Understanding your mortgage

FAQs About Mortgages in Australia: Simple Answers

Thinking about buying a home or investment property in Australia? You probably have lots of questions about mortgages. As a finance broker, I hear these all the time, so I’ve put together this simple guide to help you understand how mortgages work.

1. What is a Mortgage?

A mortgage is a loan you take out to buy a property. The lender gives you money, and you pay it back over time with interest. If you don’t make the repayments, the lender can take the property.

2. How Much Can I Borrow?

Your borrowing amount depends on your income, expenses, debts, and credit history. Lenders also have their own rules. You can use an online mortgage calculator or speak to a broker to get a better idea.

3. What is Loan-to-Value Ratio (LVR)?

LVR is how much you borrow compared to the property value. For example, if your home costs $500,000 and you borrow $400,000, your LVR is 80%. If your LVR is over 80%, you may need to pay Lender’s Mortgage Insurance (LMI).

4. What is Lender’s Mortgage Insurance (LMI)?

LMI is a fee you pay if your deposit is less than 20% of the property value. It protects the lender if you can’t repay the loan. It doesn’t protect you, but it allows you to buy a home with a smaller deposit.

5. What Types of Home Loans Are Available?

Here are some common types:

• Variable Rate Loans: The interest rate changes over time.
• Fixed Rate Loans: The interest rate stays the same for a set time.
• Split Loans: A mix of fixed and variable.
• Interest-Only Loans: You pay only interest for a set time before paying the loan back.
• Offset Accounts & Redraw Facilities: Features that can help you save money on interest.

6. What is a Pre-Approval?

A pre-approval means a lender has checked your finances and tells you how much you can borrow. It helps when looking for a home because it shows sellers you are serious.

7. What is the First Home Owner Grant (FHOG)?

The FHOG is a government scheme that gives first-home buyers money to help buy their first home. The amount and rules depend on your state, and some states also reduce stamp duty.

8. What is Stamp Duty?

Stamp duty is a tax on buying a property. The cost depends on where you buy and the property price. Some first-home buyers get discounts or exemptions.

9. How Do Interest Rates Affect My Loan?

Interest rates affect how much your loan costs. Higher rates mean bigger repayments. Lower rates mean you pay less over time. The Reserve Bank of Australia (RBA) influences these rates.

10. What’s the Difference Between Principal & Interest vs Interest-Only Loans?

• Principal & Interest Loans: You pay back the loan and the interest.
• Interest-Only Loans: You pay only the interest at first, then start paying off the loan later.

11. How Can I Pay Off My Mortgage Faster?

Try these tips:

• Make extra repayments when you can.
• Use an offset account to lower interest.
• Refinance to a lower interest rate.
• Pay fortnightly instead of monthly.

12. What is Refinancing and When Should I Do It?

Refinancing means switching to a new loan or lender to get a better deal. You might refinance if:

• Interest rates have dropped.
• You want better loan features.
• You need to consolidate debts.
• Your financial situation has changed.

13. Can I Get a Home Loan with Bad Credit?

Yes, but it may be harder. Some lenders offer loans to people with bad credit, but the interest rates are higher. Improving your credit score and reducing debt can help.

14. Do I Need a Mortgage Broker?

A mortgage broker (like me!) helps you find the best loan, compare lenders, and apply for your mortgage. Brokers often get better deals than banks offer directly.

15. What If I Can’t Make My Repayments?

If you’re struggling, talk to your lender straight away. Many lenders offer help, like pausing repayments or changing your loan terms. Don’t ignore the problem—help is available.

Final Thoughts

Mortgages don’t have to be confusing. Whether you’re buying, refinancing, or investing, knowing your options helps you make the right decisions. Have more questions? Feel free to reach out—I’m happy to help!

Want to catch up with Steve to understand your options? Click here.

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