Home Loans FAQs

Answers when you need them

Buying a home can be a longwinded and complex process. Whether you’re a first home buyer looking for basic knowledge about home loans or a prospective investor chasing information on negative gearing, we’ve got the answers to all your questions and more.

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Home Loans Frequently Asked Questions

Basics for first home buyers

How do home loans work?

A financial institution typically provides a home loan to help successful applicants buy a property. Usually, you must contribute to the property purchase in the form of a deposit – a lump sum of cash that you have saved over time. The financial institution then advances you the remainder of the funds (known as the principal) to purchase the property and takes out a mortgage over it.

You are then required to repay the loan via weekly, fortnightly or monthly instalments over a set period (e.g. 30 years), as well as interest and fees. If you cannot repay your loan, the financial institution can sell your property to recoup the money they lent you.

How do banks calculate home loan interest?

Your lender typically calculates the interest on your home loan at the end of each day. At the end of each month, your lender will add your daily interest charges for each day of the month. This is the monthly interest amount generally found on your bank statement.

Let’s take a look at how your daily interest charge is calculated on a home loan. Say your loan balance is $400,000 with an interest rate of 4.5% per annum. First, you would multiply the home loan balance (400,000) by the interest rate (0.045) and then divide it by the number of days in the year:

($400,000 x 4.5%)/365 = $49.31)

It’s worth keeping in mind though that lenders utilise something called an amortisation schedule, which lets the lender lay out every single scheduled repayment you’d need to make to pay off your home loan (if you didn’t refinance or otherwise change your home loan). The lender then decides how much of each repayment will be comprised of interest charges and how much will go towards your home loan principal, with lenders typically opting to ‘frontload’ much of your home loan interest.

This in turn means that the home loan repayments you’re making in the early stages of your loan term will likely not be making too much of a dent in your loan principal, but later on in the loan term your repayments will make much more of an impact on the principal and have a smaller interest component.

How much will my home loan repayments be?

Your repayments will depend on:

  • The type of loan you’re taking out
  • The principal amount of the loan
  • The interest rate
  • Its repayment frequency
  • The length of the loan term.

If you know the above details, find out how much your loan repayments could be using our handy home loan repayment calculator.

What fees and costs come with buying a property?

There are a few costs and fees to budget for when buying property. Some of these include:

  • Lender costs. Lender costs vary but usually include application fees, package fees, property valuation and administration fees.
  • Legal and conveyancing fees. The costs of hiring a solicitor and/or a conveyancer will vary by state and territory, but will generally be large enough to be worth budgeting for.
  • Mortgage insurance costs. Lenders Mortgage Insurance (LMI) is applied to loans worth more than 80% of the property’s purchase price. The best way to avoid mortgage insurance, or at least to minimise your LMI costs, is to save the largest deposit possible.
  • Building inspection and report. A qualified expert should inspect the building before you purchase the property. The cost of a building inspection and report will vary depending on the size of the property and the state or territory you live in.
  • Pest inspection. Again, this should be completed before you purchase the property to ensure the dwelling has no pest-related issues. A pest inspection generally won’t be the largest of your homebuying costs as it’s likely to only cost you a few hundred dollars (depending on where you live in Australia), but it’s still an important cost to be mindful of.
  • Stamp duty. Stamp duty is a tax charged on the transfer of a property’s legal title between two parties. Stamp duty rates and applicable property value thresholds vary by state and territory, but stamp duty can cost thousands.
  • Home insurance. You’ll typically need to have a home insurance policy in place for your new property within 24 hours of exchanging contracts with the seller, depending on what your contract says which can vary depending on your state or territory, so be sure to account for any upfront costs or premiums you’ll have to pay between now and settlement day.

Once you’ve settled into your new home, you’ll also need to budget for your ongoing insurance premiums, rates and water charges. If you’re purchasing a unit or townhouse, don’t forget to budget for any applicable body corporate fees as well as your regular home loan repayments.

Do I need a guarantor to get my first home loan?

Not necessarily, as it depends on the overall strength of your financial position, including your income, expenses, assets, liabilities and the size of your deposit. A guarantor provides additional security to the lender by providing a guarantee of repayment, usually by using the equity in a property they own as security.

However, a guarantor should be aware of the personal risk. Should the borrower (you) default on loan repayments, they will be held liable to pay back the amount owed to the lender. If you’re considering providing a guarantee, you should seek independent legal and financial advice to understand how this could impact you.

What’s the difference between a home loan and a mortgage?

