Home Loan Comparison in Australia

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Contents

    What is a home loan or mortgage?

    A home loan, also called a mortgage, is a sum of money borrowed to pay for a property. Most buyers pay a deposit between 5% to 20% of the property value, then borrow the remainder and pay it off in instalments over 25 or 30 years. Over the life of the loan, you’ll pay back the principal (amount initially borrowed) as well as loan interest charged by the lender.

    Comparing home loans is no easy feat. There are all kinds of options available for your mortgage, but not all of them will be right for you. The goal is to find the best mortgage at the cheapest rate, and this article dives into all the factors that can affect the loan process. Read our summary to learn how to properly compare home loans in Australia so that you can afford your dream property purchase.

    Variable rate home loan comparison tool

    Discover the variety of variable rate home loan options available in Australia with our straightforward comparison tool. Designed for everyday people with a basic understanding of home loans, our interactive table lets you quickly sort by the actual comparison rate, which includes all hidden fees for a true cost assessment. You can also filter by various home loan features and expand each entry for more detailed information. The products shown and estimated repayments are based on a $600,000 loan. With this tool, we aim to make the path to homeownership a little clearer and a lot more manageable.

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    Disclaimer
    Information presented in this table is specific to Variable Rate Home Loan Products. While care has been taken to ensure accuracy, fees and features may differ if you choose Fixed Rate Products. The table includes ongoing repayment amounts, which are typically paid monthly and comprise both the principal and interest. It also details any potential upfront fees, such as application or establishment fees, and ongoing fees that the lender may charge throughout the life of the loan. Furthermore, should you decide to pay off or refinance your loan before the end of its term, exit fees may apply. All features, such as offset accounts, redraw facilities, and flexible repayment schedules, are associated with the respective loan product and may vary.
    *Comparison rate is a combination of both the interest rate and any mandatory fees associated with the loan into one rate for easy understanding and comparison of the loan’s true cost.

    Types of home loans

    The first step to being an informed shopper is learning the most popular mortgage options. This will help you compare home loans and understand the main features of each one.

    • Basic loans

      These are simple loans with minimal features and lower interest rates. They usually come with fees. Basic loans are best if you have a straightforward financial situation and don’t need custom options.

    • Standard loans

      With these loans, you can do things like redrawing money that you’ve already paid in extra repayments, or splitting your interest rate into part-fixed and part-variable. You can also have an offset account to reduce your interest costs.

    • Low deposit home loans

      These home loans enable buyers to buy a house without paying a major deposit of 20% or more. They make homes more accessible, but usually require Lenders Mortgage Insurance and higher interest rates to protect the lender.

    • Construction loans

      These unique loans grant you funds to build your future house. The benefit here is that you only draw down as much of the loan as you need during the construction process, and you only pay interest on the amount drawn down.

    • Package home loans

      These loans usually come with a free transaction account and a credit card with no annual fees. Be aware that some have package fees of up to $400 per year, so make sure that it makes sense for your needs.

    Alternatives to home loans

    A traditional mortgage might not be the perfect fit for everyone, so it’s worth taking a look at other opportunities.

    Rent-to-own scheme

    This arrangement allows you to rent a home for a defined period and then have the option to purchase that home at a pre-set price once the rental period ends. Rent-to-own is still fairly new and is limited in some states.

    Buying a home as an owner-occupier or as an investor

    When comparing home loans in Australia, your options will be different based on whether you plan to live in the property yourself or buy it as an investment.

    • Owner-occupier home loans:

      These loans are intended for those who want to buy or build a house as their own residence. As you compare home loan interest rates, you’ll see that these loans tend to be cheaper than investor loans.

    • Investor home loans:

      These are geared towards buyers who purchase a home as an investment. Investors may want to rent out the property and/or re-sell it at a profit.

    Both of these loan types can have fixed, variable, or split interest rates. They can also offer either a principal & interest repayment or an interest-only repayment setup.

    What to look at when comparing home loans

    There are several key aspects of a mortgage to consider before selecting one. While it’s obviously critical to compare home loan rates, you also have to think about repayment types, loan features, and any additional fees. By looking at these factors, you’ll give yourself the best chance possible of getting the best home loan deal overall.

    Interest rates

    The main takeaway here is that the lower your home loan rate, the lower your repayments. T These are the three main kinds of interest rates:

    • Fixed rate: This rate will lock in for a period of one to five years. After the fixed term, the rate goes to a standard variable rate, or you can re-fix the rate. These rates have fewer features but have the benefit of extra stability.

