Home Loans FAQs

Answers when you need them

Buying a home can be a complicated process. Whether you need more information about fixed and variable rates, or just a simple explanation about negative gearing, we have endeavoured to answer your questions.

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Home Loans Frequently Asked Questions

Basics

What types of additional fees and costs might there be when 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 and usually include application fees or package fees, property valuation fees and cover costs for administration fees as well as the lender’s own These costs will generally be between $600 and $900.
  • Legal and conveyancing fees. Generally between $1,000 and $1,500 but can vary, so it’s important you shop around.
  • Mortgage insurance costs. Lenders Mortgage Insurance is applied to loans that are more than 80% of the purchase price. The best way to avoid mortgage insurance, or at least to minimise the costs, is to save for the largest deposit you can.
  • Building inspection and report. A qualified expert should carry out the building inspection before you purchase the property. The Contract of Sale should take into consideration the building inspection, giving you the option to withdraw the offer without any significant penalties if the building inspection doesn’t stack up, if there are issues identified that may impact the value of the property, or if future works to be completed may come at a cost. The cost of a building inspection and report varies depending on the size of your property.
  • Pest inspection. Again, this should be completed before you purchase the property to ensure the dwelling is without pest-related problems. The Contract of Sale should also take into consideration the pest inspection, giving you the opportunity to withdraw if pests are found to be a problem with your property, without incurring any major A pest inspection will usually cost around $500, depending on the size of your property.
  • Stamp duty. Stamp duty rates apply to all property purchases and depend on the property’s value price and the purpose of the property (owner occupied or investment), varying between each state and territory.
  • Ongoing costs. When you have signed a Contract of Sale and apply for your home loan, it’s a good idea to start looking at home and contents insurance. All lenders require building insurance and will typically indicate a minimum sum insurance which will cover the building should anything go wrong. Once you sign a Contract of Sale, you need to consult your legal representative to see if you need insurance cover immediately. It is generally advisable to insure for more than the minimum sum to cover the costs should you be required to rebuild. This also applies to contents insurance, which protects you if you need to replace your belongings should the unexpected happen.

Once you have settled into your new home, you will also need to budget for council and water costs. If purchasing a unit or townhouse, don’t forget to include any body corporate fees in addition to your regular home loan repayments.

Is a guarantor required for a home loan?

Not necessarily, as it depends on the overall strength of your financial position; including your income, expenses, assets, liabilities, and size of your deposit. A guarantor provides additional security to the lender by providing a guarantee, usually by using 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 are considering providing a guarantee you should seek independent legal and financial advice to understand how this could impact you.

Is a home loan a mortgage?

A home loan is where a lender (i.e. a bank) lends you money, which involves signing a loan contract. A mortgage is the security lodged against the property title, which provides the lender with security against the funds borrowed. However, it also entitles the lender (mortgagee) to sell your property to get their money back should you default on the loan (i.e. you weren’t able to make repayments).

In short, a home loan is what you get to pay for the property, the mortgage is the security given by you to the lender to secure repayment of the loan.

How should you repay your home loan?

There are two main types of home loan repayments: principal and interest (P&I) or interest-only (IO).

A principal and interest loan is the most common loan which means that your repayments are made up of principal (amount borrowed) in addition to the interest charged for the month.

With an interest-only loan, your repayment only covers the interest charged for the month. You typically will have a set interest only period (i.e. one to five years) and the loan usually reverts to principal and interest after the interest only period.  One of the benefits of an interest only loan is that it can give you lower repayments during the IO period, however, there are some downsides to consider. One of these can be that you are not paying down any of the principal, which can mean that your repayments will be higher after the IO period, as you now have a shorter term (e.g. 25 years) to repay the principal – compared to the original term (e.g. 30 years).

What are the loan types and how do I know which one is suitable for me?

Finding a loan that suits your situation and financial goals is important, and will ultimately be different for everyone.  Some key things to consider are:

  • How often do you want to make repayments?
  • Are you looking to make any repayments above & beyond the minimum monthly repayment?
  • Do you need access to money you have paid in extra repayments (above & beyond the minimum monthly repayment)?
  • How important is it to you to have certainty in your repayments for a defined period?
  • Are you looking at selling the property within 1-5 years?

