First home buyer home loans | rates from 5.34%

Q: What happens to my home loan when interest rates rise?

If you are on a variable rate home loan , every so often your rate will be subject to increases and decreases. Rate changes are determined by your lender, not the Reserve Bank of Australia, however often when the RBA changes the cash rate, a number of banks will follow suit, at least to some extent. You can use RateCity cash rate to check how the latest interest rate change affected your mortgage interest rate. When your rate rises, you will be required to pay your bank more each month in mortgage repayments . Similarly, if your interest rate is cut, then your monthly repayments will decrease. Your lender will notify you of what your new repayments will be, although you can do the calculations yourself, and compare other home loan rates using our mortgage calculator . There is no way of conclusively predicting when interest rates will go up or down on home loans so if you prefer a more stable approach consider opting for a fixed rate loan.

What is a first mortgage?

Your first mortgage is the first home loan you’re successfully approved for, whether you’re buying your principal place of residence or an investment property.

You'll usually need to be an Australian citizen or permanent resident to successfully apply for your first mortgage. While this first mortgage should be affordable and suited to your needs, first home buyers may not always be able to get the lowest interest rates or the most flexible features.

Young Australian first home buyers may not have a long enough credit history to have an excellent credit score, which lenders look favourably on when deciding your interest rate. Plus, while having a deposit of at least 20% may present you as a less risky borrower to a lender, it's harder for a first-time buyer to save up this amount – especially in capital cities like Sydney or Melbourne where property prices can be high.

Once you’ve taken some time to pay your mortgage and build up some equity in your new home, you may be in a position to refinance and get a home loan that better suits your needs. But for now, many would-be buyers may just feel proud to get a foot on the property ladder with their first home loan.

What is the difference between a first mortgage and second mortgage?

Most first home buyer loans are like other standard home loans, though some banks and mortgage lenders offer home loan deals specifically for first time home buyers. These mortgages may offer features and benefits that are useful to first time buyers, such as discounted introductory rates (aka “honeymoon rates”), or the option to borrow with a lower deposit (though you’ll likely need to also pay for LMI). They may also have eligibility requirements that are easier for first time home buyers to fulfil.

If you take out your second mortgage because you’re refinancing your first home loan, or have sold your first property to move to a new home, the process is broadly similar to when you applied for your first home loan:

Work out what you can afford;
Compare mortgage options from different lenders, and;
Choose both a home loan you can comfortably afford, with useful features and benefits.

Taking out a second mortgage to buy a second property as an investment may be more complex. Investment mortgages are typically structured differently to owner occupier home loans, and may charge higher interest rates. You may be able to use the equity in your first property to apply for your second mortgage, though there are risks involved in this strategy. Consider contacting a mortgage broker for personalised advice.

How do you buy your first home?

There are two main methods for buying property – at auction, and via private treaty.

An auction is typically a public event, where potential buyers bid to purchase a property from a vendor. When the auctioneer’s hammer falls, the bidder with the highest offer is the winner who gets to purchase the property. If the bidding doesn’t reach the vendor’s minimum selling price (the ‘reserve’), the highest bidder gets to exclusively negotiate with the vendor.

Auctions can be fast-paced and exciting, but sometimes stressful too. Remember that if you’re the winner at an auction, the deal is final – there’s no cooling-off period, and you’ll need to pay a deposit on the property (often 10% of the price) right then and there.

Other auction tips include:

Check the contract before you register to bid - a solicitor may be able to help you find any issues.
Keep your maximum budget in mind when bidding.
Find out if the vendors prefer cheques, banks transfers, or other options for the deposit, so you can be prepared if yours is the winning bid.
Make sure your first mortgage is pre-approved and ready to go.

A private treaty is a negotiation between a buyer and a vendor to purchase the vendor’s property. Private treaties are often organised through real estate agents, with mortgage brokers, solicitors and/or conveyancers often also brought in to help with the paperwork.

As the potential buyer, you present your offer to the real estate agent, who takes it to the seller. The seller may negotiate with you via the real estate agent to work out a final price and other terms and conditions. Once everything is agreed, contracts can be exchanged and signed, deposits paid, and cooling-off periods can begin.

