Home loans, explained
A mortgage is the biggest loan most people ever take, and it comes wrapped in its own jargon. This guide is a vocabulary lesson, not a sales pitch: learn what the key terms mean so the paperwork, and any conversation with a licensed professional, makes sense.
The words that shape a mortgage
| Term | What it means |
|---|---|
| LVR | Loan to value ratio: the loan as a percentage of the property value. A lower LVR usually means less risk to the lender and can affect the rate and whether insurance is required. |
| LMI | Lenders mortgage insurance: a one-off cost that can apply when the deposit is small. It protects the lender, not you. |
| Offset account | A transaction account linked to the loan. Its balance is offset against the loan balance so you pay interest on less. |
| Redraw | The ability to pull back extra repayments you have made ahead of schedule, subject to the loan's rules. |
| Principal and interest | Repayments that reduce both the amount borrowed and the interest, so the balance falls over time. |
| Interest only | Repayments that cover interest for a period, keeping repayments lower but not reducing the balance. |
| Comparison rate | A single figure that reflects the true cost of the loan including most fees, for like-for-like comparison. |
Fixed versus variable
A fixed rate locks your interest rate for a set period, giving certainty but often less flexibility and possible break costs if you exit early. A variable rate moves with the market, which can help when rates fall and hurt when they rise, and usually offers more features such as offset and unlimited extra repayments. Some borrowers split their loan to get a little of both.
Rates are set in a bigger context. Variable home loan rates in Australia move broadly in line with the cash rate target set by the Reserve Bank of Australia, though each lender prices its own products. The RBA publishes the current cash rate and its reasoning after each board meeting.
Reference: Reserve Bank of Australia, rba.gov.au, and ASIC Moneysmart. Last reviewed July 2026.
Why this guide stops here
A home loan decision depends on your deposit, income, goals and the property itself, which is well beyond what any general web page should weigh in on. CanDo Loans explains the vocabulary so you can hold an informed conversation. For advice on your own situation, speak with a licensed mortgage professional or use the free, independent tools at moneysmart.gov.au.
Common questions
What is the difference between the interest rate and the comparison rate?
The interest rate is what you are charged on the balance. The comparison rate folds most standard fees into a single figure so two loans can be weighed on more than the headline. It is calculated on a standardised example loan, conventionally $150,000 over 25 years, so it is useful for ranking loans rather than for predicting what yours will cost.
How much deposit do I need for a home loan?
Twenty per cent of the property value is the threshold that matters, because lenders generally charge lenders mortgage insurance once the amount borrowed exceeds 80% of the value. You can buy with less, and many people do, but the LMI premium is a real cost that is usually added to the loan and carries interest for its life.
Should I choose a fixed or variable rate?
Fixing buys certainty about your repayment for a set period and gives up flexibility, since fixed loans usually cap extra repayments and often exclude offset accounts. Variable does the reverse. There is no generally correct answer. Decide on whether your budget needs a predictable repayment more than it needs the ability to pay the loan down faster.
What is an offset account and is it worth it?
An offset is a transaction account linked to your loan whose balance reduces the portion charged interest. It is worth having when the balance you keep, multiplied by your interest rate, exceeds the annual package fee. On a 6% loan, roughly $6,600 sitting there covers a $395 fee. Below that the feature costs more than it saves.
How often should I review my home loan?
At least once a year, and sooner after a rate change or once your property value has moved. Rates on existing loans drift above what new borrowers are offered, and the gap widens the longer a loan is left alone. Asking your own lender to match their current advertised rate is free and involves no credit enquiry.
General information only. This guide explains how a product works in Australia. It is not financial, credit or legal advice and does not consider your personal situation. Rates, fees and criteria vary by lender and change often, so confirm current terms with the provider and read the product documents. Free independent help is available from the Australian Government at moneysmart.gov.au.