The two most common types of home loans are variable and fixed, both of which have pros and cons:

  • A variable rate home loan can fluctuate based on changes to the interest rates, which means borrowers can benefit from decreases, but can also experience increases when interest rates rise. The benefits of having a variable rate loan is that, should the interest rate drop, you will get the benefit of paying less interest and therefore cheaper loan repayments. However, you will need to consider how an interest rate rise could potentially impact your budget.

Variable rate loans also offer you the ability to make extra repayments which can give you greater flexibility in addition to reducing the interest you pay. They also have other features like redraw (i.e. withdraw any extra payments you’ve made in the past to spend as you like) and offset accounts.

  • A fixed rate home loan enables you to secure an interest rate for a set period of time (typically one to five years) and is ideal for borrowers looking to safeguard against future interest rate fluctuations. Fixing your loan for a set period can provide you with some certainty in your repayments, which can help with budgeting. One of the downsides can be that you won’t see any decrease in your interest payments if the official cash rate drops. Also, you may be limited to the amount of extra repayments you can make. In addition, break fees may apply if you wish to exit or payout the loan during the fixed term.
  • A split loan is a worthy alternative if you feel that variable and fixed rate loans have their advantages. One portion of your loan will be charged a fixed interest rate, while the remaining portion is charged a variable rate. This gives you the ability to take advantage of both the features of a variable loan, with a bit more certainty that only a portion of the mortgage is exposed to interest rate fluctuations.

Whichever loan you decide to take out, it is essential to obtain a loan that meets your financial goals and individual needs. Speak to a professional before you make any big decisions.

How much can you afford to borrow?

You’ll need to work out your borrowing power (i.e. the principal amount) from your lender and how much you can comfortably afford to repay in weekly, fortnightly, or monthly repayments taking into consideration your monthly commitments and your lifestyle. You should also consider up-front costs, such as home and contents insurance, legal fees, search/registration fees, land/water rates and stamp duty.

How do home loans work?

A home loan is typically provided by a financial institution to help you buy a property. Usually, you are required to 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 to purchase the property (known as the principal) and, as security, will take a mortgage over the property. You will then be 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.

How do banks calculate interest on home loans?

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 normally 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 balance of the home loan (400,000) by the interest rate (0.045), and then divide it by the number of days in a year (365).

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

Equity loans

What’s a home equity loan?

Otherwise known as an equity home loan or line of credit, a home equity loan is a type of loan for Aussies looking to invest in property/shares, buy a new car, renovate, or consolidate/repay debts. Equity is the value of your property, minus any outstanding loans (i.e. the money you owe). For example, if your home is worth $500,000 and your outstanding loan balance is $300,000, the equity in your home would be $200,000, which can help leverage your eligibility for a home equity loan with your lender.

What percentage can you borrow on a home equity loan?

You can usually borrow up to 80% of the value of your property, but you can borrow more depending on your lender and lenders mortgage insurance guidelines. However, some may allow you to release up to 95%; borrowing over 80% of the value of the property will mean you’ll be subject to lenders mortgage insurance.

Need help finding out how much you can borrow on a home equity loan? We can put you in touch with a broker to assist you with any questions you have about your investment options. Simply compare home loans from over 45 providers to get started.

What can a home equity loan be used for?

You can borrow money against your equity for an investment, such as shares, property, or renovations. Other reasons why people take out home equity loans are to gain access to payments at a later date (i.e. redrawing extra funds to finance something urgent) and to build wealth by unlocking equity in your existing home for investment purposes.

As long as it’s for a personal purpose, it can typically be covered. However, to be certain, you will need to check the conditions in your loan agreement on redraw availability.

Is a home equity loan considered a second mortgage?

No, a home equity loan is not considered a second mortgage. Otherwise known as a line of credit loan, a home equity loan allows lenders to borrow money against the value of their property.

How much does a home equity loan cost?

The cost of your home equity loan or line of credit loan will depend on how much you are looking to borrow, the type of loan, the repayment cycle, and any other fees or charges from your lender. We recommend you consult a lender to find out if a home equity loan will suit your circumstances. To gain a clearer indication of your borrowing power, try using our free online calculator.

Can you have two home equity loans?

Yes, you can have as many home equity loans as you like, depending on your situation and financial goals, and provided the lender approves these loans.

Are you considering a new investment? Review your options side-by-side by comparing a variety of home loans from some of Australia’s most reputable lenders.

Are home equity loans tax deductible?

Costs associated with owning an investment property can be tax deductible, but it’s important to seek advice from a taxation specialist to understand what benefits may apply to your personal and financial situation – as there are exceptions. For example, owner-occupied purchases or renovations are not tax deductible.

