Lending Pedia

People sometimes feel confused in terminology of the mortgage loan. Lending pedia is where you can check the Glossary of the most common terms. If you still have questions, please contact us.

An offset account is a transaction account linked to an eligible home or investment loan. The money you have in this account could offset the amount you owe on that loan, and you’ll only be charged the interest on the difference.

An example of how it works:
Your home loan balance: $350,000
In your offset account: $25,000
You’ll only have to pay interest on: $325,000

This means you pay less interest and repay the mortgage faster. Redraw facilities. If you make extra repayments into your mortgage a redraw facility allows you to pull that money out later when you need it.

The loan interest rate remains fixed for a certain period of time. Even if the bank adjusts the interest rate, the repayment interest will remain unchanged during the contract period. Generally, fixed loan will not have offset or redraw feature.

During the borrowing period, the loan interest rate is periodically adjusted as the market interest rate or legal interest rate changes. You can generally only get offset or redraw on variable loans, or on the variable part of your split home loan.

The principal of your home loan is the amount of money you borrow from your bank or lender. The interest is the cost charged by the bank or lender to you to borrow this money. A Principal and Interest repayment is one in which you pay interest and also repay part of the amount borrowed (principal) at the same time.

As the name suggests, you only have to pay the interest on this type of loan during the interest-only period. This means your payments over this time will be less than if you were also repaying the principal. However, the principal amount will remain the same – that is, your outstanding balance won’t be reduced – unless you choose to make extra repayments.