A home loan is a financial product a lender (e.g. a bank) uses to lend money to a home buyer and involves you signing a loan contract. A mortgage is the formal agreement you have with your lender which sets out the terms of the home loan and gives the lender the authority to take ownership of your home if you end up unable to meet your home loan repayments.

What are the different types of home loans?

Some of the different main types of home loans include:

We’ve written a guide to the different types of home loans, which you can refer to for more information on several different home loan categories.

How much can I borrow?

You’ll need to work out your disposable income to determine your borrowing power. Your borrowing power is calculated by deducting your regular expenses from your regular income; this determines how much you’d have left over to repay a home loan.

Our guide to borrowing power has a built-in borrowing power calculator and all the information you need on how borrowing power works.

What is the First Home Owner Grant, and am I eligible?

The First Home Owner Grant was introduced by the Australian Government to help Australians with their first home purchase. The grant is available in most of Australia (except the ACT), but the total amount and eligibility rules vary between each state and territory.

Some lenders can lodge an application for the First Home Owners Grant (FHOG) on your behalf, but you can also apply directly through your state or territory’s FHOG online application portal.

Getting a loan

How do I get a reasonable rate on my home loan?

There’s no such thing as an objectively good or bad rate. To find a rate that works for you, you’ll generally want to:

  • Compare your options using our home loan comparison tool
  • Look carefully at both the advertised interest rates and their accompanying comparison rates
  • Speak to one of our expert home loan specialists regarding the results of your comparison to get a stronger idea of which options might work for you

Whether a rate is competitive or not rests on what the rest of the market looks like, which is why it’s crucial to do a thorough comparison of your home loan options.

What is home loan pre-approval?

Home loan pre-approval, also known as conditional approval, is an approval of the home loan amount from the lender in principle. Final approval will still be subject to a full assessment of your home loan application and the property.

Although pre-approval is an excellent indication of your borrowing power, the status of your home loan application is still subject to the lender’s conditions being met, such as the provision of supporting documents (e.g. payslips, source of income and assets) and typically a property valuation.

Can I get a home loan with no credit history?

If you don’t have a credit history (i.e. have never had a car loan, credit card, mobile phone contract or other), obtaining a regular home loan could be tricky. Having a credit history demonstrates your ability to repay loans and debts, which is why it’s an important thing to be able to show the lender.

Will existing debt affect my chances of being approved for a home loan?

Existing debt on its own won’t necessarily impact your ability to get a home loan, but it can affect the amount of money you can borrow for a home loan. When reviewing your application for a home loan, the lender has to consider your financial situation (e.g. your income, ongoing commitments and living expenses). They perform this check to ensure you have sufficient income to meet these expenses and the proposed loan without putting you under undue financial strain. So, if you’re considering buying a home, you may want to look at our borrowing power calculator first.

Can I get a home loan to buy land with?

Yes, loans are available from lenders to purchase a vacant block of land, whether you’re looking to build now or down the track. The lender may want to see evidence of your intention to build within 12 months of acquiring the land, as well as evidence that you can repay a future construction loan.

Can a retiree get a home loan?

There are options available for retirees to get a home loan, but it will ultimately depend on your personal and financial position, including your assets and income streams. Retirees may find it challenging to get a home loan as lenders will generally deem retirees as a heightened borrowing risk due to their life expectancy, their ability to pay back a loan with a term of 25-30 years and their source of regular income.

How big a deposit do I need to get a home loan?

You will typically require a minimum amount of 5% of the property’s value for your deposit, although this will vary between lenders. It’s important to factor in the minimum deposit amount plus costs, like lender’s fees, legal, registration and search, stamp duty, building and pest inspections. That being said, if you borrow more than 80% of the property’s value, you will also need to factor in LMI, which is either paid upfront or added to your loan amount. While taking the extra time to build up a larger deposit can be frustrating, the less you borrow, the lower your repayments will be.


What types of fees and costs come with buying an investment property?

Aside from the typical costs of buying a home listed earlier on, there are a few fees and costs that you may want to budget for when purchasing an investment property, including:

  • Landlord insurance
  • Property management fees
  • Land tax
  • Maintenance costs.

You’ll also need to budget for council rates, water charges and regular home loan repayments. If you’re buying a unit or townhouse, you will need to factor in body corporate fees on top of your other costs.

What is an interest-only home loan?

An interest-only home loan is a type of home loan in which you’re only required to pay off your interest charges for the repayment period and not pay anything towards your home loan principal.

These types of home loans can have advantages for property investors, but will typically be more expensive overall compared to a standard principal and interest home loan of the same value.

You may want to speak to one of our home loan specialists or a financial advisor if you’re unsure whether an interest-only home loan is right for you.

