How to choose a home loan

We help you find out how to choose a home loan that suits your needs.

How to choose a home loan

One of the biggest decisions you’ll have to make when buying a house is which home loan to go with, so we’re here to help inform you on how to choose one. Read about some of the top home loans available to you now and how to compare them in our comprehensive guide.

How do I choose between different types of home loans?

There are several decisions you need to make that will inform your choice of home loan. One of the most significant of these is the interest rate and how you choose to configure it. Two of the most common forms of these are variable rate and fixed rate home loansThese loans are created by the choice of either locking in your interest rate for a select period (fixed) or leaving it open to market movement (variable). You can also elect to go with a split rate home loan, which will be divided between both fixed and variable rates over the life of the loan. Each of these loans come with different conditions that will alter the overall interest that you’ll pay throughout the repayment cycle.  

PROS

Fixed rate: effective budgeting 

Knowing what you’ll be paying back for each instalment allows for more accurate budgeting into the future 

Fixed rate: avoiding interest spikes 

You’ll be protected against any potential rise in interest rates 

Variable rate: flexible repayments 

Generally, these have more relaxed conditions when it comes to making early or extra repayments

Variable rate: escape quickly and easily 

They also tend to be easier to exit if you decide to switch to another loan or lender 

Split rate: personalise your loan 

Easily adjustable to your liking, allowing you to split your loan into whatever proportion of fixed and variable that suits you (e.g. 50:50, 75:25)  

Split rate: the best of both worlds 

Enjoy the benefits of both fixed and variable, such as repayment flexibility and security 

CONS

Fixed rate: locked in 

You won’t be able to take advantage of interest rate falls 

Fixed rate: rigid payment structure 

Lacks the flexibility of variable rate home loans when it comes to making repayments 

Variable rate: monthly uncertainty 

Not knowing exactly how much you’ll be paying for each instalment makes budgeting more difficult 

Variable rate: market rise = bad news 

Leaves you open to the possibility of paying more,  should interest rates rise 

Split rate: costly break fees 

It could be difficult to break your loan without forking out for an expensive fee  

Split rate: twice the loan, twice the fees 

Having your home loan effectively separated into two accounts, paying back fees on both can prove costly 

When choosing my home loan, what fees will I have to look out for?

Each home loan will carry with them unavoidable fees so, when it comes to choosing your loan, you should always look at how each of these will impact you financially. Borrowers may find that certain lenders will waive certain fees or offer discounts, which can prove crucial in reducing the overall amount you end up having to repay. 

Application or establishment fees are the first major fee that you’ll have to pay, which can cost you up anywhere between $150-$200 all the way up to $700. This charge will depend on the size of your loan.  

property valuation is also conducted at the start of the loan process and will set you back several hundred dollars 

The conveyancing fee, which is the transfer of the property’s title to you from the seller, can cost as much a$2,500, with a typical minimum of $700. 

Monthly fees will be built into your repayments and are an insignificant charge for each instalment of between $5 and $20.  

Annual fees are likely to cost yo$300-$400 on package home loans, which contain discounts in other areas such as interest rates.  

Discharge fees will be charged once your loan has been paid off, a payment of up to $500 to cover the end of the process.  

Some lenders may also enforce break fees on fixed rate loans if you choose to switch to a different loan and redraw fees for withdrawing extra repayments, but these will vary across the board. 

Fees Cost
Application/establishment fee
$150-$700
Property valuation fee
$200-$600
Conveyancing fee
$700-$2,500
Monthly fees
$5-$20 per month
Annual fees
$300-$400 per year
Discharge fee
$350-$500
Redraw fees
Up to $50
Break fee
Dependant upon loan conditions

Should I compare comparison rates between home loans when making my final choice?

Yes – comparison rates are the truest indication of the amount you’ll be paying in interest and fees combined. Lenders may offer a low interest rate which catches your eye, but the comparison rate is always a crucial consideration when deciding on how much you’re willing to pay per month. As discussed above, each lender will have different policies regarding how much each fee costs and which ones they’re willing to waive, so it’s important to have a strong grasp of that entering the application process. Financial comparison sites like Savvy always include the comparison rate of each lender to provide you with as much information as possible to help you with your decision. 

What are some of the features I should consider when I choose my home loan?

Lenders will often build features into their home loans to sweeten the deal. Package home loans are a prime example of this, as they are defined by the products that their lenders bundle in. Take a look at some of the most common home loan features below. 

  • Discounted interest rates often feature prominently in package deals as a main draw. 
  • Offset accounts allow borrowers to reduce the overall amount they have to repay with interest. For example, if you set up an offset account with $10,000 on a $400,000 home loan, you’ll only pay back $390,000 with added interest. 
  • Redraw facilities can add flexibility to the overall loan process by allowing you to access extra repayments that you’ve made towards your home loan. This may be useful in the event of an emergency. 
  • Honeymoon rates are offered by some lenders, which function by starting at a basement level of interest initially before reverting to a regular home loan after 12-24 months. 
  • Interest-only home loans only charge the interest payable on the loan for a period of up to five years, which can free up funds early in the home loan repayment cycle. 
  • Low doc home loans are suited to those who may not have easy access to the required paperwork, such as investors or self-employed workers. 
  • Self-employed home loans also appeal more to self-employed home loan seekers as a more suitable way to submit their applications. 