Can I use the equity from my current home loan as a deposit for investment properties?

Yes, you can use the equity as a deposit for investment properties. It’s important to note that you can’t use all of your equity, given that your lender is loaning you money against the value of your property. Banks will usually accept equity in a property as collateral against which they may be prepared to lend; in fact, many investors started out this way.

You could potentially borrow the full purchase price of your property – plus whatever amount you’ll need to pay the additional fees (e.g. legal fees and stamp duty) – without actually having to contribute a deposit provided you have ample equity in your current property. However in doing so, both the investment property and your home could be at greater risk in the event you default on either loan.

First home buyers

How can I apply for a first home buyer’s loan?

You can apply for a first home buyer’s loan by talking to a professional broker who can assist you with any queries you have about obtaining a suitable home loan. You can also go directly to a lender (e.g. a bank, building society, credit union). Alternatively, you can research, compare and apply for home loans with us.

What is a first time home buyer loan?

A first time home buyer loan typically offers basic features with introductory or ‘honeymoon’ rates (i.e. a lower interest rate for a set period). Once this period ends, it will revert to the base interest rate.

Lenders usually attract first time home buyers with honeymoon rates, but it’s important to be wary of the base rate it will revert to once this period ceases, as this rate may be substantially higher. Depending on your circumstances and financial goals, there may be more suitable home loan options available.

How do I apply for the First Home Owners Grant?

Some lenders can lodge the First Home Owners Grant (FHOG) on your behalf, but you can also apply directly through your state’s or territory’s FHOG online application portal. Keep in mind your broker or lender must be attached to an organisation approved by your state’s or territory’s government. To find out more, visit our page on the First Home Owner Grant.

How do I choose which loan type is right for me?

Before choosing the ‘right’ home loan, you’ll need to work out how much you can potentially borrow from a lender, the purpose of the loan (i.e. first home buyer, investing or refinancing), your repayment options (e.g. principal & interest or interest only), the type of interest rate (variable, fixed or split), the features of the loan (i.e. offset and redraw facility) and the types of fees attached to the loan. Once you’ve determined what type of loan is suitable, you can research, compare and apply for a home loan with us. This will make the task of finding an affordable, great value product much easier.

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 across Australia at a base amount of $7,000, although, the total amount and eligibility rules vary between each state and territory. Learn more about the First Home Owner Grant.

Getting a loan

How long does mortgage insurance take for a home loan?

The standard approval process for a home loan can vary between different lenders. If mortgage insurance is applicable, insurance for a home loan usually takes up to 48 business hours while it goes through the standard credit process. Lenders mortgage insurance is also often referred to as the underwriting.

Which bank has low-interest rates for home loans?

You can easily find an attractive interest rate when you compare different products side by side. At various times, lenders and banks will have special offers or introductory rates; however, these will need to suit your circumstances. To find a product that will not only offer you a great rate but also have all the features to meet your needs, review your options by comparing home loans through our online service.

What is the average interest rate on a home loan?

The interest on a home loan can fluctuate, based on a range of factors. The easiest way to find out what the interest rates are doing on home loans is to compare home loans on our website. From here you can stack up a variety of interest rates from 45 providers, side-by-side, to find an interest rate that suits your personal circumstances.

What documents do I need for a home loan?

You will need the following documents to apply for a home loan:

  • Identification. Driver’s licence, passport, or photo ID that satisfies your lender’s requirements (i.e. Proof of Age Card).
  • Proof of income. Bank statements, payslips, or income verification from your employer.
  • Financial assets, liabilities, and expenses. A detailed list of your expenditure or savings, any outstanding loans or debts, and assets; with supporting documentation (i.e. rates notice for a property, statements on any loans or credit cards, share statements etc).

How can I get the best interest rate on a home loan?

To obtain the best interest rate on a home loan through our comparison service, you can:

  • Use our free online comparison to review home loans from over 45 providers
  • Easily compare a variety of interest rates
  • Speak to your prospective lender about current interest rates, as well as comparison rates.

If possible, pay a more substantial deposit on your home loan to potentially secure a better interest rate with a lender.

How can I get pre-approval for a home loan?

You can obtain pre-approval for a home loan by reviewing a range of home loans online using our free comparison service. Once you’ve provided a few key details, we can put you in touch with a broker to assist with your queries.

