Start with the basics

What is an interest rate?

An interest rate is essentially the cost of borrowing money. When you have a loan, the interest rate helps determine how much interest you'll pay on top of the amount you've borrowed.

Interest rates can change over time and are influenced by a range of factors, including the cash rate, market conditions and individual lender decisions. Even a small change in your interest rate can make a difference to your repayments and the total amount of interest you pay over the life of a loan.

What is a credit score?

Your credit score is a number that helps represent your credit history and how you've managed credit in the past.

Things like applying for credit, making repayments, missed payments and the types of credit accounts you hold can all form part of your credit history. When you apply for finance, lenders may look at your credit report and score as part of deciding whether you're eligible for a loan.

The good news? Understanding your credit file is something you can start doing well before you need to borrow.

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Fixed vs variable interest rates

A variable interest rate can move up or down over time, which means your repayments may also change.

A fixed interest rate is generally locked in for an agreed period, giving you more certainty about your interest rate and repayments during that time. However, fixed loans can also have different features, restrictions and costs.

Neither option is automatically better than the other. Some borrowers even choose to split their loan between fixed and variable. The right structure depends on your circumstances, goals and how much flexibility or certainty you want from your loan.

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What is LVR?

LVR stands for Loan to Value Ratio. It's the percentage of a property's value that you're looking to borrow.

For example, if you were buying a property worth $500,000 and borrowing $400,000, your LVR would be 80%.

Your LVR can influence which loans are available to you, how much deposit you may need and whether costs such as Lenders Mortgage Insurance could apply.

What is LMI?

LVR stands for Loan to Value Ratio. It's the percentage of a property's value that you're looking to borrow.

For example, if you were buying a property worth $500,000 and borrowing $400,000, your LVR would be 80%.

Your LVR can influence which loans are available to you, how much deposit you may need and whether costs such as Lenders Mortgage Insurance could apply.

What is equity?

Equity is the difference between the value of your property and the amount you still owe against it.

For example, if your home is worth $700,000 and you owe $400,000 on your home loan, you have $300,000 in equity.

Equity can grow as you repay your loan or if your property's value increases. Depending on your circumstances and lending requirements, you may be able to access some of that equity for things like renovations, investing or other financial goals.

Still have questions about your own situation?

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