Home loans

Have you found your dream home, and now need a home loan to pay for it? Or perhaps you’re checking out what loans are available and what you can afford before you start to look for a property? Maybe you want to refinance your existing home with a better deal. Whatever stage you’re at, we have lots of loans from a large number of lenders for you to compare here at Finty.

By   |   Updated 25th May 2020

Comparing home loans for $450,000.00 over 30 years

Smart Investor Home Loan (Investor, Principal and Interest)

On loans.com.au's website

Smart Investor Home Loan (Investor, Principal and Interest)

Interest rate (p.a.)

2.94%

Comp rate^ (p.a.)

2.96%

Max LVR

80.00 %

Application fee

$0.00

Monthly repayment

$1,882.69

Total repayment

$677,768.40

Highlights

  • Explore loans.com.au's award-winning, low-rate home loans with added personal service for each stage of your property investing journey.
Smart Investor Home Loan (Investor, Interest Only)

On loans.com.au's website

Smart Investor Home Loan (Investor, Interest Only)

Interest rate (p.a.)

3.29%

Comp rate^ (p.a.)

3.31%

Max LVR

80.00 %

Application fee

$0.00

Monthly repayment

$1,968.32

Total repayment

$708,595.20

Highlights

  • Explore loans.com.au's award-winning, low-rate home loans with added personal service for each stage of your property investing journey.
Smart Home Loan 80 (Owner, Principal and Interest)

On loans.com.au's website

Smart Home Loan 80 (Owner, Principal and Interest)

Interest rate (p.a.)

2.63%

Comp rate^ (p.a.)

2.65%

Max LVR

80.00 %

Application fee

$0.00

Monthly repayment

$1,808.61

Total repayment

$651,099.60

Highlights

  • Explore loans.com.au's award-winning, low-rate home loans with added personal service for each stage of your property investing journey.

Overview

Have you found your dream home, and now need a home loan to pay for it? Or perhaps you’re checking out what home loans are available and what you can afford before you start to look for a property? Perhaps you want to refinance your existing home with a better deal. Whatever stage you’re at, we have lots of home loans from a large number of lenders for you to compare here at Finty.

Home loan lenders

Traditional home loan lenders include the 'Big Four' banks and other large banks, credit unions and building societies. These large organisations have lots of employees, physical branches and resulting expenses to cover, and these costs are built into their interest rates and ongoing fees.

But the options for a current Au home loan are much wider than this. There's a long list of non-bank lenders looking for your business, which makes the market more competitive and rates lower. Borrowers who have not had any success with home loans from traditional sources could benefit from considering these alternative options for home buying, many of which are featured on this page. They tend to be lean, cutting-edge enterprises, with fewer overhead expenses to cover and lower rates as a result. And non-bank lenders are still governed by strict regulations to protect the consumer.

Home loan brokers

Mortgage brokers make a living by selling their expertise on the subject of home loans. They're good at assessing your financial situation and what's available in the loan market, and can save you time and hassle if you don't want to do the research yourself. However, you can now cut out the middleman by comparing all your loan options online, where many lenders are competing for your business and can see each other's rates. This high level of competition makes online lenders' rates even lower than they would be otherwise.

Commissions paid by either the borrower or the lender are the mortgage brokers' income source. Even if you are not paying fees directly, it means that the lender will have a further cost built into the conditions and rates you are being offered via a broker. And your broker may be limited to only a few lenders, or earn higher commissions for recommending particular loans. This can limit or influence your choice of loan.

Finty has to make a living too, of course, so we receive a fee from the lender for presenting your loan options to you and helping you to apply. But the fee we receive is much less than a mortgage broker's fee. The end result is that if you are prepared to use Finty's help and advice to make well-informed loan comparisons, you can potentially save a lot of money.