After a preliminary assessment of your financial situation, a broker will provide you with a range of suitable home loans and lenders. Once you’ve chosen a home loan and the broker has determined the product fits your needs, the broker will require supporting documents of your expenses, income, assets, debts and anything else your prospective lender asks for. From here, the broker can lodge your application to the lender on your behalf, and will liaise with the lender throughout the application process right through to settlement.

Can I get a home loan with no deposit?

Under exceptional circumstances, you may be eligible to obtain a home loan with no deposit, although it’s extremely rare. Without a deposit, you would more than likely be relying on some of the grants available, which technically make up a portion of your deposit. It’s also important to note that although some lenders may allow you to borrow without a deposit, they will usually capitalise on the additional level of risk in some other aspect of the loan (i.e. a higher interest rate).

Can I get a home loan with no credit history?

If you don’t have a credit history (i.e. car loan, credit card, mobile phone contract), obtaining a home loan will still be subject to satisfying a lender’s borrowing criteria. Having a credit history demonstrates the applicant’s historical propensity to repay loans and debts, which is why it can be important to the lender.

You may be able to get a home loan without a credit history; however, lenders will typically assess your assets, liabilities and expenses to determine how risky it is to give you a loan. Demonstrating the ability to manage your budget and expenses (even rental expense) in addition to demonstrating the ability to build savings over a period of time can often help the lender in being more comfortable in lending you the funds for a home loan where you have no credit history.

How much should I borrow for a home loan?

You should consider borrowing an amount you can comfortably afford to repay, as well as taking into account upfront and ongoing costs, like stamp duty, moving expenses, legal fees, registration fees and searches, as well as body corporate fees if you are buying into a strata-title, after settlement. Other factors you will need to think about are how much your lender is willing to lend you, your personal circumstances and your financial goals over short and long-term periods. It is worth noting that if you decide to borrow more than 80% of the total value of your home loan, you will be subject to paying lenders mortgage insurance.

You should crunch the numbers and work out a budget prior to the application process, so you’re aware of what you can comfortably afford. Find out by using our handy Loan Repayment Calculator or talk to one of our brokers who will be able to guide you through this process.

How long does pre-approval for a home loan take?

Your lender should give you an estimated time of how long your approval will take. Generally, they will specify a timeframe within a certain number of business days from the date your application has been lodged. While obtaining pre-approval varies from lender to lender, it’s usually a straightforward process.

Does HECS/HELP debt affect home loans?

When applying for a home loan the lender requires you to disclose your financial commitments to determine your serviceability or borrowing power. If you have reached the HECS/HELP income threshold, then it’s likely you are required to start repaying the debt. At this point, your HECS/HELP debt is a liability that is taken into consideration when applying for a home loan. Some of the factors that can affect your borrowing power include the size of your HECS/HELP loan, your taxable income, the repayment rate of your income threshold, and your lender’s criteria. If you’re looking for new ways to save, try using our Budget Planner to map out your expenditure.

Does having a car loan affect getting a home loan?

Having a car loan by itself does not impact your ability to get a home loan, but it can impact 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 in addition to the proposed loan, without putting you under any undue financial strain. So, if you’re thinking about obtaining finance for a new car, as well as buying a home, you may want to take a look at our Borrowing Power Calculator first.

Can you get pre-approved for a home loan online?

Some lenders may provide an online application process that will give you pre-approval. However, most lenders still require you to provide supporting documentation (i.e. payslips, statements etc.) to validate your income and expenses. A pre-approval is typically valid for three to six months and will generally give you an indication of your borrowing power; however, you may still need to provide further supporting documents at a later date. Pre-approvals can be great if you are looking to purchase a property in the next three to six months but have not yet found your ideal home.

If you’re seeking pre-approval, we’d be happy to put you in contact with a broker who can assist you in the pre-approval process. Simply compare a range of home loans online and we’ll organise the rest.

Can you get a home loan with bad credit?

Most traditional lenders will not consider you an eligible borrower if you have bad credit history or if you have any outstanding defaults. Your credit history gives a lender an indication of your past ability to repay debts, and a bad credit history increases the risk in the eyes of the lender. That being said, it’s not impossible to get a home loan with bad credit. Some lenders might consider customers with bad credit history, however it may come at an additional cost, either in the form of higher fees, higher interest rates and mortgage insurance.

To find out how strong your financial situation is, you can request a free credit report from any of the following providers*:

*These providers may offer free credit reports on a trial basis. Please ensure you check the fine print before entering your details.

