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Home Loans Australia

Find out everything you need to know about home loans in Australia right here with Savvy today.

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, updated on August 7th, 2023       

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If you’ve never had a home loan in Australia before, the choice of lenders and loans may seem overwhelming.  Fortunately, you can find out everything there is to know about mortgages and the cheapest home loan interest rates in Australia with Savvy.  Consider the options available to you by comparing a range of mortgage offers right here and find the information you need to help you make an informed home loan decision.

How do I decide which home loan is right for me?

Choosing a home loan is a matter of understanding the options that are available to you and narrowing down your choices as you make decisions about each loan feature.  In this way, you’ll get to understand your home loan needs and will be well on your way to finding the cheapest home loan interest rates in Australia.

Here’s a list of options and features you should consider to help you narrow down your choice:

First of all, decide what type of home you’d like to purchase. There are different loans for all these various scenarios:

  • to buy an established home, look at a standard fixed or variable home loan. Many introductory offers are available to new customers, including no-fee loans and free cashback offers. These are amongst the most popular and best home loans in Australia.
  • to build a home, look at a construction loan which offers a fixed interest rate and progress payments paid directly to your builder. This may be an interest-only loan which you can subsequently refinance once your home is built.
  • to buy land and build, look at a house and land package, which can be obtained through a lender who has teamed up with a major builder or property developer.
  • first-time buyers may consider introductory rate home loans (known as honeymoon rate loans) which have a low fixed rate at first, but then revert to a variable rate. Some such loans also come with a cashback offer for new clients.  There are also low-deposit home loans available for first homebuyers, which only require a 5% to 10% deposit.

Next, think about the type of interest rate you want on your home loan:

  • a fixed rate loan will help you budget, as the interest rate won’t change for the term of your loan. You can decide how long to fix your loan term for, between one and five years.  However, fixed rate home loans in Australia are more expensive to refinance and offer fewer or no interest-saving features
  • a variable rate loan will change over time, as it’s based on the Reserve Bank of Australia (RBA) standard rate, which varies depending on world economics and Australian fiscal policy. Variable rate loans are the most popular home loans in Australia and come with many interest-saving features and the flexibility to pay off your loan more quickly or refinance without penalty
  • an alternative is to split your loan between these two options. Some lenders offer the option of a ‘split home loan’ which means one portion of your loan is on a fixed interest rate, and another portion is variable. You can choose how much of your loan is in each portion, such as 60/40 or 70/30.

The choice between a variable or a fixed rate home loan in Australia depends not only on whether you want budgeting certainty but also on whether you’d like the additional loan features that often come with a variable rate loan. These additional features can help you pay off your loan more quickly, saving you money on interest payments, or provide added lifestyle convenience.  Additional features available for variable rate loans can include:

  • an offset account. This will save you money by reducing the interest you pay on the principal sum you borrow.  Each dollar in your offset account means you pay interest on one less dollar you’ve borrowed.  Offset accounts were traditionally offered only with variable rate loans but are now being offered for fixed rate loans also.
  • the ability to make additional repayments. This means you can pay more into your loan account (if you choose) so you pay your loan off more quickly (without any financial penalty). By contrast, fixed rate loans often come with caps of around $10,000 to $30,000 per year or charges for making additional repayments, so it becomes expensive to pay your loan off more quickly
  • a redraw facility. If you do make additional repayments, a redraw facility allows you to take this money out again if you need a lump sum for any reason. Of course, this means you lose the benefit of paying off your home loan more quickly, but it can be a cheaper option than taking out a separate car or personal loan, for example.

What type of lender do I want?

You’ll also need to consider what type of financial service you’re after.  These are the main types of lenders available to borrowers in Australia:

  • Conventional banks. For many years, the Big Four banks dominated the Australian home lending scene. They have many high street branches all over the country and are full-service international banks, offering a wide range of lending, insurance and investment options. The Big Four have now been joined by several smaller banks which offer a similarly wide range of services, but fewer branches.
  • Credit unions and building societies. These are not-for-profit financial institutions which exist to provide a service to their members.  They’re often region-based or service a specific profession, region or state.  They do offer bricks-and-mortar branches and transaction accounts but tend to have fewer branches than conventional banks and a smaller range of financial products.  However, because they don’t have shareholders to whom profits are delivered, their fees and interest rates tend to be lower than conventional banks.
  • Non-bank lenders. A non-bank lender doesn’t have an authorised deposit-taking institution licence, known as an ADI licence. These include many online and specialist lenders who may offer loans to one particular section of the home loan market (such as specialising in bad credit loans or those for self-employed Australians without the right documentation).  These institutions are subject to the same high standard of regulation as banks but aren’t full-service banks.  Many online lenders have invested heavily in their websites and online application processes and have become industry leaders in these areas.  They may not offer as wide a range of products, but they’re generally able to offer some of the best and cheapest interest rates in Australia plus very low fees.

