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What is a Mortgage?

John Tran
September 4, 2022
What is a Mortgage?

It's essential to understand how Australian mortgages work if you're a first-time home buyer since it will have a big impact on your home-buying journey. 

But, don’t worry because we’re here to help!

In this article, we’ll cover everything you need to know about mortgages in Australia. By the end of this, you’ll be familiar with the following:

  • What is a mortgage?
  • How to calculate a mortgage?
  • What are interest rates?
  • How to refinance a home loan?
  • What is refinance home loan?

What is a mortgage?

A mortgage is a loan that lets you borrow money using the value of your house as collateral. The lender has the right to seize your home if you default on the loan. To purchase a property or borrow money against the value of a home you currently own, you can use a mortgage loan.

The interest rate on a mortgage loan is usually lower than the interest rate on other types of loans, such as credit cards or personal loans. This makes mortgages an attractive option for people who are looking to finance a home purchase.

How to calculate a mortgage?

It's critical to comprehend how mortgages operate and how to determine your monthly payments if you're thinking about getting one.

Most mortgage calculations are done using the "interest only" method. As a result, you will only be required to repay the interest that has accumulated on the principal balance of the loan over its term. At the conclusion of the loan period, the actual principal loan amount will be paid up.

To calculate your mortgage repayments, you'll need to know:

  • The amount of money you've borrowed (the principal)
  • The interest rate charged by your lender
  • The length of time over which you'll be repaying the loan (the term)

You can use an online mortgage calculator to do the maths for you, or you can use the following formula:

M = P x (r/12) x ((1+r/12)^n)/((1+r/12)^n - 1)


M is your monthly repayment amount

P is your loan principal

r is your interest rate ( expressed as a decimal - so 4% would be 0.04)

n is the number of months in your loan term,

For example, let's say you've borrowed $300,000 at an interest rate of 4.5% over a 30-year loan term. Using the formula above, your monthly repayments would be

$300,000 x (0.045/12) x ((1+0.045/12)^360)/((1+0.045/12)^360 - 1)

Which works out to be $1501.30 per month.

Of course, your actual repayments will also depend on the type of mortgage you have and any features or discounts that are included. For example, some loans allow you to make additional repayments which can help pay off your loan faster and save you money in interest charges.

If you're not sure how much you can afford to repay each month, it's a good idea to speak to a mortgage broker or financial advisor who can help you understand your options and find a loan that's right for you.

What are Interest Rates?

Interest rates are the rate of interest charged on loans and other investments, such as government bonds. The Reserve Bank of Australia (RBA) sets the official interest rates, but banks and other financial institutions will often set their own rates depending on market conditions. Interest rates play an important role in the economy by influencing spending and investment decisions. Higher interest rates tend to discourage borrowing and spending, while lower interest rates encourage it. This can help to keep inflation under control.

When the RBA raises or lowers the official cash rate, banks usually follow suit with their own rates. This can have a flow-on effect on other types of loans, such as variable-rate home loans. So if you're thinking about taking out a loan, it's important to keep an eye on interest rates.

What is Refinance Home Loan?

If you're looking to take advantage of lower interest rates and save on your monthly mortgage repayments, refinancing your home loan could be a great option. Refinancing simply means taking out a new home loan to replace your existing one. This can give you access to more favorable interest rates, as well as potentially free up some extra cash each month.

There are a few things to consider before refinancing your home loan, such as whether it will actually save you money in the long run and if there are any exit or early repayment fees associated with your current loan. But if you're sure that refinancing is the right move for you, the process is relatively straightforward.

How to Refinance a Home Loan?

1. Evaluate your current home loan situation

As your life changes, so do your financial needs. That's why it's important to regularly evaluate your home loan situation to make sure it still meets your needs. There are a number of things you should consider when doing a home loan health check.

  • Ask yourself if you're happy with your current interest rate. If rates have dropped since you took out your loan, you may be able to save money by refinancing.
  • Think about the term of your loan. Are you comfortable with the remaining repayments? Or would you like to pay off your loan sooner? If so, consider switching to a shorter-term loan.
  • Take a look at your overall financial situation. Have you had a change in income or expenses? If so, you may need to adjust your loan repayments accordingly.

Evaluating your home loan situation regularly is the best way to make sure it still meets your needs. By doing so, you can ensure you're getting the most out of your loan and avoid any unwelcome surprises down the road.

2. Compare rates and fees

Refinancing your home loan can be a fantastic way to reduce your monthly mortgage payments, but before choosing a lender, it's crucial to examine rates, fees, and benefits offered by various institutions. When you agree to a new home loan, make sure you comparison-shop and review offers from several lenders.

A UFS broker may assist you in assessing your present mortgage position and assisting you in locating a suitable home loan. They will assist you with all the necessary research to ensure a seamless transaction.

3. Calculate the costs of refinancing

Refinancing your mortgage can be a fantastic way to reduce your monthly payments, but before you decide, it's crucial to figure all the fees involved. Fees for the appraisal, origination, and closing as well as any prepayment penalties that your existing lender may impose might all be included in the costs of refinancing.

You must compare the interest rates of your new loan and your current loan, as well as the costs related to each, in order to determine the exact cost of refinancing. You may estimate your monthly payment savings and compare rates with the use of an online mortgage calculator.

4. Apply for refinancing

Applying for a mortgage is the next step after locating the ideal lender. Although this procedure may seem a little overwhelming, we are here to assist. Our UFS broker will walk you through everything you need to do, step-by-step. We can also submit the application on your behalf.

Our team of professionals will be by your side at every stage to ensure success after you've completed your application. Thus, don't put off starting your path to homeownership any longer.

5. House valuation

Having your property valued is the first stage in the approval process for a home loan. This aids your lender in figuring out the value of your house and if it qualifies as collateral for your loan.

Your lender will demand evidence of your income and employment after your property has been valued. This enables them to assess your ability to pay back the loan. You will also need to present identification and address evidence.

Following completion of all of this, your lender will decide whether or not to approve your loan. If all goes according to plan, your loan should be authorised in a few weeks.

6. Approval and Settlement

When your application has been officially approved. Your new lender will probably send you a mortgage contract package containing relevant papers, such as: 

  • Mortgage contracts
  • Direct debit form
  • Terms and conditions booklets
  • Mortgage of landforms
  • Discharge form
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