First Mortgage

If you’re a first-time buyer and want to find out what your mortgage options are, read all about them here with Savvy.

Last updated on April 26th, 2022 at 05:20 pm by Cate Cook

What options are there for my first mortgage?

There’s plenty to learn when you’re shopping for your first mortgage; the choices available to you may sometimes appear a little daunting with so many lenders and home loans on the market. It doesn’t need to be a stressful process, though.

Find all the information you need to know before you start your home loan comparison journey here with Savvy. Learn about the different types of loans available so you can find the offer that best suits your needs.

When it comes to home loans for first-time buyers, most choose principal and interest loans. This is the standard, most popular model for home loans in Australia, as they enable you to chip away at your principal (loan amount) from the outset.  While many loans of this type come without any significant bells and whistles, there are now many first homebuyer loan packages offering low interest rates and other benefits bundled together.

You’d typically be required to put down 20% of the value of your property as a deposit; for each $100,000 you want to borrow, you’d be required to have $20,000 as a deposit.  However, many lenders now offer high LVR (loan-to-value ratio) loans of 90% to 95%, which is great news for first homebuyers as you may not need to save up as much for your deposit.

If you decide to buy vacant land and build your dream home, you may want to look at a construction loan or a house and land package.  These packages offer the option of progressive drawdown, which means the lender releases your agreed loan amount in small chunks as your builder asks for progress payments.  Such loans can be interest-only for the portion of time that your home is being constructed, so you only pay interest on the actual amount you’ve paid your builder.  After this point, they revert to standard principal and interest loans.

What government assistance is available to first homebuyers?

There are many federal and state grants for first homebuyers which assist people who are buying a home for the first time.  The First Home Loan Deposit Scheme is an initiative by the federal government which guarantees up to 15% of a first homebuyer’s deposit, meaning they can supply as little as 5%.  In addition, the New Home Guarantee helps first home buyers in the same way, but focuses on new dwellings.

The First Home Owner Grant (FHOG) is a program which provides financial relief to first homebuyers. The amount and eligibility criteria for the FHOG varies from state to state, with different conditions attached to the grant.  For instance, in Victoria, the grant is $20,000, but to be eligible you must buy a new regional home.  In NSW, the grant is $10,000, but exemptions from the property sale tax known as stamp duty or transfer duty also apply.  In SA, the grant is $15,000, but there isn’t any stamp duty relief offered.  Check your state government website for specific details of the current grants available, as they do change frequently.  The schemes usually contain eligibility criteria including:

  • you must be over 18 years of age
  • you must be an Australian citizen
  • you must be buying your first home in Australia. 

What costs should I expect when I buy a house for the first time?

There are several upfront costs you should expect when you buy your first home.  The most significant of these will be stamp duty, which varies considerably from state to state.  For instance, in South Australia expect to pay $18,830 in stamp duty for a $450,000 property, whereas in QLD your stamp duty would be $0.

In addition to stamp duty, other upfront costs to expect are:

  • Transfer fees – these are based on the value of the property you purchase. These vary considerably from state to state, ranging from $137 in the NT to almost $3,000 in SA on a $400,000 property.
  • Mortgage registration fees – expect to pay around $100 to $200.
  • Conveyancing and legal fees – ranging from around $600 to over $2,000, depending on the complexity of the purchase.
  • Mortgage application fees – which vary from lender to lender, usually ranging from $200 to $700.
  • Inspection fees – to get an accurate valuation on your property, and also to check for pests and termites. Expect to pay $300 to $600 for an inspection.
  • Home and contents insurance – which you will need to organise to take effect from the day you exchange contracts on your new home.
  • Utility connection fees – you’ll need gas, electricity and telecommunications in your new home, so expect to pay small connection fees to get these services provided.
  • Removal van costs – you should factor in the cost of transporting your possessions and furniture into your new home.

How does the home loan application process work?