Savvy can help you choose between many different lenders and loan types, and help you find the best home loan rates in Australia.  We present you with side-by-side comparison information so you have all the facts at your fingertips to help you decide which loan is best for you.

How much will I need to provide as a deposit for my home loan?

Most lenders will loan you 80% of the cost of the property you wish to purchase, so you will need to provide the additional 20% of the cost. This is known as an 80% loan-to-value ratio (LVR).  In addition, you’ll need funds to pay stamp duty and legal costs when you purchase your first house in Australia.  Find out how much your stamp duty will be with Savvy's Stamp Duty Calculator.

If you don’t have a 20% deposit, you have several options available to you:

  • pay Lenders Mortgage Insurance (LMI) on your loan, which is an insurance premium which protects the lender in case you are unable to repay your loan. It’s insurance against default which the borrower is required to pay if they can’t provide a 20% deposit.
  • apply for a 90% or even 95% LVR home loan, which some lenders offer only to clients with a good credit rating or those in highly-respected professions known to be low-risk (such as medical and legal professionals). LMI is often waived for premium borrowers even though their deposit is less than 20%, such as 85% to 90% LVR without LMI.
  • ask a family member to give or loan you the remaining amount required to bring your deposit up to 20%.
  • ask a family member to act as a guarantor for your home loan, which means they would have to be prepared to take over your loan repayments if you were unable to pay your mortgage. Guarantor home loans use your relative’s property as partial security for your loan.
  • apply for one or two of the many government schemes which exist to assist first homebuyers. These include the First Home Owner Grant (FHOG) scheme, which is administered by each state and offers cash grants of up to $15,000 to assist with the cost of a home deposit.  Another government scheme is the First Home Loan Deposit Scheme, which offers guarantees against a 20% deposit so that first homebuyers don’t have to pay LMI.  There are also other schemes and concessions from stamp duty available, so it’s worth checking your state government website to find out what assistance you may be eligible for.
  • apply to a private lender for a short-term loan for a deposit to enable you to buy your house and refinance when you’re able to or have saved up a larger deposit.

What is involved in the home loan application process?

The home loan application process involves several key steps:

  • work out how much you may be able to borrow, which will depend on the deposit you’ve saved and your income. Use Savvy’s borrowing power calculator to give you an idea of what size loan you may be approved for
  • choose the type of home loan you need and decide which loan features are high on your ‘must have’ list
  • use Savvy to compare lenders and loans until you find a home loan that ticks all your boxes
  • apply for loan pre-approval. The lender’s application software will guide you through the documents you need to supply in support of your loan request
  • once pre-approval has been granted, find the property you wish to buy and submit an offer
  • once your offer to purchase has been accepted, go back to your lender for full loan approval
  • let your real estate agent and conveyancer know your loan application has been successful and wait for settlement day
  • once settlement is complete and all your contracts are signed, you’ll be given the keys to your new home, so it’s time to celebrate! 

How to compare home loans with Savvy

More of your questions about home loans in Australia

How do I work out how much I can borrow?

The amount you can borrow will depend on the cost of the property you wish to purchase, the amount of deposit you have and what your household income is.  Your income will determine the size of the repayments you can afford to make.  Use this borrowing power calculator to work out how much you can borrow.

How do I work out what my repayments will be?

Use this home loan repayments calculator in Australia to work out what your loan repayments might be.  You can experiment with different loan amounts, terms and rates to see what each may end up costing you overall.

What is loan pre-approval?

Loan pre-approval (sometimes called conditional approval) is given by lenders as an indication of the amount they may be prepared to loan you based on the provisional figures you’ve supplied to them.  It’s not the same as full loan approval, which you will have to apply for in addition to pre-approval, but it can give real estate agents and vendors the confidence that you’re a serious buyer if you do get loan pre-approval.

Can I get a home loan if I'm self-employed?

Yes – you can get a home loan if you’re self-employed or a small business owner.  You’re likely to be asked to supply two years of tax returns and BAS statements from your business.  These documents replace the PAYG payslips that banks usually ask for as proof of income from employed borrowers.  If you don’t have all the requested paperwork, you may have to apply to a specialist non-bank lender who has different lending criteria from the big banks.

Can I renew my fixed interest rate term when it's nearly over?

Yes – you can approach your lender and ask for a renewal of your fixed rate loan, so it can extend longer than your original agreement.  It will be up to your lender to decide if they are prepared to offer you an additional fixed loan period at the same interest rate as you previously had or whether they wish to change the fixed interest rate for your new loan period.

What choices do I have when I’m considering refinancing?

When refinancing, you either have the choice of staying with the same lender (and asking for a better interest rate or a loan term variation) or looking around for another lender who may offer you a better interest rate or more loan features.   Lenders understand that a borrower’s needs change over time, so many financiers make it easy to refinance a home loan to get a better deal or a loan which is more closely aligned with your family and lifestyle.  Whatever your needs, Savvy can help you compare home loans until you find one that is just right for your needs today.

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