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.
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.