What is the difference between owner-occupied and investment home loans?

Most home loan features are available for both investors and owner-occupiers, and the two types of home loans generally function similarly. However, some lenders may charge higher rates for investment properties if the associated risks are higher, and the fees charged on investment home loans may also be higher.

What is negative gearing?

Negative gearing is when the annual cost of owning your investment property – interest repayments, strata fees, maintenance and other property-related fees – is more than the income you make from that property. This loss can typically offset your taxable income for the year.

What is landlord’s insurance?

Landlord's insurance (or investment insurance) can cover your investment property against damage or theft caused by the tenant, damage from specified weather events (e.g. flooding, fire damage) and loss of rent due to a tenant’s default. It will also cover you for any liability if someone is injured while on your property.

Managing your loan

Ongoing costs of owning a home

It’s essential to have a good idea of your ongoing costs once you’ve bought a house and everything is settled. Some of the ongoing costs of owning a home include the following:

  • Your home loan repayments
  • Any monthly or annual home loan fees
  • Council rates
  • Home and contents insurance premiums
  • Body corporate fees (if you live in a unit or apartment)
  • Utility bills.

Do some research before buying to put together a reasonable estimate of what your ongoing costs might look like.

What is a home loan redraw facility?

A redraw facility allows you to withdraw money from the ‘pool’ of extra repayments you’ve made that are above and beyond the minimum monthly requirements. However, there could be drawbacks, including redraw fees, a limited number of free redraws and minimum or maximum redraw amounts.

Will making extra repayments help me pay off my home loan faster?

Depending on your type of home loan, making additional repayments may reduce the interest you’re charged on your loan's principal. Just bear in mind that, depending on your loan type, making additional payments on your home loan may attract fees (if stipulated by your lender in your loan contract). This is usually the case with fixed rate home loans specifically.

Suppose you’re in a position to make supplementary payments on top of your regular repayments. In that case, you can use our extra repayment calculator to see how much interest you could save over the life of your loan by making extra home loan repayments.

What happens when I pay off my home loan in full?

Congratulations! Paying off a home loan is a huge milestone. Once your loan balance reaches $0, you’ll still need to have your mortgage discharged, or the bank or lender will still have a mortgage lodged on your Certificate of Title.

To remove or discharge the mortgage, there will be some paperwork you need to complete with the bank. In return, they’ll provide you with a Discharge of Mortgage document that you need to lodge at the titles or lands office in your state – after that, the home is all yours.

Can I salary sacrifice my home loan repayments?

Whether you can salary sacrifice your home loan repayments is up to your employer. Speak to them to find out whether salary sacrificing your home loan is an option, and if this is in line with your lender’s terms and conditions. Bear in mind that there may be additional administrative fees your employer may charge for this service. You may also want to talk to a tax specialist to determine whether salary sacrifice is right for you.

How to pay off a home loan early

Depending on your type of home loan, you may be able to pay it off faster by taking advantage of a few tips:

  • Change your repayment frequency. If you’re currently making monthly repayments, consider switching to weekly or fortnightly repayments instead. Because lenders calculate home loan interest on a daily basis, making more frequent repayments will reduce your balance more often, and reduce your interest payable over the life of the loan.
  • Make extra repayments. If you’re able to do so, additional repayments will decrease the amount of money you owe, lowering the interest you’ll pay on the life of your loan. Start small and bump the amount up in line with your budget. Work out how making extra repayments to your loan can help pay off your loan quicker.
  • Make lump sum payments. If your loan type lets you make unlimited additional repayments, making lump sum payments, such as tax returns or work bonuses, are excellent ways to shorten the life of your home loan.
  • Use an offset account. An offset account can reduce the interest you are charged on your loan. This can make a significant difference over the life of the loan. For instance, if your home loan is $350,000 and you have $25,000 in your offset account, you’d only be charged interest on $325,000.
  • Undertake an annual home loan health check. Every year you should review your home loan to determine whether or not it’s worth refinancing to find a more competitive interest rate.

Can I add my spouse to my home loan?

If you want to add your spouse to your home loan, the lender will need to re-assess your and your partner’s financial situation to confirm whether the pair of you can service the new home loan. Check with your lender for their rules regarding adding someone to a home loan.

Can I use my home loan to fund renovation work?

Is your home in need of some renovations? Provided you’ve built up enough equity and meet your lender’s borrowing criteria, you may be able to apply to increase your home loan amount to fund your home renovations. Check to see which home loans suit your needs by using our free online comparison service.

How often will I need to make repayments on my loan?

