Buying your first home in Australia? You’re probably excited, and a bit daunted. Between terms like "LVR", "offset account", and "redraw", it can feel like the mortgage world is speaking another language. But don’t worry, you’re not alone, and you don’t need a finance degree to make smart choices.
This guide breaks down the mortgage basics so you can feel confident, ask the right questions, and help you make informed decisions and better understand key mortgage concepts.
What Is a Home Loan, Really?
At its core, a mortgage is a loan from a lender to help you buy property. You’ll repay it (with interest) over time, typically 25–30 years. But the fine print matters, and that’s where understanding key terms comes in.
Mortgage Terms First Home Buyers Must Know
LVR (Loan-to-Value Ratio):
This is the percentage of the property’s value you’re borrowing. If your LVR is over 80%, you’ll likely pay Lenders Mortgage Insurance (LMI), a cost that protects the bank, not you.
LMI (Lenders Mortgage Insurance):
A one-off premium triggered by a high LVR. It can be capitalised (added to your loan), but it increases your repayments.
Offset Account vs Redraw Facility:
An offset account reduces the interest you pay by offsetting your account balance against your loan. While it can function similarly to a transactional savings account, it is designed specifically to help reduce interest costs. Redraw lets you access extra repayments you’ve made. Both help manage interest, but offset offers more day-to-day flexibility.
Comparison Rate:
Don’t just look at the advertised interest rate. The comparison rate factors in fees and charges, giving a clearer picture of the true cost over time.
Fixed vs Variable Rates:
Fixed gives repayment certainty for a set time. Variable rates can sometimes start lower than comparable fixed rates, depending on the lender and market conditions, and they let you make extra repayments, but your rate can change. A split loan blends both.
Pre-Approval:
Before you house hunt, you may choose to get pre-approval. While it is not a guarantee of approval, it can give you a clearer idea of your potential borrowing range and help guide your property search.
The Loan Process, Simplified
1. Assess your finances: Understand your savings, debts, and income
2. Get pre-approved: This can help you understand your likely borrowing range, noting it is indicative only and subject to lender assessment
3. Find a property: Stay within budget and factor in upfront costs (stamp duty, inspections, legal fees)
4. Apply for formal approval: Once your offer’s accepted, the lender does final checks
5. Settlement: You sign the papers, the bank releases funds, and the home is yours
You Don’t Need to Know It All — Just Know Enough to Ask
Yes, there’s a learning curve. But you don’t need to master every detail before you start. Understanding the basics, and knowing what questions to ask, puts you in a strong position.
The good news? You’re already taking that first step
Ready to Open the Door to Confidence?
Buying your first home is a major milestone, and having clear information can make the journey feel more manageable. Our free First Home Buyer e-book makes the journey easier, with:
- Step-by-step guidance from deposit to keys
- Mortgage checklists and comparison tools
- A jargon-busting glossary (including LVR, LMI, offset and more)
- Explainers on government schemes, grants, and real examples
You’ve got this, and we’ve got your back. Download your free guide now.