Compare the best home loan rates and calculate repayments

Savvy uses the latest in technology to compare home loans – use our home loan calculator to figure out just how much you could save with one of our top-rated home loans.

LenderProduct NameAdvertised RateComparison RateMonthly Repayment
Savvy Variable Home Loan 3.87%
fixed
3.92% $550.74
IMB Essentials Investment Loan 4.09%
variable
4.09% $553.71
GreaterBank Great Rate Variable Investment Loan 4.24%
variable
4.24% $555.75
UBank Inv UHomeLoan Variable 4.46%
variable
4.39% $558.75
CBA Extra Variable Rate Investment Loan 4.53%
variable
4.64% $559.70

* Commercial loan with the loan amount of $40,000 is looking at a 5 year secured fixed rate of 2.85% p.a. and comparison rate of 3.93% p.a.. WARNING: all fees and charges may not be included on the example above, only the comparison rates, monthly repayment and total cost applies. Therefore, the total cost of the loan might be different. Comparison rate do not include broker fees, redraw fees, early termination fees and fee waivers. Comparison rate may change as a result of the different loan terms, fees and the loan amounts. Establishment fees and monthly fees do not apply to commercial loans, only consumer loans. However, there might be different fees apply.

Top tips on how to choose a home loan

Here are some of the factors you should always consider and compare when choosing between different home loans.

Know where to look

Where you look for your home loan will have an impact on the amount of information you’ll find to compare between lenders. Savvy is always a great place to start in the research process, as our financial comparison tools are designed to contrast points of difference between each loan, such as interest and comparison rates, monthly repayments and more. You may wish to pursue these applications yourself, where you’ll find both bank and non-bank lenders offering home loans that might appeal to you. Alternatively, a mortgage broker will handle the hard work of finding the perfect home loan for you, placing the responsibility of narrowing down the best options into the hands of a professional. 

Check the interest rates

Interest rateare an easy point of comparison between lenders, as they will always sit prominently on their websites. While this is a particularly important factor in your decision-making, prospective borrowers should also always consider a loan’s comparison rate in addition (as mentioned above). 

Compare monthly repayments

Monthly repayments are another factor that is likely to inform your choice of home loan. These will be shaped largely by the amount you decide to borrow and the loan term that you choose, alongside its interest rate and built-in fees. The less you have to pay in fees over the course of your loan, the better, so they’re important to monitor.  

Consider any other features

While a home loan’s extra features might not be as crucial in the long term to your final choice, they’re always worth considering. Discounts on interest rates, as well as built-in elements such as offset accounts, could prove to be a major comparison point between lenders.  

Any other questions you might have about how to choose a home loan?

We’ve listed a few other common questions people have about home loans and how to choose them if you’re still looking for an answer

Is there any room for me to ask for a discount on a home loan rate with my chosen lender?

Yes – lenders really want your business, and they understand that it’s an incredibly competitive industry. They’ll usually be happy to accommodate your needs if it means they’ll win you over as a customer. 

Is it a good idea to apply for a few different lenders at the same time if I haven’t decided who to choose?

No – these will all show up on your credit report and can affect your credit score. As such, you should narrow down exactly who you want to go with first and foremost and move from there. This is why a comparison site like Savvy is useful to applicants, as it compiles a list of the top lenders for you to consider for your home loan. 

Should I get pre-approval for my home loan?

Yes – pre-approval gives you a clearer idea of how much your lender is willing to offer you, thus forming a clearer budget when you start looking at properties. It’s a simple process that lasts three to six months and can make you look more appealing to a real estate agent. However, it’s not a guarantee that you’ll be approved for your home loan by the time you’re ready to buy. 

If I choose to go to a mortgage broker, where do I find one?

If you ultimately decide to go with a mortgage broker to handle your home loan, it’s always essential to do a thorough search of different mortgage brokers locally before making your final choice. A tip to keep in mind is to look out for their credentials, as you might want to go for a broker with university or diploma education above those with the minimum standards of qualification. An effective broker will also have a wide-reaching list of lenders to draw from, so you should look for this too. 

Will I be able to get a home loan if I’m buying a rural property?

Yes – while lenders tend to see these loans as higher risk, there are certainly still options for hopeful homebuyers looking to go rural. Your options might be more limited, so a mortgage broker could be a smart choice to survey the market. 

What about if I’m buying an apartment?

Yes – once again, these can be harder to secure but are available to borrowers who are looking for them. The size and location of the apartment will have an impact on how easy it’ll be for you to get the loan. 

Is it okay for me to switch jobs in the loan application process?

Maybe not – changing jobs in this period can affect your chances of gaining approval. If a lender sees that you’ve re-entered a probationary period in your employment, they’re likely to be more reluctant to grant you the sum you were originally asking for. Switching between pay structures or industry can uproot your proposed loan, so bear that in mind during the application process. 

Can I find a home loan if I’m a low-income earner?

Yes – there are options available to lowincome earners seeking a home loan. Centrelink benefits and other payments can be factored in with your income, and a good credit history even with limited funds can instil confidence in your lender that you’ll be a reliable customer. You’ll be less likely to be approved for larger loan amounts in this position, though. 

Will I also have to pay Lender’s Mortgage Insurance (LMI) on my home loan?

No – lenders won’t take out LMI for your home loan unless you have a deposit of less than 20%. It’s encouraged that you deposit as much as you can manage, as large deposits are a sign to lenders that you’re a reliable saver.