Most home loans require one minimum monthly repayment as part of your loan contract. However, most lenders will let you choose your repayment frequency (i.e. weekly, fortnightly or monthly).


What is refinancing?

Refinancing is the process of switching home loans to one offered by a different lender. Refinancing and switching home loans may save you money, but it’s important to understand the pros and cons before deciding whether or not this switch is right for you. Some of the advantages of refinancing may include obtaining a lower interest rate or consolidating your debts, while a disadvantage could be the cost and time involved in switching.

How do I refinance my home loan?

Depending on the terms and conditions of your current home loan, the standard refinancing process will generally begin with checking to see what your current lender will charge you to switch home loans to another product or a different lender.

From here, you can compare home loan products to check if you can track down a better deal. If you do decide to refinance, you’ll first need to receive formal loan approval from the new lender. Once you’ve received approval, you’ll have to arrange a mortgage discharge form (sometimes called a release form) with your current lender. The two lenders will then liaise in order to facilitate the transferral of your loan from your old lender to your new lender. The release form will remove the existing mortgage and a new mortgage for the new lender mortgage will take its place.

If you’re just looking to renegotiate your home loan with your current lender, this will typically be a simpler process; however, depending on your circumstances your current lender may require you to  demonstrate an ability to repay the existing loan. It’s also worth noting that the negotiations involved may be time-consuming.

How much money can I borrow when refinancing?

The amount of money you can borrow when refinancing depends on your borrowing power at the time. Your borrowing power will be affected by current interest rates and the difference between your income and expenses. It will also be affected by the value of the property in question, as borrowing more than 80% of the property’s value will typically incur LMI, meaning higher overall borrowing costs.

To get an estimate, try out our borrowing power calculator.

What are the costs of refinancing?

Depending on your lender and current home loan, you may have to pay discharge fees or a break fee when refinancing to a different lender.

Additionally, you may need to consider any fees that apply when getting a new loan, such as application fees and property or valuation fees. However, these costs could seem trivial compared to the money you’ll save by refinancing.


What is a home loan default?

A home loan default is when a borrower cannot meet the repayments on their home loan. Depending on the lender, a fee will be charged for missing a mortgage repayment if the borrower has exceeded a repayment timeframe (e.g. 90 days). Not only will a late fee be charged to your home loan, but you’ll also be paying additional interest.

Defaulting on your mortgage will be listed on your credit history and can have negative implications for future loan applications. If defaults are continual, a lender may be forced to sell your property to recoup the borrowed amount.

What is a home loan principal?

Put simply, the principal is the amount of money you have borrowed from your lender to purchase a property. Interest is charged to you over the life of your home loan based on this amount.

What is a line of credit?

A line of credit is an account or loan with a credit limit that can be attached to your home loan. A line of credit allows the borrower to access funds from the account as often as needed, staying within the credit limit. You can use a line of credit for various things, including home renovations or purchasing a car. A line of credit limit is fixed and does not decrease as you repay the loan. The lender will normally specify a date as to when the loan has to be repaid in full.

What is a comparison rate?

A comparison rate helps you compare the actual cost of home loans by encompassing the interest rate, fees and charges payable during the term of the loan, all of which is shown as a single interest rate. If you’re comparing different loans from multiple lenders, the comparison rate will enable you to find out how much a given home loan will cost you in addition to the standard interest rate.

What is a key facts sheet?

A key facts sheet is a summary of a home loan designed to give customers an idea of a given home loan’s ongoing repayment costs based on their desired loan size.. This includes interest rates, account fees, the principal of the loan, repayment cycles and how changes to interest rates can impact your repayments.

A key facts sheet uses a clear format to help you compare home loans and understand the costs involved, such as fees and interest. The type of information you will find on a key facts sheet includes:

  • Type of interest rate
  • Comparison rate
  • Repayment method and frequency
  • Establishment fees and ongoing fees
  • Total loan amount to be repaid (inclusive of fees).

The key fact sheet will also model your potential repayments based on your nominated loan amount in order to demonstrate what your costs might look like over the cost of the loan if you took it out.

What is LVR?

LVR stands for loan to value ratio, which is the size of the home loan relative to the value of the property, expressed as a percentage. For example, if your home is worth $500,000 and the loan amount is $400,000, the loan’s LVR would be 80%.

What is LMI?

LMI stands for lenders mortgage insurance. It is insurance taken out by the lender to protect them should the borrower not be able to repay the loan. This is generally required for loans with a LVR greater than 80%. The borrower bears the cost of LMI and can choose to either pay it upfront or capitalise it into their home loan.

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