Government assistance for home loan borrowers

The federal government and various state governments have come up with a range of schemes to help borrowers buy their first home:

  • First Home Loan Deposit Scheme (FHLDS): Under this new program, the federal government will guarantee up to 10,000 low deposit home loans every year. This will allow borrowers to avoid paying Lender's Mortgage Insurance (LMI) if they can't, or don't wish to, ask a family member to act as guarantor for part of their home loan. Details are available at the National Housing and Investment Corporation.
  • First Home Owner Grant (FHOG): Depending on where you live and whether you are buying a newly-built or existing home, you may be able to apply for a first-home-buyer grant of between $10,000 and $16,000, offered by various state and territory governments. If your application is successful you can add the grant to your existing savings so that you can meet the lender's required deposit amount. Check your state's details at firsthome.gov.au.
  • First Home Super Saver Scheme (FHSSS): This allows first home buyers to save a deposit through their superannuation, by making up to $15,000 of tax-deductible voluntary super contributions per year, with a maximum amount of $30,000 personal contributions plus attributed earnings. See the ATO's First home super saver scheme page for details.
  • Stamp duty concessions: Some states have concessions, for first home owners, on the stamp duty payable on property transfer.
  • LMI duty concessions: There is stamp duty built into the cost of LMI, and again, there may be a concession on this duty for first-time buyers in your area. Check with your state or territory Revenue Office or Treasury Department to find out what's available in the way of both kinds of duty concessions.

Learn about home loans

If you've got questions about home loans, we've got all the tips you'll need to make a better choice.

  • Pros & cons
  • FAQs
  • Tips
  • Glossary

An end to dead rent money

Paying rent may put a roof over your head, but that's about where it stops. You have no guarantee of continuing residency in the long term, and your rental payments are not building up equity in an asset. Contrast this with your mortgage repayments, which are giving you control over your future in your chosen location, adding to your asset portfolio, and providing a nest egg that you could probably retire on if you choose to downsize when the time comes.

Building equity takes time

In the early years of a mortgage it can feel like you're running as fast as possible just to stay in the same place. Most of your repayments are chewed up by interest charges rather than being used to reduce the loan amount, and it can be disheartening to look at your account statement to see how little the amount you borrowed has reduced. But things start to pick up pace once you're a few years into your loan, and you can see the same repayment amount making a bigger dent in the amount left to pay. And you can always speed things up with extra repayments if your lender permits this.

Even though it's a low risk, it's still a risk

in recent years we've become accustomed to seeing house prices constantly rising, but there's no guarantee that this will always be the case. Australian property prices fell briefly during the global financial crisis of 2007-2009, and are always at the mercy of changing government policy, fiscal pressures on interest rates and national or international crises. The risk that house prices will fall enough to put most borrowers in a negative equity position is probably low, but it's a definite problem for those will low-deposit loans or anyone who falls seriously behind with repayments.

It's a big commitment

For most people, taking on a home loan is the biggest financial commitment they will make in the course of their life. It's not for the faint-hearted, since keeping up with repayments requires both a continuing steady income and discipline around discretionary spending.

Owning a home improves your financial profile in the long term

Home mortgage debt is considered to be responsible debt. Although your credit score will dip slightly after your prospective lender requests your credit history file and again when you first start your loan, meeting your repayments on time will actually improve your score. It also improves your ratio of revolving debt (like credit cards) to instalment debt (e.g. loans), which again is a positive outcome for your credit score.

Your hard work pays off

Maintaining and improving a house or apartment you own can be very satisfying. Every coat of paint, every new shrub planted, adds to the value of your investment. But in a rental property, although you may be itching to carry out improvements, you're only lining your landlord's pockets at your own expense if you do.

What is a home loan?

Also commonly known as a mortgage, a home loan is an amount of money borrowed from a bank or other financial institution for the purpose of buying an existing home, or renovating it, or building a new home, or refinancing an existing home loan. Where a pr

How do I qualify for a home loan?