    • Variable rate: This rate will fluctuate based on the housing market and is often tied to the Reserve Bank cash rate. These loans are less predictable and can be pricier, but they usually have extra features like offset accounts and redraw facilities.

    • Split rate: This is a “best of both worlds” setup where part of the rate is fixed and the other part is variable. This way you get some of the stability of a fixed rate, while still taking advantage of some opportune savings with a low variable rate.

    As well as the loan’s interest rate, you can consider the comparison rate, which accounts for interest plus most extra fees and charges on the loan. Just be mindful that the comparison rate is calculated based on a 25-year term and a loan amount of $150,000 on all home loans, meaning it may not be relevant in all situations.

    Repayment types

    Given the length of time you’ll be repaying a home loan for, you definitely want to check out the options for how exactly your repayments will be structured. The goal is to find the option that matches your budget needs.

    • Principal & interest repayments: With this option, your payments go towards the principal loan amount as well as the interest accumulated.

    • Interest-only repayments: Here, your payments only go towards the interest for a defined period. This is common with construction and bridging loans, and is a popular option for investors.

    Home loan features

    Some mortgages offer added flexibility through the features available. When comparing home loans, picking suitable home loan features can be a major way to save money.

    • Offset account: This is a transaction account connected to your home loan. Whatever sum is in your offset account gets subtracted from the loan balance when interest is calculated. Interest only builds on the remaining balance instead of the entire loan total.

    • Extra repayments: If you have some extra money on hand, you could put it towards the loan balance to help you pay off the loan faster. Doing this means paying off your loan sooner with less interest. Most variable rate loans allow this.

    • Redraw facility:  If your loan allows extra repayments, it may also allow you to re-borrow those funds and get them back for your immediate use. There might be a redraw fee or a limit on the total you can borrow back.

    • Special promotions:  Certain lenders will have unique offers for particular customer groups. For instance, medical professionals can sometimes get discounted rates since they are seen as stable earners.

    Home loan fees

    When looking at the cost of a loan, some customers compare home loan rates and stop there. However, it’s important to pay attention to the fees as well.

    • Application fees: These are charged when you initially apply for the loan.

    • Ongoing fees: These come on a regular basis for keeping the loan open.

    • Valuation fees: These cover the lender’s cost for having the property valued.

    • Discharge fees: These apply when the loan is paid off or refinanced.

    How much should I save for a home loan deposit?

    There is no magic number for the dollar amount of a home deposit, but it’s important to look ahead and consider your Loan-to-Value Ratio (LVR). The LVR represents the percentage of the home price that you are borrowing. Traditionally the aim is to save at least a 20% deposit, meaning you would borrow 80% of the value for an LVR of 80%.

    If a 20% deposit is too steep, many lenders will grant loans with as little as 5% paid upfront, but they will likely require you to pay for Lenders Mortgage Insurance (LMI). This could cost up to an additional 3% of the loan amount, and is either a one-time upfront cost or gets added to the loan amount and repaid gradually through the regular repayments.

    Learn more about home loans

    There’s a lot more to home loans than you might expect, even if you’ve already bought a home. Our aim is to equip you with a variety of useful home financing resources, including guides, tools and explainers on specialist loan types. Whatever your financial situation, MNY can help you get connected with the best home loans.

    Comparing home loans FAQ

    What’s the difference between a home loan and a mortgage?
    These terms are used interchangeably, but the precise definition is that the home loan is the money borrowed while the mortgage is the legal document itself.
    How to calculate the monthly payment on a home loan?
    Please use our home loan repayment calculator to gain a better understanding of how your payment structure will look like under different loan conditions.
    How do I refinance a home loan?
    If you’re unsatisfied with your current lender, you can shop around for a different one with better terms. Keep in mind you might have to pay break fees on the old mortgage.
    What happens if I default on my home loan?
    If you miss a payment by more than 60 days, you could be subject to late fees up to $200 and the default will hurt your credit score. You may also eventually lose the house.
    What is a low doc home loan?
    A low-documentation home loan requires less info about your financial history. This is helpful if you do not have conventional salary records from your job.
    What if I have a bad credit score?
    Bad credit home loans are available for individuals with a weak credit history or those who have declared bankruptcy. These loans come with steeper interest rates and fees.

    Bringing it all together: how to do a home loan comparison

    Given the importance of a home purchase, it’s essential that you enter the real estate arena armed with up-to-date knowledge on home loans. Once you have a handle on the loan type that suits your needs, you can dig into the interest rates, fees, and special features that will help sweeten the deal. By the end of the process, you will know that you settled for nothing less than the best.

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