Buying your first home via private treaty may take longer than buying at auction, and you risk being ‘gazumped’ by other interested buyers that may also be negotiating with the vendor behind the scenes. However, you may also be able to make a conditional offer while you’re still getting your home loan finalised, and you may have the option to back out of the deal by exercising a cooling-off period in the contract.

Can you build your first home?

Sometimes it’s more affordable to buy a vacant block of land to build a house, or to buy a unit or townhouse off the plan, than to buy an established property as your first home.

Borrowing money to build a home may require a specialist mortgage, such as a construction loan. Construction loans differ from standard home loans in that the entire loan amount is not released at once. Instead, you receive the funds in stages, as your home’s construction or renovation progresses.

The main advantage of a construction loan is that you only need to pay the interest charges, and only on the money that has been drawn down so far, making the initial repayments more affordable than a typical home loan. Once the construction process is complete, the loan generally reverts to a traditional home loan with ongoing principal and interest repayments.

Keep in mind that most construction loans will require qualified builders, project managers and other tradespeople to complete the work, so you may not be able to do it yourself as an owner-builder unless you hold the necessary qualifications. Additionally, the lender may require additional inspections and valuations as the project progresses, which could slow down the pace of construction.

The process of buying a property off the plan is also different to getting a first home buyer loan to purchase an established property. In many cases, you’ll pay a 10% deposit upfront, with the rest of the purchase price to be paid upon completion of the project. You may be able to organise home loan preapproval with a bank or mortgage lender in advance, or apply for a home loan as construction approaches completion. In either case, the lender will need to conduct a valuation of the property to ensure it can fulfil your mortgage’s loan to value ratio (LVR) requirements.

Just remember that if the property’s valuation comes back lower than expected, such as if there’s an oversupply in the area, you may need to apply for LMI or get help from a guarantor. There’s also the risk that the builder could go out of business or natural disasters or other unforeseen circumstances could stall or cancel the project.

If you choose to build your first home, you may be eligible for extra government support, on top of the usual First Home Owner Grant (FHOG) in your state or territory. For example, the Home Guarantee Scheme is a government scheme that may help support you to build a new home with a deposit of as little as 5%.

What is the best first home loan?

As everyone’s financial situation is different, the best first home buyer loan for you may not be the best option for somebody else. It’s important to compare different home loans and look at all the factors in play, including the:

Interest rate: The lower the rate, the lower your mortgage payments. Some banks offer special discounted interest rates for first home buyers, but once the introductory “honeymoon” period ends, you’ll revert to a higher rate, which could put pressure on your budget.
Fees: Home loans may charge annual fees each year, and also charge fees when you use certain loan features.
Comparison rate: Combines a loan’s interest rate with its standard fees and charges. This can give you a better idea of its overall cost, as a mortgage that offers a low interest rate but charges high fees may actually cost you more in total.

It's also worth comparing the features and benefits of different home loans, to work out which ones may help you better manage your repayments and enjoy extra value.

Some popular home loan features and benefits include:

Extra repayments: Pay off your loan faster, so you can be charged less interest.
Redraw facility: Take extra repayments back out of your loan if you need the cash.
Offset account: A separate savings or transaction account linked to your home loan, included when calculating your home loan’s interest charges to help you save some money. For example, if you have a $350,000 mortgage and $10,000 in your offset account, you’ll be charged interest as if you only owed $340,000.
Loan portability: Allows you to transfer your loan to another property if you decide to move house or invest elsewhere. This could save you the cost and hassle of closing one loan and applying for another.
Interest-only option: Lets you only pay the interest on your loan for a set period, which could help to relieve some financial pressure from your household budget or better manage the cash flow from a property investment.
Bundled deals or packages: Some lenders offer discounts on package deals when you bundle your home loan with other banking products, such as credit cards and savings accounts.

One quick way to help you get a better idea of a home loan’s overall value is to compare Real Time Ratings™. Based on a home loan’s cost (e.g. interest rates and fees) as well as its flexibility (e.g. access to extra repayments, offset, redraw etc.), these star ratings are calculated as you use the site, making them as up to date as possible. Sorting a comparison table by Real Time Ratings™ may help you find top-rated mortgage offers to add to your shortlist of potential first home loans.

How much can you afford to borrow for your first home loan?

