Mortgage terms: what you need to know

If you’re looking to buy a property, you’re likely going to need a mortgage to finance the purchase. However, the world of mortgages can be overwhelming with many unfamiliar terms and conditions to navigate. Understanding the key terms can help you make informed decisions about your home loan.

So, in this blog, we explain some of the most common words you’ll encounter during the mortgage approval or mortgage refinance process.

Break fee

A break fee is a penalty you may incur if you decide to break your fixed-term mortgage contract before the end of the term. It’s important to understand this fee before committing to a fixed-term loan, as it can be quite costly.

Bridging finance/bridging loan

A short-term loan that helps you buy a new property before you have sold your current one.


An incentive offered by some lenders to borrowers who take out a new home loan or refinance their mortgage.

Comparison rate

The comparison rate is a percentage that includes both the interest rate and the fees associated with a mortgage. It’s designed to give borrowers a more accurate picture of the true cost of a mortgage and allows them to compare different loans more easily.


Pre-approval is when a lender gives you an indication of how much you can borrow before you start house-hunting. This can be helpful as it gives you a better idea of your budget and allows you to make more informed decisions when looking at properties.

Discharge fee

A fee charged by your lender when you pay off your home loan. The discharge fee covers the cost of closing your home loan account.

Establishment fee

A fee charged by your lender when you set up your home loan that covers the cost of processing your loan application. It’s important to factor this fee into your calculations when comparing different mortgages.

Fixed interest rate

A fixed interest rate is a rate that is locked in for a certain timeframe, usually 1-5 years. This means that your repayments will remain the same for that period, regardless of any changes in the official interest rate. But while fixed-rate home loans can offer stability and certainty, they generally offer less flexibility.


A person who agrees to guarantee your home loan, usually a parent or family member. The guarantor is liable for your home loan if you default on your repayments.

Interest rate

The cost of borrowing money from a lender. The interest rate is expressed as a percentage of the loan amount.

Interest-only loan

A loan where you only pay the interest on the loan for a specified period, usually up to five years. While this can be attractive, it’s important to consider the long-term cost of the mortgage once the introductory period ends.

Lender’s mortgage insurance (LMI)

Insurance that protects the lender if you default on your home loan. LMI is typically required if you have a loan-to-value ratio (LVR) of more than 80%.

Loan-to-value ratio (LVR)

The ratio of your loan amount to the value of the property. For example, if you have a $400,000 loan on a property valued at $500,000, your LVR is 80%.

Mortgages refinance

The process of switching your home loan from one lender to another. Refinancing can help you secure a better interest rate or loan features that better suit your needs.

Offset account

An offset account is a transaction account that’s linked to your mortgage. Any money in the account is offset against the balance of your mortgage, which can reduce the amount of interest you’re charged.


The principal is the amount of money you’ve borrowed for your mortgage. This amount will decrease over time as you make repayments.

Rate lock

A rate lock is an agreement between you and the lender that locks in a particular interest rate for a set period of time, usually 60-90 days. This can be useful if you’re concerned that interest rates will rise before you settle on your property.

Redraw facility

A redraw facility allows you to withdraw any extra repayments you’ve made on your mortgage. This can be helpful if you need access to extra funds in the future.


The final stage of the home loan process where the property ownership is transferred to you and your lender registers a mortgage over the property.

Split rate loan

A loan where part of the loan is at a fixed interest rate and part is at a variable interest rate. Split-rate loans can provide a balance between stability and flexibility.

Variable interest rate

This is an interest rate that can fluctuate over your home loan term. This means that your repayments can go up or down depending on changes to the market conditions

When it comes to mortgages, there are many factors to consider, including interest rates, fees, and loan features. Working with a mortgage broker in Sydney can help you navigate these options and find the right home loan for your needs whether you need a mortgage for investment property purchases or as an owner-occupier.

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