Understanding your home loan starts with a few simple terms. Read on for clear, practical answers to the 10 questions Members ask most:
What is LVR and why does it matter?
LVR (Loan‑to‑Value Ratio) is the loan amount expressed as a percentage of the property’s value. For example, borrowing $400,000 for a $500,000 home gives an LVR of 80%. Lenders use LVR to assess risk, a higher LVR usually means higher risk for the lender and may result in extra costs or conditions.
A common practical effect of a higher LVR is Lenders Mortgage Insurance (LMI): if the LVR is above about 80%, many lenders require you to cover the cost of LMI, which protects them if you default on the loan. Reducing your LVR by saving a larger deposit or using guarantors where appropriate can help lower costs and may provide access to other loan options.
What is a conveyancer and when should I engage them?
A conveyancer (or solicitor who does conveyancing) handles the legal and administrative steps when buying or selling property. They review and prepare contracts, check title and encumbrances, arrange settlement, and ensure legal compliance with state law. Using a licensed conveyancer can reduce legal risk and help avoid costly mistakes.
You’ll typically engage a conveyancer once you sign a contract of sale.
How construction loans work?
A construction loan is designed for building or major renovations and releases funds to the builder in stages (known as drawdowns) as work is completed, rather than as a single lump sum. During the construction phase, the loan is typically interest only on the amounts drawn, and the lender may require progress inspections before each drawdown is paid.
As construction funds are released progressively, it’s important to budget for contingencies, understand the drawdown schedule, and meet the lender’s valuation and progress requirements. Once construction is complete, the loan usually converts to a standard principal and interest home loan.
What a comparison rate represents?
A comparison rate is a single annual percentage that combines the advertised interest rate with most ongoing fees and charges to give a clearer picture of the loan’s likely cost. It’s designed to help you compare loans, but it’s based on a standard loan amount and term, so it’s an estimate rather than your exact rate.
Always consider both the headline interest rate and the comparison rate. As the comparison rate may not include all fees (such as upfront fees, redraw fees, or government charges), a personalised cost estimate can help you understand the total cost of the loan.
Offset vs redraw?
An offset account is an account linked to your home loan; the balance offsets the loan balance when interest is calculated (meaning money in the offset reduces interest charged) while remaining accessible like a normal bank account.
A redraw facility lets you withdraw extra repayments you’ve made into the loan; those extra repayments reduce interest while they remain in the loan.
When interest only repayments may apply?
Interest only repayments mean you pay just the interest on your home loan for a set period (typically 1–5 years), so the loan balance doesn’t reduce during that time. This can lower repayments in the short term and may suit investors. Once the interest only period ends, repayments increase because you begin paying both principal and interest.
Lenders will assess whether you can afford these higher repayments later, as interest only loans generally carry higher long term risk.
What is a split loan?
A split loan divides your home loan into two or more parts, with each part managed separately. For example, you might fix part of your loan to lock in repayments and protect against interest rate rises, while keeping the rest variable to allow flexibility and access to features like an offset account. This approach can help balance certainty and flexibility within the one loan.
You can choose how the loan is split based on your priorities. Keep in mind changes to a split loan are subject to the lender’s terms and may involve costs, particularly for fixed rate portions.
What a top‑up means for Members?
A top-up lets you increase your existing home loan so you can access additional funds using the equity you’ve built in your property. For example, many people use a top-up to fund renovations, with the extra borrowing added to their current loan and secured against their home. This can be a convenient way to renovate without taking out a separate loan.
Before applying for a top-up, it’s important to consider how much equity is available, whether fees or a property valuation may apply, and whether the additional borrowing could affect your loan’s interest rate, term, or features. You should also make sure the higher loan balance and repayments fit comfortably within your budget.
What is stamp duty?
Stamp duty (also known as transfer duty) is a state government tax you may need to pay when you buy property, including a home or land. The amount depends on the property’s value and your circumstances, such as whether you’re a first‑home buyer.
If you’re buying in Queensland, you can estimate how much stamp duty may apply and check whether you’re eligible for any concessions by using the Queensland Revenue Office transfer duty estimator.
Because stamp duty can be a significant upfront cost when buying a home, many buyers save for it in addition to their deposit and allow for it in their overall purchase planning. Your conveyancer can confirm the exact amount payable for your property purchase.
Fixed vs variable rates, including what rate lock means?
A fixed rate locks in your interest rate for a set term, giving you certainty that your repayments will stay the same and protecting you from interest rate rises. The trade-off is that you won’t benefit if market rates fall, and break costs may apply if you exit the loan early. A variable rate, on the other hand, can move up or down with market conditions and typically offers greater flexibility and features such as offset accounts and redraw.
A rate lock (or rate hold) is an agreement from a lender to guarantee a specific fixed rate for a short period between approval and settlement. It protects you from rate rises while your loan is finalised but may require a fee and usually has a time limit. Consider a rate lock if you expect rates to rise before settlement and want certainty.
Need Help?
Contact QBANK’s Home Loan Specialists for assistance today on 13 77 28. You can also view our dedicated page on refinancing for more information and to apply online.