To work out if you can afford your first home loan, RateCity's Borrowing Power Calculator can estimate how large a loan a lender may approve for you, based on your income and expenses.

Simply provide some income and expenses information that lenders commonly ask for as part of your application, and the calculator can help determine a loan size range you could qualify for, from low to moderate to high.

You may also want to look at a Mortgage Repayment Calculator to estimate how much a home loan could cost you per week, fortnight, or month. Try adjusting the borrowing amounts, loan terms and more to see how the repayments would fit into your household budget.

It’s important to work out if your first home buyer loan could put your finances under stress, as a change in circumstances could leave you unable to afford your repayments. If a home loan may put you at risk of mortgage stress, a lender may decline your application.

Lenders calculate mortgage stress in different ways. One common benchmark is that you may be in mortgage stress if more than one third of your household's income goes towards home loan repayments. You can use our mortgage stress calculator to estimate your risk.

How much do you need to save for a deposit?

Before you can buy your first property, you’ll need to pay a percentage of its value as a deposit to secure your first home buyer loan. The more you can afford to pay upfront, the more comfortable the lender will feel about lending you the rest of the money you need. This may let you enjoy lower interest rates or fees, or extra home loan features and benefits.

Most lenders prefer that you pay a home loan deposit of at least 20% of the property’s value. That can be a lot of money, especially if you’re buying your first property in one of Australia’s capital cities. It may take years of dedicated saving to get a 20% deposit together, and during this time the purchase price for property may rise even higher!

Some lenders will let you apply for a home loan with a smaller deposit of 10% or even 5% of the property’s value. However, this means the lender will need to take out a Lenders Mortgage Insurance (LMI) policy to cover the risk that you’ll default on your loan. LMI protects the bank, not the borrower, and most lenders pass the cost of LMI on to you.

The lower your deposit, the more the LMI may cost, which can reach tens of thousands of dollars. Our LMI Calculator can help you plan your budget in advance and work out if borrowing with a low deposit may be the best option for your situation.

Can you qualify for a home loan if your deposit is a gift?

Generous friends or family may offer to help you with your home loan deposit. However, many lenders will want your deposit to be made up of “genuine savings” –income earned from your job saved in an account over time – to show that you’re a financially responsible borrower.

If part of or all of your deposit will be a gift, consider holding the money in a savings account for six months or longer to demonstrate your financial discipline, or organise a formal plan to pay back the gifted money in the future. Contact your lender to learn more about their requirements.

What other upfront costs are involved when buying property?

As well as budgeting for your first home loan’s deposit and LMI charges, there are other upfront costs you may need to consider, such as:

Stamp duty (or transfer duty): A state or territory government tax on the sale of land. As a first home buyer, you may qualify for a duty exemption or discount on stamp duty. Our stamp duty calculator can help you estimate the cost.
Conveyancing fees: Hiring a solicitor to manage the legal transfer of a property’s ownership.
Application fees: Covers the admin cost of processing your home loan application and setting up your mortgage.
Valuation fee: Covers the cost of confirming the value of the property you’re buying as part of the home loan application process.

How the government helps: first home owner grants (FHOG), schemes, and other concessions

First home owner grants began in 2000 but are increasingly hard to come by due the continued tightening of eligibility criteria.

To start with, you need to be over 18 and an Australian citizen or a permanent resident. The grants are only for newly-built or substantially renovated properties, or properties that have never been occupied before. You can’t have owned a property prior to 2000 or applied for a first home owners grant previously, and you need to live in it for a minimum of six months, within the first 12 months of owning it.

The size of the grant varies from state-to-state, as does the cap on how much the property costs. It’s worth reading your state-specific grant information carefully.

The ACT FHOG is no longer valid as of 30 June 2019, and has been replaced by the Home Buyer Concession Scheme. This scheme allows ACT first home owners to claim an exemption on stamp duty, and applies to vacant residential land and both new and established homes, anywhere in the ACT, at any price.

First home buyers in NSW can apply for both the First Home Owner Grant and the First Home Buyer Assistance Scheme (FHBAS). The FHBAS applies to new homes, existing homes and vacant land on which you intend to build a home – and can provide a concessional rate or an exemption on your transfer duty (previously known as stamp duty).