Can I get a home loan for buying land?

Yes, loans are available from lenders to purchase a vacant block of land; whether you are looking to build now or down the track. Keep in mind that land loans present more risk to the banks in the form of security, as during economic downturns property values can drop, meaning if you default on the loan, the property (i.e. land) may be difficult to sell. Lenders may require a higher deposit for a land loan due to the increased level of risk.

I’m on a pension. Can I get a home loan?

Lenders have set criteria on which Centrelink benefits are acceptable sources of income when it comes to repaying a loan. So, providing the benefit you receive is ‘acceptable’, some lenders can assist you in obtaining a home loan. It is important to ask yourself: if you have no other source of household income, will this benefit be sufficient to repay the proposed loan, plus meet your living expenses and current commitments?

Can a retiree get a home loan?

There are options available for retirees to get a home loan but, it will depend on your personal and financial position, including your assets and income streams. Retirees may find it difficult 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.

At Compare the Market, we have brokers who can help you navigate this path and find a lender who may be able to assist. Compare home loans now.

How much can I borrow for a home loan?

To find out how much you can borrow for a home loan, head to our Borrowing Power Calculator. From here, you’ll be able to get an indication of not only how much you can potentially borrow, but also how much your weekly, fortnightly, and monthly repayments will be.

How much do I need for a deposit for a home loan?

You will need a minimum five per cent 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 (i.e. lenders fees, legal, registration and search, stamp duty, building, and pest inspections). That being said, if you borrow more than 80% of the value of the property, you will need to factor in lenders mortgage insurance which will be added to your loan amount. While it can be frustrating to take the extra time to build up a larger deposit, the less you borrow, the lower your repayments will be.

Investing

What types of fees and costs can be expected when buying an investment property?

There are a few fees and costs that you may need to budget for when buying an investment property:

  • Lender costs cover the administration fees including the lender’s own valuation. These costs will typically cost between $600 and $900.
  • Legal and conveyancing fees usually cost between $1,000 and $1,500.
  • Mortgage insurance costs. Lenders mortgage insurance is applied to loans where the borrower has a deposit less than 20% of the purchase price.
  • Building inspection and report is to be carried out by an expert before you purchase the property. The Contract of Sale should take into consideration the building inspection, giving you the option to withdraw the offer without any significant penalties. The cost of a building inspection and report varies, depending on the size of your property.
  • Pest inspection. This report should be completed before you purchase your property to ensure the building you are purchasing is free from pests. The Contract of Sale should take into account the pest inspection, giving you the opportunity to withdraw if pests are found to be a problem with your property, without incurring any additional costs. A pest inspection will typically cost around $500, depending on the size of the property.
  • Stamp duty. Stamp duty rates depend on the property’s value and are set by each state and territory. Concessions are not usually available for purchases of investment properties and stamp duty is considerably higher. There may also be a stamp duty on the mortgage.
  • Rates. Rates are a form of property tax that are normally issued quarterly by the local government body or council where the property is situated. The amount of rates payable is at the council’s discretion.
  • Body corporate. Units, townhouses and duplexes may be charged body corporate levies to cover insurance, and expenses for the upkeep of common areas. These levies are usually issued quarterly and can vary in price due to a range of factors, like the size of your property and the amount of common areas that require regular maintenance.
  • Landlord insurance. If you’re investing, landlord insurance is a safety net that covers rental properties for damages or destruction.

After applying for your home loan, it’s a good idea to start looking at home and contents insurance. Some lenders require a minimum sum insurance policy, which will cover the building should anything go wrong. Once you sign a Contract of Sale, consult your legal representative to see if you need insurance cover immediately, as well as the minimum sum to cover the rebuilding costs.

Once you have settled into your new home, you will need to budget for council and water costs, along with your regular home loan repayments. If you are buying a unit or townhouse, you will need to factor in body corporate levies on top of all these fees and costs.

Why should I invest in property?