Lenders consider a range of details before approving you for a home loan. Here's what they'll look at:

  • The size of your deposit. Depending on the value of the property you want to buy, this will determine whether you qualify for a loan and how much you can borrow. A larger deposit also demonstrates that you are good at saving and therefore less risky.
  • Your income. You need to earn enough for the lender to be sure that you will be able to meet the proposed monthly repayments after covering your expenses.
  • Credit history. A high credit score, no bankruptcies and a good repayment history on previous or exisiting debts will improve your chances of qualifying.
  • Wage earner, self-employed or investor? Wage and salary earners tend to be regarded as more financially stable and less risky than entrepreneurs and investors.
  • Your age. Younger people have more time to repay and can spread their repayments over a longer term, during which time their earnings will probably rise as well.
  • Existing debts. The more credit card and personal loan debt you already have, the less room there is to fit in new repayments.

How much can I borrow for a home loan?

It depends on a number of factors, including:

  • Your annual income, or the combined annual income of you and a joint borrower, such as your partner.
  • Your credit score or credit rating, an assessment of your creditworthiness based the borrowing and repayment history in your credit report – data collected by Australian credit bureaux.
  • The Loan to Value Ratio (LVR), which is the amount you hope to borrow expressed as a percentage of the value of the property you hope to buy.
  • Lender's Mortgage Insurance (LMI), which is an option for anyone who does not have a 20% deposit. The borrower pays an insurance premium on a policy which helps to protect the lender against losses if the borrower defaults on the loan.
  • Loan guarantor, a further option for those with only a small deposit. In this case a third party (usually the borrower's family member, such as a parent) agrees to guarantee a part of the loan and will become liable to repay that portion if the borrower defaults on the loan.

How much deposit do you need for a home loan?

Most lenders will insist on a 20% deposit for your home loans. This means, for example, that in order to purchase a home priced at $500,000, you usually need a $100,000 deposit.

However, there are two ways to get a home loan without a 20% deposit, and some lenders may approve you for a home loan if you have a deposit of only 5% (but remember that the smaller your deposit is, the higher your loan amount – and consequently the monthly repayments – will be).

One way is to take out Lender's Mortgage Insurance. This is an insurance policy which prevents the lender from being out-of-pocket of you default on the loan and they are unable to recover all of the remaining loan amount plus costs if they repossess your home and sell it. The policy protects the lender, but the cost of the premium is paid by the borrower and could be as much as $6,000 on a $400,000 home loan.

The second way is to ask a family member to act as guarantor for part of your loan. For example, if you want to buy a $500,000 house but only have a $50,000 deposit, the lender may agree to let your Mum and Dad guarantee $50,000 of your loan. They will take security for this $50,000 on your parent's own property to make sure they pay up if you default, so being a loan guarantor is not something to be undertaken lightly.

Which is best, saving for a 20% deposit, or borrowing more immediately with Lender's Mortgage Insurance?

This is a difficult question to answer because it's all about timing, property market value movements and interest rate futures. The conservative approach is to save until you have your 20% deposit, thus avoiding having to pay $6,000 or more for LMI if you can't find, or don't want to use, a loan guarantor. But in the time it takes you to save the deposit – probably about five years if you're starting from scratch, or at least a couple of years if you already have some savings – property market values could lift overall by a percentage that would make the $6,000 LMI premium seem like a trivial amount.

But there are arguments on the other side. No one can be sure that property prices will continue to increase, or that interest rates will not increase. Making a rash decision to go ahead with a small deposit could backfire if property prices in general start to decline or variable rates go up. You'll be left with a large loan to be serviced by substantial monthly repayments, and the possibility of negative equity in your home.

So look carefully at what the experts are saying about the likely future of property price movements in your area, decide how much risk you can handle, and make an informed decision about when to buy.

What is the normal repayment term for a home loan?

A typical repayment term would be 25 or 30 years, but shorter terms are available.

What is the repayment frequency for a home loan?

Monthly repayments are the norm, but you can sometimes opt for more frequent or less frequent repayments.

What is included in the regular home loan repayment?