Top tips for increasing your chances of first mortgage approval

Save as much as you can for your deposit

To improve your chances of loan approval, try to save up as large a deposit as you can to reduce the amount you’ll need to borrow.  If you’re able to offer more than the standard 20% deposit, you may qualify for lower interest rates with some lenders and pay considerably less interest over the course of your loan.

Consider applying with a guarantor

A guarantor is another person (usually a close family member such as a parent or grandparent) who is in a strong financial position and is prepared to guarantee your mortgage’s repayment.  A guarantor will become responsible for your home loan if you default on repayments, but they won’t be involved if you’re able to stay on top of your loan commitments.  In some cases, a guarantor can help you in buying a house with no deposit.

Get your finances in order before you apply

Before you apply for your first mortgage, it’s a great idea to check your credit rating through a credit agency website such as Equifax.  Details of all the credit you’ve had in the past are contained in your credit report, so it’s worth assessing whether you need to retain any unused store credit you may have and reduce the limit on your credit cards. The greater your overall available credit, the smaller the amount you may be eligible to borrow.

Don’t change jobs too often

Lenders like to see that you have some stability in your life before offering you a home loan.  Changing jobs too often may be an indication that you have not yet settled down – and that may count against you in your loan application.  Frequent changes of residential address, phone number or email address are also indicators that may count against you, so avoid making any major changes in your life before your first home loan application.

Frequently asked questions about first mortgages

How do I work out what my loan repayments will be?

One of the best ways to do this is by using Savvy’s home loan repayments calculator to work out how much your loan repayments may be per month or fortnight.  You can change the number of years you have to pay back your loan to illustrate how reducing the loan term increases repayments, but reduces its overall cost by slashing the interest you have to pay.

What other home loan features I can access?

Loans for first homebuyers can come with many different features, such as a free redraw facility, which gives you the ability to pay off your loan more quickly by making additional repayments – but then making them available to you to be withdrawn if needed.  An offset account reduces the interest payable on your loan by offsetting your loan principal with funds in an attached account, potentially saving you thousands.  You can have your wages paid into this account to make your income work even harder for you!

What is an introductory home loan rate?

Often called a ‘honeymoon loan,’ this is a discount on your fixed or variable interest rate loan for a set period (typically one to five years).  After this time, your interest rate returns to a higher level.   Honeymoon rates can be in the form of interest-only payments for the first few years or an interest rate discount for a set period.

I’ve owned a house before, but my partner hasn’t. Can my partner apply for the first home owners grant?

No.  If any loan applicant or their domestic partner or spouse has ever owned a property in Australia before, regardless of which state you live in, you won’t be eligible to apply for any grants, concessions or stamp duty reductions.

What is Lenders Mortgage Insurance?

Lenders Mortgage Insurance (LMI) is an insurance premium you can pay if you opt for a deposit of less than 20%.  It’s designed to protect the lender if you default on your repayments, and is calculated based on your deposit size and the amount you want to borrow, compared to the value of the property you’re buying.  LMI can either be paid in one lump sum, or it can be paid off gradually over time.

What is a Low Deposit Premium?

Similar to LMI, a Low Deposit Premium (LDP) can be applied to loans where a minimum of 20% deposit is not supplied, therefore presenting a higher risk to the lender.  It is a one-off charge you may be asked to pay by some lenders if you can’t provide sufficient deposit.

What portion of my loan repayments goes to pay off the principal of my loan?

This will change over the life of your loan.  In the early years of your first mortgage, when the interest you pay is likely to be at its maximum, a larger proportion of your repayments will go towards paying the interest on your loan.  However, towards the end of the life of the loan, when the interest due is a smaller amount, more of your repayment goes directly towards paying off the principal you still owe.

What type of interest rate can I choose for my loan?

One important decision to make is whether you want a variable, fixed or split interest rate.  Fixed rate loans offer security, as your repayments will stay the same during the fixed period (one to five years).  Variable rate loans tend to offer more flexibility with additional features like additional repayments and enable you to take advantage of interest rate drops. Split home loans allow you to select a portion of your loan to be paid at a fixed rate over a set period, while paying the rest with variable interest, which can provide benefits of both types.