About Home Loan
1. Types of home loans: According to the use of home purchases, home loans are mainly divided into two types: Owner-Occupied Home Loan and Investment Home Loan.
2. Loan to Value Ratio (LVR): This refers to the ratio of loan amount to the house value. Currently, banks usually require borrowers to pay a 20% down payment (i.e. LVR 80%). When the LVR exceeds a certain percentage, the bank will be concerned whether the lender can sell it with the current market price when the house is auctioned for sale in violation of the loan contract. Therefore, when the LVR is higher than this ratio, the bank will require the borrower to pay the Lender’s Mortgage Insurance (LMI) fees.
3. Lender’s Mortgage Insurance (LMI): An insurance used to protect credit institutions (Lender). This is paid when the loan to value ratio (LVR) is higher than a certain percentage (usually 80%, depending on the type of bank or loan). This is the banks way to protect themselves if the borrowers fail to pay their loan repayments.
4. Interest Rate: The annual interest rate of a loan that is unique to different lending institutions, loan products, and loan types. It is mainly divided into two categories: variable rate and fixed rate. Usually the interest rate on investment mortgages will be higher than the interest rate on home loans.
5. Repayment: Home loans generally have two types of repayments: Interest Only and Principal Plus Interest. Choosing Interest Only can reduce the repayment pressure in the short term and maximize the cash flow; choosing the Principal Plus Interest will help pay off the loan as soon as possible.