There are many reasons why investing in property can be beneficial:

  • Capital growth is the increase in the value of the property over time. If you keep the property in ‘good knick’, as well as observe capital growth while you own it, this can be an enormous boon to your investment portfolio.
  • Rental income is the income you receive by renting out your investment property and is often referred to as yield. Put simply, investment properties = rental income. If you make enough in rent, it can help offset your mortgage. Generally speaking, a more expensive property would generate a lower yield and will more likely result in a higher capital growth over time.
  • Tax benefits. If the cost of owning your property - including interest repayments, strata fees, maintenance, and other property-related fees - is more than you receive in rental payments, the Federal Government will allow you to offset the loss against your taxable income. This is called negative gearing.
  • Leverage can help you use the equity from your current home or property to assist with the purchase of another property. Equity is your home loan amount subtracted from the estimated value of your home. For example, if your home is worth $400,000 and you owe $200,000, you may have up to $200,000 in equity to potentially put towards purchasing an investment property.

It’s recommended that you speak to an accountant or tax specialist to gain a clearer understanding of your full financial position, so you can make a suitable investment decision.

What is the difference between a home loan and an investment loan?

Most of the same features are available for both investors and owner occupiers. However, some lenders may charge higher rates for investment properties if the associated risks are higher. To get a clearer picture, you can review investment home loans with our free online service.

What is negative gearing?

Negative gearing is when the annual cost of owning your investment property – through interest repayments, strata fees, maintenance, and other property-related fees – is more than the income you make from that property. This loss can be used to reduce your income tax bill.

What is landlord’s insurance?

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

What is a self-managed superannuation fund loan?

A self-managed super fund loan is when you withdraw money from your super fund to invest in property. There are a few rules and restrictions around this, so it’s important to speak to a financial adviser or tax specialist to understand any implications to your personal and financial situation.

How do I choose which investment loan is right for me?

The loan that’s right for you is the one you’re most comfortable with, and can afford for years to come. When taking out an investment loan, you have several great options: variable, fixed, and split being your main choices. Variable interest rates could change in any given month, but can be less expensive than fixed. Fixed interest rates will stay the same for a specified period of time, which lets you budget for the future – although you could miss out on savings. Split is a combination of the two: you split what you owe and pay a variable rate on one part and a fixed rate on the other.

Managing your loan

What is redraw on a home loan?

A redraw facility allows you to withdraw money from the ‘pool’ of extra repayments you’ve already made above and beyond the minimum monthly requirements. However, there could be drawbacks, including withdrawal fees, a limited number of free redraws, and minimum or maximum redraw amounts. Additionally, you’re adding to the life of your loan by cancelling out the extra repayments you’ve made, which could cost you much more in interest in the long term.

With interest rates so low, should I get a fixed rate home loan for the next couple of years?

Whether or not you should lock yourself into a fixed rate home loan depends on your personal circumstances and financial goals. As interest rates can fluctuate, a fixed rate may be ideal if you want a set repayment amount over a set period of time. This helps many households forecast their repayments during the fixed period and budget accordingly.

However, you wouldn’t be able to take advantage of lower interest rates if they were to decrease; that’s why we recommend that you speak to an expert. Simply compare home loans online to get started.

Does paying extra on my home loan each week actually make it cheaper in the long run?

Depending on your type of home loan, making extra repayments may reduce the amount of interest you’re charged on the principal of your loan. Just bear in mind that, depending on the type of loan you have, making additional payments on your home loan may attract penalties and hidden fees as stipulated by your lender and type of loan. If you’re in a position to make supplementary payments on top of your regular repayments, you can use Extra Repayment Calculator to see if paying more will save you in the long run.

What happens when you pay off your home loan?

Congratulations! Paying off a home loan is a huge milestone that most households look forward to for many years. Once your loan balance reaches $0, you might think you now own your home outright. However, 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 will provide you with a Discharge of Mortgage document that you need to lodge at the titles or lands office in your state. Before doing so, think about whether or not you are likely to wish to borrow more money from the same lender in the future.

How can I salary sacrifice a home loan?

You may be able to salary sacrifice to help pay off your home loan, at your employer’s discretion. Contact your employer to determine whether or not salary sacrificing your home loan is an option, and if it’s 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. We also recommend you talk to a tax specialist to determine whether salary sacrificing is right for you.

How to pay off a home loan early

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

  • Update your repayment cycle. Rather than commit to a monthly repayment cycle, set up your repayments in more regular instalments (i.e. weekly or fortnightly in line with your pay cycle) so you can shorten the life of your loan because you’ll pay less interest over the life of your loan. For example, you’ll make 26 fortnightly repayments as opposed to 12 monthly repayments in a year.
  • Make extra repayments. If you’re in a position 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 lender does not have a limit, 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 amount of interest you are charged on your 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 use my home as collateral for a loan?