As well as the $10,000 FHOG, Territorians may be able to claim a Household Goods Grant (up to $2,000 to buy household goods). HomeBuild Access may also be an option to consider for those wanting to purchase a new home or land on which to build a new home, as it may offer access to low deposit home loan options.

The QLD government provides a range of transfer duty concessions for people buying either their first home, their principal place of residence or a vacant block on which they intend to build. The first home concession only applies to a home valued under $550,000 and can save you up to $15,925. If you do not meet the first home concession eligibility criteria, you may still be entitled to a concession, via the home concession which could save you up to $7,175.

Concessions are not available to first home buyers in South Australia, they can only apply for the First Home Owners Grant. The previously available concession allowing home owners to claim a concession for off-the-plan apartments ended on 30th June 2018.

First home buyers of established homes and pensioners downsizing to new homes may be eligible for concessions, depending on their settlement dates and other factors. The Tasmanian government has a handy tool online called PropertyBuyer, where you can check your eligibility for any concession or grant that may apply to your intended purchase of property.

First home buyers in Victoria may be eligible for a duty exemption (for properties with a dutiable value of $600,000 or less) or a duty concession on stamp duty based on a sliding scale according to property value, provided buyers meet the eligibility criteria.

When a home buyer is eligible for the First Home Owner Grant, a concessional rate of transfer duty WA will apply if the value of the dutiable property is below certain thresholds.

How do you get help with your first mortgage?

Finding, applying, and paying for your first home loan can sound intimidating, but you don’t have to go it alone.

You may be able to get help from the following sources:

Mortgage brokers

If you’re not sure which bank offers the best first home loan deal for you, you could consider getting in touch with a mortgage broker.

These home loan experts can:

Recommend you specific home loans, based on your financial situation
Negotiate with banks on your behalf to help you secure better deals
Tell you about special mortgage offers that aren’t typically advertised
Manage much of the paperwork for you

Using a mortgage broker to apply for mortgage pre-approval is usually free, as the broker is paid a commission by the bank or lender if the loan application is successful.

Conveyancers

Solicitors, lawyers and other legal specialists can (for a fee) manage the process of transferring the title of your first property from the seller to the buyer. Both the buyer and the seller will often hire a conveyancer to help handle a property sale.

Because property sale contracts can be complex and may include special terms and conditions depending on your state or territory, a conveyancer can help to minimise your risk of legal problems when buying your first home.

Guarantors

If you’re struggling to save a home loan deposit, or if you’d like a home loan with no deposit, you may be able to get help from a guarantor. This is a close family member (usually a parent or grandparent) that uses the value of their own property to guarantee part or all of your home loan deposit. If you default on your home loan, your guarantor will become responsible for your mortgage payments.

Becoming a guarantor is a big commitment, so it’s important for everyone involved to be aware of the risks. However, once you’ve spent some time paying off your mortgage, you may be able to refinance your loan and release your guarantor.

Home Guarantee Scheme

First introduced in 2020 as the First Home Loan Deposit Scheme (FHLDS), this Australian government initiative allows you to apply for a mortgage from selected lenders with a deposit as low as 5% (or even 2% for single parents), with the government guaranteeing the rest so you don’t need to pay LMI.

A limited number of spots are available in the scheme each financial year, and to be eligible your income must be under the maximum threshold ($125,000 per annum for singles, or $200,000 per annum for couples). The property you’re purchasing may also need to fulfil eligibility criteria. Plus, a limited number of lenders participate in the scheme, so you may not be able to apply with your preferred bank.

Special offers

Lenders regularly include special deals and incentives with their mortgages to help attract new home loan customers.

You may be offered:

Discounted interest rates for a limited time (sometimes called “honeymoon rates”)
Waived fees
Bundled credit cards or other financial products
Discounted or waived LMI fees
Cashback

Keep in mind that you’ll need to fulfil the lender’s eligibility criteria for its special offers. While some incentives are meant for first home buyers, many others are intended for refinancers or investors. Be sure to read the terms and conditions before you apply.

How do you apply for a mortgage as a first-time buyer?

