Many people know why they should invest in the property market and sometimes they even know a lot about where and what type of real estate they are interested in, too.
But the big question many new buyers can often overlook are about the financial process and all of the details that come with the question – How. And according to a 2021 survey, you wouldn’t be alone.
This year’s UBank Know Your Numbers survey revealed that 84 per cent of Australians who are yet to secure a property admit they don’t know enough about how home loans, deposits and mortgage rates work, while three in 10 admitted to knowing nothing at all and having no idea where to start.
UBank CEO, Philippa Watson noted that while some rates can seem attractive at first glance, there are common pitfalls that new buyers can get caught up in.
“Entering the property market with little to no knowledge of some essential financial terms and concepts could see Australians falling into common traps or getting themselves into situations they cannot manage,” Ms Watson explained.
There’s no shortage of seemingly complicated jargon in the financial world, so we’ve put together a list of some of the most common financial terms we explain to our clients.
Loan to Value Ratio (LVR): LVR is the percentage of the property’s value (as assessed by the lender) that your loan equates to. So, for example, if the property you want to purchase is valued at $500,000 and you need to borrow $400,000 to pay for it, the loan is worth 80 per cent of the property value, making your LVR 80 per cent.
Lenders Mortgage Insurance (LMI): LMI is insurance that protects the bank or lender in case you can’t pay your residential mortgage. It’s usually paid by borrowers who have an LVR higher than 80 per cent – that is, borrowers with a deposit of less than 20 per cent.
Offset account: an offset account is just like a regular transaction account, except it’s linked to your home loan. The money held in the account is counted as if it’s been paid off your home loan, which reduces the balance of the loan and in turn, reduces the interest you need to pay.
And because the offset account acts like a regular transaction account, the money you’ve put in there is still accessible whenever you need it.
Refinancing: refinancing is the process of switching your home loan to take advantage of another, more suitable home loan for your present circumstances, such as one with a lower interest rate that might save you money.
Have you got any other finance terms you’d like explained? We know some of the terminology around buying your first home can be confusing. If there’s anything you would like us to clarify please reach out to us today.
WE’RE HERE TO HELP:
The good news is that’s what we do best every day. We see it as an opportunity to help educate more buyers and assist with every step on the road to home ownership.
Our mission is to simplify and streamline the whole process, so you can get on with the important things that matter to you.
We’ll be sure to explain in detail any financial terms or products you may not be totally familiar with.
We’re not just satisfied with matching you up with a home loan, we want you to be confident that it’s the right one for you, and for you to understand the reasons why.