If you have enough equity, yes, you can use your property as security for a new loan – and to make it more attractive to the lender. However, you are placing yourself under the risk of losing both properties if, for whatever reason, you are unable to make the repayments. It’s strongly recommended that you plan ahead to mitigate any financial risk. For instance, if you’re planning on starting a family or changing careers, you should have a realistic plan to accommodate any changes that may affect your income and therefore your ability to repay the loan.

Can I increase my home loan to buy a car?

Yes, you can borrow additional funds on your existing home loan to buy a car, subject to your overall financial position and your lender’s criteria. The benefit of adding to your home loan is that sometimes home loan rates are much cheaper than a standard car loan or personal loan.

Although it may seem like a good way to save yourself some money, you should consider the remaining term of the loan. For example, if the home loan still has 20 years remaining and you borrow extra funds to buy a car, you will effectively be paying the car off for 20 years. This may actually cost you more in interest over the term. If you consider doing this, work out how much extra you will need to pay to repay the amount for the car over a shorter period (i.e. five years).

Can I add someone to my home loan?

To add someone to a loan you will need to demonstrate that they obtain a direct benefit in doing so, however each circumstance or situation can be different. Therefore, it is recommended that you speak to your lender for assistance, and to understand what costs might be associated with adding someone to your home loan.

Can a home loan be used for renovations?

Yes, provided you have enough equity and have met your lender’s borrowing criteria, you should be able to increase your home loan amount to cover renovations. Is your home in need of some renovations? Check to see which home loans are suitable for your needs by using our free online comparison service.

How much will my repayments be?

Your repayments will depend on:

  • the type of loan you are 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 will be by using our handy Loan Repayment Calculator.

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

Most home loans require you to make one minimum monthly repayment per month as part of your loan contract. However, most lenders will let you choose your repayment cycle (i.e. weekly, fortnightly, and monthly). It may be a good idea to aim for a more frequent cycle, rather than monthly repayments, as you will make more repayments over the year, ultimately shortening the length of your loan.

Refinancing

What is a ‘refinance home loan’?

A refinance home loan refers to the process of switching home loans and moving from one bank to another. Refinancing and switching home loans may save you money, but it’s important to understand the pros and cons before deciding whether or not the 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 may be the cost and time involved in switching.

Simply review a range of home loans online using our handy comparison service. From here we can put you in touch with one of our partner brokers, who can talk through your home loan refinancing options.

How to transfer a home loan to another bank

If you’re thinking about switching home loans to another bank, you should speak to a broker. Luckily for you, we’ve teamed up with Australia’s largest broker group, AFG, who can provide you with a free, personalised service that’ll lay out your home loan options. Simply compare home loans online and we can put you in touch with a specialist who can assist you with any questions you have about transferring your home loan to another bank.

How do I refinance my home loan?

To refinance your home loan, take the following action:

  • Current mortgage costs. Ensure you’re familiar with your existing mortgage, including any costs associated with the loan, such as exit fees. Refer to the terms and conditions of your home loan contract.
  • Calculate the costs. Work out how much you need to borrow for the new loan, including paying off your old mortgage along with any other costs required for renovations or debt consolidation.
  • Shop around. Compare home loans products side-by-side to make an informed decision about the type of new loan you’re after. This way you’ll get an idea of the fees associated with the new product.
  • Get approval. A broker will be able to walk you through the application process, and advise you of the lender’s criteria (i.e. supporting documentation), along with advising the outgoing lender.

How soon can I refinance my home loan?

You will need to ask your lender, but the entire process generally takes between two and four weeks to refinance your home loan. Keep in mind there may be penalties for particular products or rates; such as break costs, release fees, mortgage lodgement fees and discharge fees.

What is the standard refinancing process?

Depending on the terms and conditions of your current home loan, the standard refinancing process begins with checking to see whether your current lender will charge you any costs to switch home loans to another product or lender.

From here you can compare home loan products to establish if you can track down a better deal. You will have to wait for your new lender to contact your current lender to arrange the terms of transferring the debt. This process may take weeks until your new loan is approved, and as a guide, expect two to four weeks for approval. Once approved, your new lender will send a Letter of Offer and arrange settlement with your current mortgage provider. Upon settlement you will cease paying your mortgage with your old provider and start repayments with your new lender.

How much money can I borrow when refinancing?

