• The monthly repayment for the remaining 25 years is $3,222
• This loan has a total cost including interest of $1,116,452.

In this example, interest only repayments costs the borrower an additional $37,000 over the life of the loan, in comparison to a 30 year principal and interest loan.

An Offset Account is a feature of a loan product that can benefit a borrower by provide interest savings and reducing the time to repay the loan.

The account generally functions like a standard transaction account, but is linked to the mortgage account. When interest is calculated on the mortgage, the calculation takes into consideration funds sitting in the offset account and takes this amount off the loan balance before calculating the interest. Interest on loans is calculated daily, so any day to day balance in the account will be considered. 

For example - John has a loan of $500,000 and has an offset account with a balance of $20,000. When John's bank calculates his interest they will calculate it based on the loan balance less the offset account - $480,000.

It is important to note that using a Offset account does not reduce the actual monthly repayment  on the loan. However, it does reduce the portion of the repayment that is interest and increase the portion that is towards the loan balance. 

Utilising an Offset account correctly can provide thousands in savings and reduce the time it takes to repay the loan.

A redraw facility is a loan feature which allows you to withdraw additional repayments you have made towards your mortgage. 

This feature operates similar to an offset account, where it can reduce interest repayments as the advanced payments are considered when interest is calculated. However, unlike an offset account these payments sit within the loan account itself.

Each lender treats redraw facilities differently and will have their own terms of use. For example a minimum redraw amount or a maximum dollar value of redraws in a 12 months period.