Your Finance Adviser

Do you find the extensive process of borrowing a home loan too time-consuming and may take up a lot of your efforts. Well, you are not alone in the process. Every home buyer goes through the same process and faces the same difficulties while borrowing a loan. And that is where home loan brokers come in.

Surveys suggest that a large number of Australians are not confident with financial literacy. The survey stated that only 41% of the Australians are confident that they have the right home loan to suit their needs, while there are only 15% of 18-29-year-old home buyers are confident. Listed below are a few important Home Loan terms that you must be aware of before stepping into the process of loan borrowing-

• RBA Cash rate- The RBA cash rate plays a major role in deciding how you will repay your home loan. The RBA decides to raise, cut or hold the cash rate based on the current state of Australia’s economy. The cash rate is extremely significant as it helps determine the interest rate that your lender will charge which will further affect your repayment amount. The official cash rate, along with the cost of funding causes the lender to raise or cut rates after the RBA makes a cash rate decision.
• Comparison rate- Law says that two rates- the interest rate and the comparison rate both need to be advertised on any home loan advertisement. The interest rate shows how much interest will be charged as a percentage of the loan, whereas a comparison rate is a standardized calculation of the interest rate inclusive of all the fees and charges. The comparison between multiple interest rates will keep you away from bad credit home loans and will help you secure low deposit home loans.
• Offset Account- An offset account is a saving account attached to your home loan. The offset account allows you to reduce your home loan without physically putting money into the loan. After the calculation of the interest, the balance of funds in the offset account gets added to the loan. This implies that with an offset account, instead of earning, you are paying less interest on your loan.
• Redraw facility- The redraw facility serves as a valuable tool to save interest, significantly reducing the home loan term, whilst having access to your savings, if you need it for other expenses. Some loans allow you to pay extra into the loan; Redraw facility gives you the ability to access those additional payments when and if you need them. The additional funds are paid into the loan, thereby reducing the balance of the loan that the interest is calculated on.
• Interest only payments- An interest only home loan is when the borrowers only have to pay the interest and the fees, for a fixed period of time. During this period of time, the repayments are a low lower than the principal and interest home loan. Once the interest-only period of time ends, the home loan will get back to the principal and interest home loan over the remaining term.
• Honeymoon rate- This is a tool used by the lenders to pull customers in. Lenders offer the Honeymoon rate at the beginning of the loan period. After the honeymoon period wears off, the interest rate increases.