Most home loan repayments include a portion of the home loan principal as well as interest charges. In the early years of a home loan term, interest charges will account for the bulk of the repayment. But the ratio of principal to interest changes as the home loan amount is gradually reduced, so that in the final years the home loan principal accounts for a larger share of the repayments.

Interest-only home loans are an exception. In this case, the repayments only cover the interest charges and the home loan principal does not reduce, either during the entire home loan term or for an agreed number of interest-only years at the beginning of the term.

What kinds of interest rates apply to home loans?

Interest rates can be:

  • Fixed, which means that the rate will not change for an agreed period (e.g. five years).
  • Variable, which means that the rate may go up or down, usually in response to a change in the official cash rate (the market interest rate on overnight funds) set by the Reserve Bank of Australia.
  • Split, which means that different rates apply to different parts of the home loan. For example, $300,000 of the home loan principal could be subject to a fixed rate, while a variable rate could be applied to the remaining declining balance.

Note that a comparison rate is not an actual rate applied to your loan, but a theoretical rate allowing you to compare loans.

What is a comparison rate?

The advertised interest rate will usually include two numbers – the ‘interest rate’ and the ‘comparison rate’. The ‘interest rate’ is used to calculate the interest charges that will be applied to the amount of your home loan principal. The 'comparison rate' is a theoretical rate which has factored in the cost of some of the lender’s fees to arrive at what the rate would look like if these costs were included in it. This comparison rate allows you to identify the true costs of competing home loan offers, because the associated fees can vary significantly.

How does the Reserve Bank's base rate affect home loan interest rates?

The official cash rate, or base rate, set by the Reserve Bank of Australia (RBA), is a benchmark rate of interest that determines the rate at which banks can borrow from each other, usually overnight. Banks and other lenders then add a margin (to cover their total borrowing costs and other costs, and make a profit), and the resulting rate forms the standard rate at which they are prepared to lend to consumers. So when the RBA changes the base rate, lenders will adjust their own rates up or down. But they do not always pass on the full increase or decrease to consumers.

What kinds of fees can be charged for a home loan?

Your home loan cost could include any of the following fees charged by the lender or the government:

  • A loan application/establishment fee (e.g. $600)
  • A Lenders’ Mortgage Insurance (LMI) policy premium (e.g. equal to 1.5% or more of your mortgage amount, or around $6,000 on a $400,000 mortgage) if your equity in your property is less than 20% and you don't have a home loan guarantor
  • Stamp duty payable to the government to register mortgages, which varies depending on which state you live in but is likely to be between $100 and $200
  • An internal loan switching fee payable when features of home loans are changed
  • A break fee if you’re changing from a fixed rate to a variable rate with your current lender
  • A loan discharge fee (e.g. $350) payable when home loans are terminated early

How can I avoid some of the fees charged for home loans?

Loan fees vary from lender to lender, so it's important to do your research and compare both upfront and ongoing fees on loans. While the comparison rate does give some guidance about what fees are charged by the lender, it doesn't include every fee but only the common and unavoidable ones.

You might want to look for a lender that doesn't charge a loan establishment fee for example, or one that waives this fee for less risky borrowers. LMI can be avoided by having either a 20% deposit or a loan guarantor. Mortgage registration stamp duty may be avoidable in some states if you're a first home buyer. Negotiate with your lender to avoid switching fees and exit fees if you want to change some aspects of your loan or exit your loan early. But this will probably not work if you want to change from fixed to variable interest, because there will almost certainly be a break fee to pay.

Can I still get a home loan with bad credit?

Yes, you can still get a loan with a low credit score or bad credit rating, but you're unlikely to get a loan from a traditional bank. Instead, you'll need to look at loans from alternative or non-traditional lenders who specialise in lending in this kind of situation. But be aware that you'll be paying higher interest to compensate for the higher risk. And bankrupts, or discharged bankrupts, will probably have their application declined by most lenders, although there are still some who will listen.

