Purchasing a property is a huge financial decision, which is why people should familiarise themselves with the mortgage process and any essential terminology. Unfortunately, recent research has indicated many Australians aren’t as familiar with common home loan terms, as they need to be.
Do you know how split home loans work? Any idea what an offset account is? What about the differences between interest rates and comparison rates?
If you have detailed knowledge of all these terms, then you’re in a minority of Australians. Unfortunately, many property buyers aren’t in the same boat, according to McCrindle research.
Only 54 per cent of people definitely understand offset accounts, with the figures slumping to just 39 and 35 per cent for split mortgages and comparison rates, respectively.
Let’s unpack some common industry jargon.
Split mortgages
You are probably aware of the differences between a fixed-rate and a variable-rate mortgage. A split home loan is a combination of the two, providing borrowers with separate periods of fixed and variable interest rates.
Homeowners can benefit from security and stability during the fixed-rate portions, while also taking advantage of potentially lower charges as they move into variable segments of the loan.
Offset accounts
An offset account is a savings or transaction bank account that is tied to your home loan. Any money held within the account is offset against the value of your mortgage, helping to lower interest rates.
For example, if you have a $500,000 mortgage and have already paid off $200,000, you can expect to pay interest on the remaining $300,000. However, people with an offset account containing $100,000 would only be charged interest on $200,000 of the total.
Comparison rates
This one is pretty simple. Comparison rates are similar to interest rates, but they also include a number of other mortgages costs, such as fees and charges, giving you a more accurate idea of your total home loan outgoings.
Redraw facilities
A redraw facility is a feature that allows you to withdraw any mortgage overpayments you’ve made thus far. So, if your home loan costs $2,000 a month, but you pay $3,000 instead, a redraw facility would enable you to access the extra $12,000 you’d contribute over a year, should you need it.
Talk to us today!
Mortgage terminology can be confusing, and navigating the market is often difficult due to the wide range of lenders and products available.
Contact our team today to learn how our specialists can help you with your next purchase.