Save your deposit: The more you can pay as a deposit on your home loan, the more home loan options may become available to you.
Look into first homeowner grants (FHOGs), incentives, and the like: Depending on your situation, you may be eligible for support when buying your first home.
Work out if you’ll need LMI or a guarantor: If you have less than a 20% deposit, you may need to budget extra for LMI, or get a family member to guarantee your home loan.
Consider contacting a broker: A mortgage expert may be able to help you on every step of your home loan journey, and help you access options you may not have been aware of.
Get your documents together: You’ll likely need proof of your identity and residency, proof of income, and details of any credit cards or other outstanding loans.
Apply for pre-approval: If you haven’t found a property yet, this means that when you, do you can quickly complete the financing process.
Get unconditional approval: Once you’ve found a property to buy, the lender will organise a valuation and confirm your application’s details before they can approve your home loan.
Sign on the dotted line: If everything checks out, you can officially sign up for a mortgage and become a homeowner!

Mark Bristow

Personal Finance Editor

Mark Bristow is RateCity's Home & Personal Finances Editor, and an experienced analyst, researcher, and producer. Focused primarily on Australian mortgage and home loan expertise, he has been a journalist and writer in the financial space for over ten years, previously researching and writing commercial real estate at CoreLogic. In the years since, Mark has worked for the Winning Group, Expedia, and has seen articles published at Lifehacker and Business Insider.

Fact Checked

This article was reviewed by Personal Finance Editor Alex Ritchie before it was published as part of RateCity's Fact Check process.

Frequently Asked Questions

The first home buyer grant amount will vary depending on what state you’re in and the value of the property that you are purchasing. In general, they start around $10,000 but it is advisable to check your eligibility for the grant as well as how much you are entitled to with your state or territory’s revenue office.

Work out your mortgage repayments using a home loan calculator that takes into account your deposit size, property value and interest rate. This is divided by the loan term you choose (for example, there are 360 months in a 30-year mortgage) to determine the monthly repayments over this time frame.

Over the course of your loan, your monthly repayment amount will be affected by changes to your interest rate, plus any circumstances where you opt to pay interest-only for a period of time, instead of principal and interest.

If you are on a variable rate home loan, every so often your rate will be subject to increases and decreases. Rate changes are determined by your lender, not the Reserve Bank of Australia, however often when the RBA changes the cash rate, a number of banks will follow suit, at least to some extent. You can use RateCity cash rate to check how the latest interest rate change affected your mortgage interest rate.

When your rate rises, you will be required to pay your bank more each month in mortgage repayments. Similarly, if your interest rate is cut, then your monthly repayments will decrease. Your lender will notify you of what your new repayments will be, although you can do the calculations yourself, and compare other home loan rates using our mortgage calculator.

There is no way of conclusively predicting when interest rates will go up or down on home loans so if you prefer a more stable approach consider opting for a fixed rate loan.

The standard length of a mortgage is between 25-30 years however they can be as long as 40 years and as few as one. There is a benefit to having a shorter mortgage as the faster you pay off the amount you owe, the less you’ll pay your bank in interest.

Of course, shorter mortgages will require higher monthly payments so plug the numbers into a mortgage calculator to find out how many years you can potentially shave off your budget.

For example monthly repayments on a $500,000 over 25 years with an interest rate of 5% are $2923. On the same loan with the same interest rate over 30 years repayments would be $2684 a month. At first blush, the 30 year mortgage sounds great with significantly lower monthly repayments but remember, stretching your loan out by an extra five years will see you hand over $89,396 in interest repayments to your bank.

Each lender has its own policies, but as a general rule you will have to pay lender’s mortgage insurance (LMI) if your loan-to-value ratio (LVR) exceeds 80 per cent. This applies whether you’re taking out a new home loan or you’re refinancing.

If you’re looking to buy a property, you can use this LMI calculator to work out how much you’re likely to be charged in LMI.

If you’re a first-time homebuyer applying for a home loan, you could qualify for some tax deductions, but only if your property is a source of income for you. For instance, if you rent out the property, you could get tax deductions on the cost of constructing or renovating it, the loss in value of depreciating assets such as furniture or electrical fixtures, and the home loan interest.

Homeowners using their property as a residence could also get a tax deduction if a part or all of it is used for business. These deductions include tax write-offs for depreciating assets and deductions for operating expenses like utilities’ payments and service charges for phones and the internet. However, people running businesses from their residences don’t qualify for a tax deduction on the interest paid on their home loans.

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