A tiny difference in the interest rate will have a significant effect on the amount you will have to repay

Since the term of a home loan is so long (25 or 30 years), even a small difference in the interest rate can have a big impact on the amount you will repay. It may not look like a big difference when you compare your likely monthly repayments, but multiply that difference by 300 (25 x 12) or 360 (30 x 12) and you will understand the effect – a possible saving of thousands of dollars.

Get your credit score on track before you apply

While you're saving for your deposit it would be a good idea to work on your credit score as well. Having a good credit score will make you a desirable customer eligible for lower rates. Take some time to fix your credit score using our credit score improvement tips.

How to decide how long your home loan repayment term should be

The lender may have a set repayment term, such as 25 years, or may offer a choice of repayment terms. The shorter the repayment term, the bigger your monthly repayments will be. As a general rule you should opt for the shortest repayment term you can afford, since this means that you will pay less interest in total over the life of the home loan. But you should be realistic about what you can afford and give yourself some breathing space in case of tough times (such as temporary unemployment), especially if you have opted for a variable interest rate (because interest rates may increase).

How to save for a home loan deposit

How long it takes to save for deposits on home loans varies according to where you live, since house prices in capital cities, particularly Sydney and Melbourne, tend to be higher than those in regional areas. The average time it takes a couple to save for a house deposit is 4.6 years, according to moneysmart.gov.au.

The recommended steps for making sure that you reach your deposit savings goal are:

  1. Prepare a budget, and stick to it. Your budget will need to list money coming in, details of all money going out, and how much you can save for your deposit on a regular basis. Having a budget will also help you to see where you can reduce your expenses, to save even faster.
  2. Deposit your savings in a high-interest savings account. Even if the interest rate is not really so high, it will still be higher than if you left your savings in a transaction account.
  3. Automate your savings. Arrange to have your goal savings amount automatically deducted from your wages and transferred to your savings account, or arrange an automatic transfer from your transaction account. This will reduce the temptation to spend rather than save, and it means that you won't forget to make the transfer.
  4. Consider investing in shares or a managed fund. This can often produce a higher rate of return than savings or term deposit accounts, but don't do it without fully understanding the potential risks involved.

It's important to compare home loans

Most people are looking for the lowest possible interest rate, but there are other factors to take into account. Depending on how cautious or risk-averse the lender is, and also depending on the borrower’s credit score and credit history, it may not always be possible to secure a home loan at the lowest advertised rate. There may also need to be a trade-off between the interest rate and the amount able to be borrowed.

You also need to look beyond the primary advertised interest rates and check the comparison rates, to get a true home loan cost including the lender’s fees and charges.

Home loans may also have differing features, such as a redraw facility, an offset account, and the ability to make extra repayments in order to reduce the interest charges and/or pay off your home loan earlier.

A further factor to consider is the level of service you are going to get from the lender. j Do they make repayments easy, via online banking or a phone app? Do they have a reputation for good customer service, in case you need to query something or make an adjustment to your home loan or repayments?

Things to be aware of when using your card overseas

  • Some cards have high foreign currency transaction fees – a surcharge of as much as 3.5% of the transaction amount in some cases – so if you travel overseas frequently you might want to consider a ‘No Foreign Transaction Fee’ credit card.
  • If you don’t travel overseas regularly but then take an overseas trip, you might trigger a suspicious transaction alert and card suspension when your bank spots a rash of overseas purchases. Tell your bank about your travel plans in advance.
  • If your card comes with complimentary overseas travel insurance, plan to use it to save money, but read the small print first to make sure that it’s suitable for your needs and that you meet the activation conditions.
  • Avoid Dynamic Currency Conversion. That is, if an overseas merchant offers to let you pay with your credit card in Australian dollars, politely decline the offer and ask for the credit card charge to be made in local currency instead. That’s because the exchange rates used for Dynamic Currency Conversion are highly unfavourable for the cardholder.
  • Make a note of the emergency contact details – by phone or online – for your credit card provider (in case your card is lost or stolen) and any complimentary insurance cover.

