Glossary

Paying out your existing loan with a new one, usually to get a better rate, better features, or to release equity you've built up.

Worth knowing

• A lower rate doesn't always mean less interest. If you stretch the term back out to 30 years, you can pay more overall even at a cheaper rate.
• There are usually costs to leave your old lender and costs to join the new one. Ask us for the full figure before you decide.
• If your loan is fixed, breaking it early can cost thousands.

Rolling other debts, like a car loan or credit card, into your home loan so you make one repayment at a lower rate.

Worth knowing

• Your monthly repayment usually drops. That's the appeal.
• But a $20,000 car debt spread over 30 years costs far more in interest than paying it off over five, even at half the rate.
• It only really works if you commit to paying the consolidated amount off faster than the home loan term.

Your rate can move up or down at any time, and your repayment moves with it.

Might suit you if

• You want to make extra repayments without limits or penalties.
• You might sell, refinance or restructure in the next few years.
• You'd rather benefit when rates fall than be protected when they rise.

The trade-off

• Your repayment can go up with little notice. Budget with room to move.

Your rate is locked for a set period, usually one to five years. Your repayment stays the same for that whole time.

Might suit you if

• Certainty matters more to you than flexibility.
• Your budget is tight and a rate rise would hurt.

The trade-off

• You won't benefit if rates fall.
• Extra repayments are usually capped.
• Break costs apply if you sell, refinance or repay early. These can be very large.
• The rate you're quoted can change before settlement unless you pay to lock it in.

Part of your loan is fixed and part is variable. You get some certainty and some flexibility.

Worth knowing

• You make separate repayments for each portion.
• You can't shift the ratio later without the lender's agreement, and break costs may apply.
• Splits are also used to keep different purposes separate, which matters for tax on investment lending.

Every repayment covers the interest plus a slice of what you borrowed. The debt shrinks and the loan is paid off by the end of the term.

Worth knowing

• Progress feels slow at first. Most of an early repayment is interest.
• It speeds up as the balance falls, because you're charged interest on less.
• You'll pay less interest overall than on an interest-only loan.

Your repayments cover the interest and nothing else, usually for one to five years. The amount you owe doesn't move.

Might suit you if

• You're managing cash flow through a specific, temporary stretch.
• You hold an investment property and your accountant has advised it. We don't give tax advice.

The trade-off

• The rate is usually higher.
• You pay more interest across the life of the loan.
• When the interest-only period ends, repayments jump, sometimes sharply.
• You build no equity in the meantime.

An everyday bank account linked to your loan. Whatever sits in it is subtracted from your loan balance before interest is worked out.

How it works

• $500,000 owing with $20,000 in offset means you're charged interest on $480,000.
• At 6%, that's about $1,200 a year saved, and the money stays yours to spend.

Worth knowing

• Offset accounts usually come with a package fee or a slightly higher rate. If your balance is small, the fee can cost more than the offset saves.
• Some lenders only offset part of your balance. Check it's a full 100% offset.

Pulling back extra repayments you've already made. Similar effect to an offset, different mechanics.

Worth knowing

• The money is inside your loan, not in your own account. The lender can restrict or freeze access.
• Some lenders set minimum withdrawal amounts or charge a fee.
• For investment lending, redrawing can change what's deductible. Talk to your accountant first.

An approved limit you draw against as you need it, like a very large credit card secured by your home.

Might suit you if

• Your income is lumpy or seasonal.
• You need to draw funds repeatedly over time, for a renovation or a business.

The trade-off

• The rate is usually higher.
• There's no set repayment schedule, so the balance can sit there for years.
• The lender can reduce or cancel the limit, and can call it in.
• It takes real discipline. Most people are better off with an offset.

How much you're borrowing as a percentage of what the property is worth. Borrow $600,000 against an $800,000 property and your LVR is 75%.

Why it matters

• Under 80%, you avoid lenders mortgage insurance.
• Lower LVR often unlocks a better rate.
• Lenders use their own valuation, not the price you paid. They can differ.

A one-off premium charged when you borrow more than 80% of a property's value. It protects the lender if you default. It does not protect you.

Worth knowing

• It can run to tens of thousands and is usually added to the loan, so you pay interest on it for decades.
• Some professions and some government schemes can get it waived.
• Paying it is sometimes still the right call. Waiting two years to save a bigger deposit can cost more in rising prices than the premium.

The advertised rate with standard fees folded in, so you can line up two loans fairly.

Worth knowing

• It's calculated on a $150,000 loan over 25 years. Most home loans are neither, so treat it as a rough guide.
• It leaves out costs like LMI, redraw fees and break costs.
• Useful for a first sort. Not a substitute for running your actual numbers.