When it comes to home loans, it’s common to feel overwhelmed by all the jargon and acronyms. From LMI to LVR to P&I, it can sometimes feel like banks are speaking an entirely different language. After spending almost two decades in the banking and finance industry, Principal Broker Martin Walmsley knew there had to be a better way of doing business. In 2017, NBS Home Loans was founded on one simple principle: Straightforward home loans with no BS.
When you choose NBS Home Loans, we will take the time to explain each aspect of the loan process and what it means for you. We use plain language and encourage you to ask as many questions as you need to make sure you fully understand your loan and are empowered to take control of your finances.
If you’ve already spoken with other lenders, here are some terms you might be wondering about:
Comparison Rate: A comparison rate includes the interest rate plus applicable fees and charges, and is designed to help you compare the true overall cost of different loans. Comparison rates are usually calculated on a loan of $150,000 over a 25 year term with monthly payments.
Equity: Equity is the value of your property minus the loan amount you still owe.
P&I/IO – Principle and Interest/Interest Only Repayments: P&I loan repayments include interest charges plus part of the principal (i.e. the amount you borrowed). This allows you to chip away at the loan with the goal of paying it all off within a set time period. In IO loans, only interest is repaid for an agreed period of time. IO repayments are lower than P&I repayments, however the principal does not reduce during the IO period unless you choose to make extra repayments.
LMI – Lenders Mortgage Insurance: You may need to pay LMI if you are borrowing more than 80% of the value of a property. In simple terms, it is a type of an insurance that protects the bank if you are unable to repay the loan and the property is sold for less than the amount still owing on the loan. LMI only protects the lender, not the borrower. We can help you understand when LMI will be charged, and whether there are any options that would help you reduce or avoid this expense.
LVR – Loan to Value Ratio: LVR is the amount of your loan divided by the value of your property. If your lender values a property at $500,000, and you need to borrow $400,000 to purchase it, the loan amount is 80 per cent of the property value; Your LVR is therefore 80%. As a general rule, higher LVRs are considered riskier by lenders so you may be up for additional costs (see LMI above, for example) or higher interest rates, so it’s a good idea to sit down with us early in your property search to set a budget and deposit savings goal.
Offset Account: An offset account is a type of savings account linked to your home loan. The money you have in your offset account reduces the interest you pay on your loan. In a 100% offset account, you earn interest on your savings at the same interest rate you are paying on your home loan. This means that if you have an outstanding loan of $500,000 and you have $50,000 in your offset account, you will only pay interest on the difference of $450,000. Some lenders also offer partial offset accounts, which is where you earn a lower rate of interest on your savings than the interest rate you are paying out on your home loan.
Redraw: A redraw facility lets you make extra repayments to your home loan and then withdraw these funds if you need them again in future. Making extra repayments can help reduce the interest you need to pay each month while still having access to your money if you need it. Some loans offer restricted redraw only (e.g. you may only be able to redraw a certain amount each year), or you may be required to pay fees when redrawing funds, so it’s important to understand how your individual redraw facility works to avoid any nasty surprises.