What to take into account when deciding between a fixed rate and a variable or split rate

A fixed rate home loan charges interest at the same rate for an agreed number of years. It’s easier to budget for a fixed interest rate, because you know exactly how much your monthly repayments will be, and the amount will not change. If interest rates go up, your home loan rate will not. On the other hand, if interest rates go down, you will miss out on the benefit because your home loan rate will not go down.

Variable interest rates can go up or down, more or less in line with changes in the Reserve Bank’s official cash rate. Budgeting is more difficult, because there’s no certainty about the amount of your repayments.

A split, or partially-fixed interest rate could be the answer if you are having difficulty deciding between going for a fixed or a variable rate.

Break fee

A fee charged by lenders for changing the terms of a loan agreement, typically if you want to change from a fixed rate to a variable rate.

Comparison rate

A notional interest rate which includes the cost of the lender's standard loan fees. It is calculated by adding the standard loan and account fees to the interest charges at the advertised rate, and spreading the total cost over the total term of the loan.

Credit bureau

A business involved in the collection of credit data about an individual or organisation, the compilation of the data into a credit report, and the calculation of a credit score or credit rating based on the data. The main Australian credit bureaux are Experian, Equifax and Ilion.

Credit report (or Credit history)

A list of an individual or organisation’s credit-related activities, compiled by a credit bureau. The credit-related activities include debt and debt repayment history, applications for credit, debt and utility bill defaults, and requests for the individual or organisation’s credit report made by credit providers.

Credit score (or Credit rating)

A numerical expression of a person’s credit history, based on the information in a credit report collected by a credit bureau. The higher the number, the better the score.

Equity

In the context of home loans, equity is the difference between a home's market value and the remaining amount of any loan(s) secured against it.

Fixed interest rate

A rate which never changes during the term of the loan.

Lender's Mortgage Insurance (LMI)

An insurance policy designed to reduce a home loan lender's losses  when lending under conditions regarded as risky. The insurer would provide a cash payout if the borrower defaulted on the loan and the lender could not recover all of its costs by selling the property. LMI is usually required if the LVR is over 80% and there is no third party loan guarantor. The insurance premium is paid by the borrower.

Loan application fee or Loan establishment fee

A fee charged by a lender to cover the cost of the process of credit assessment and loan approval.

Loan discharge fee

A fee charged by a lender to finalise loan documentation when the loan has been fully repaid.

Loan principal

The starting amount borrowed, before the first repayment is made.

Loan term or Repayment term

The number of years which will be required for full repayment of a loan. Most Australian home loans run for between 10 and 30 years.

Loan to Valuation Ratio (LVR)

The amount of a home loan expressed as a percentage of the home's market value (usually determined by a professional valuer). For example, if a loan of $400,000 is secured against a property worth $500,000, the LVR is 80%.

Offset account

A bank transaction account linked to a home loan account for the purposes of calculating home loan interest charges. Any amount left in the offset account (effectively any balance remaining after your wages have been paid in and your expenses have been paid out) is hypothetically deducted from the loan balance before interest charges are calculated, thus reducing the interest cost.

Redraw facility

An option to withdraw as cash any additional home loan repayments (over and above the standard monthly repayment amount required) that you may have made in the past.

Refinance or Refinancing

The process of paying out a home loan and initiating a new loan on the same property, either with the same lender or with a new one.

Split interest rate

A combined rate, where a part of the loan principal is subject to fixed interest, and the remainder of the loan principal is subject to variable interest charges.

Switching fee or Switch fee

A fee charged by a lender if you want to change some of the features of a loan (e.g. extend the repayment term or change the interest rate) while it still has some of its term left to run.

Variable interest rate

A rate which can go either up or down at any time during the term of the loan, if the lender decides to change its standard variable rate, usually in response to a change in the Reserve Bank's official cash rate.

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