If you’re on the hunt for home loans, you’ll be sorting through information, comparing rates and conditions offered by different lenders. There’s no doubt that you’ll be swimming in a sea of terms and jargons that can be easy to gloss over without really absorbing.
A December 7 release by research firm McCrindle shows that it could pay off to hit the pause button, take a step back and make sure you understand what it is you’re reading on those advertisements and contracts. Findings reveal that more than a third of mortgage holders do not understand basic terms that are fundamental to borrowing.
With this in mind, let’s go through some useful terms that you may or may not be up to scratch on.
Split home loan
As you may know, home loans come in two main types:
- Variable rate: These kinds of loans charge interest based on the current variable rate, which could fluctuate depending on the cash rate and other economic factors.
- Fixed rate: Such loans have an interest rate that is set and unchanging over an agreed period of time.
A split home loan is basically when there’s a combination of these two. According to McCrindle’s report, only 39 per cent of people completely understood this, while 38 per cent were not aware if their home loan offered this option.
Redraw facility and offset accounts
There are often flexible ways you can control and manage your mortgage. For instance, if your loan has a redraw facility, it means you have the option to borrow money you’ve already repaid, which usually charges a variable interest rate.
An offset account can also be useful, which is somewhere you can put money into to reduce the interest you pay. You can withdraw and deposit money into it as you see fit though the savings you’ll make on reduced interest will be greater when there’s a larger amount in the account.
The McCrindle release shows that only a little over half of mortgage holders confidently understood these terms, which means they could be missing out on useful ways to better manage their loan.
“When buying a home, Australians get into the biggest debt of their life to make the biggest purchase of their life,” comments Mark McCrindle.
With a strong understanding on the different factors and definitions behind mortgages, it could help you to make the best decisions for your situation. That being said, the financial landscape can be a complex one. Work with your local mortgage broker to ensure you get a full grasp on anything that may be tricky to understand.