The amount of money you can borrow when refinancing depends on your individual circumstances and financial goals. Those with a greater deposit may be able to borrow more, while those with outstanding debts may have to settle for less.

To obtain an estimate, visit our Borrowing Power Calculator. You can also chat with us, and we’ll be able to give you a more customised answer.

Can I get a better deal on my home loan?

The simple answer is that you could get a better deal if your home loan is no longer right for you, which is why it’s always worthwhile shopping around to compare. By getting in touch with us, you may be able to find a home loan where you pay less than what you’re currently paying. Of course, this will depend on a number of factors; such as the type of loan you take out, what interest rate you’re currently paying, and the features you’re looking for in your loan.

If you’re looking for a better deal, compare a range of home loans with our free and easy-to-use online comparison service.

Are there costs involved in switching banks or lenders?

This will depend on the terms and conditions of your current loan, so be sure to do your homework on this. As of 1 July 2011, lenders are not permitted to charge exit fees on loans. If you obtained your loan before this date, you will need to contact your lender to find out if there are any exit fees on your loan. If you are on a fixed rate loan, there may be break costs to pay.

Additionally, you may need to consider any fees that may apply in getting a new loan, such as application fees or valuation fees for your property. With that said, these may be offset by the savings made by switching. One of our broker partners will be able to advise which fees would apply to your situation.

Are you ready to find a better deal?

Terminology

What does it mean to ‘default’ on a loan?

A mortgage default refers to a borrower who fails to make repayments on their home loan. Depending on the lender, a fee will be charged for missing a mortgage repayment if payment has exceeded a timeframe (i.e. 90 days). Not only will a late fee be charged to your home loan, you’ll also be paying interest on top of it.

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

What is the principal amount of a home loan?

Put simply, the principal is the amount of money you have borrowed from your lender to purchase a property. On top of this, the principal amount is subject to interest payable over the life of the home loan.

What does a line of credit mean?

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

What does conditional approval mean?

Conditional approval is the first step in determining how much you can borrow, giving you the confidence to move forward when you find the perfect home. This step will give you an accurate picture of your borrowing power and what type of property you can realistically afford. It also allows you to confidently make an offer on a property, signifying to real estate agents and sellers that you’re serious about purchasing a property.

Conditional approval can help put you in a better negotiating position over other buyers who haven’t obtained conditional approval. Conditional approval is subject to the provision of any supporting documentation and satisfactory property valuation, along with any other conditions the lender requires.

What is a comparison rate?

A comparison rate helps you compare the overarching cost of other 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 extra it can cost in addition to just the standard interest rate.

Please note that other costs, such as early repayment fees and redraw fees, are not included in the comparison rate. You can review comparison rates online using our free and helpful online service. 

What is a Mortgage Key Facts Sheet?

A key facts sheet is a summary of what comprises a home loan. This includes interest rates, account fees, the principal of the loan, repayment cycles, and how changes to interest rates can impact your repayments. As of 1 January 2012, all lenders offering standard home loans must provide a key facts sheet upon request.

Key Facts Sheet use a clear format that enable you to compare home loans and understand the costs involved, such as fees and interest. The type of information you will find useful on a Key Facts Sheet are:

  • Loan amount and term
  • Type of interest rate
  • Comparison rate
  • Repayment method and frequency
  • Establishment fees and ongoing fees
  • Total loan amount to be repaid (inclusive of fees)
  • What happens if interest rates fluctuate?
  • How to repay your home loan faster

What does pre-approval for a home loan mean?

Pre-approval is typically an approval of the home loan amount from the lender in principle, but is usually subject to the property being purchased, meeting the lender’s criteria and subject to the borrower providing any additional supporting documentation. The process where your lender estimates how much can be borrowed, based on the information provided (prior to finding a property to purchase). Although pre-approval is an excellent indication of your borrowing power, the status of your home loan application is still subject to those conditions being met ie provision of supporting documents (i.e. payslips, source of income, and assets) and typically a property valuation.

What does LVR mean?

LVR refers to the loan to value ratio, which is the amount of the loan compared to the value of the property and is shown as a percentage. For example, if your home is worth $450,000 and the amount of the loan is $427,500, the LVR is 95%.

What is LMI?

LMI stands for Lenders Mortgage Insurance. It is insurance taken out by the lender and offers the lender protection should the borrower not be able to repay the loan. This is generally required for loans with a loan to value ratio greater than 80%. The borrower bears the cost of Lenders Mortgage Insurance.

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