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What's new in home loans in October 2023?

It’s not just anecdotal – Australian mortgage holders really are doing it tough. According to the International Monetary Fund’s (IMF’s) latest World Economic Outlook, Australia leads the world in mortgage pain. Australia was found to be putting a higher percentage of income towards mortgage payments than Canada, Norway, the Netherlands, Sweden, and many other countries.

Will this situation get tougher for homeowners? Just one of Australia’s Big Four banks is forecasting that the Reserve Bank of Australia (RBA) may raise the cash rate in November 2023, though things could change based on the quarterly inflation figures that are due for release towards the end of October 2023. A 13th rate rise since April 2022 could put further pressures onto household budgets, and potentially increase the already high level of refinancing activity in the market.

Low home loan rates for October

Some of the lowest rates on RateCity at the time of writing include:

This is the comparison rate published by the lender and is on a per annum basis. The comparison rate is calculated for a secured loan for an amount of $150,000 over a 25 year term. WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.

Updated by Mark Bristow on 16 October 2023.

What is a home loan?

A home loan is a significant sum of money that you borrow from a bank or other lender to purchase property.

As the borrower, you offer up the home as "security" or "collateral" for the loan, giving the lender the right to repossess the property if you fail to repay the loan. In legal terms, this is known as "mortgaging" your home, which is why a home loan is sometimes called a mortgage.

When you borrow money to buy a home or investment property, you'll need to pay this money back in instalments over time, plus an extra charge from the lender called "interest".

The interest you're charged on each mortgage repayment is based on your remaining loan amount, also known as your loan principal. The rate at which interest is charged on your home loan principal is expressed as a percentage. Your home loan’s interest rate is effectively the cost of “buying” the money you use to purchase property. 

As home loans are secured by the value of the property, most lenders consider them less risky than most personal loans or business loans, so their interest rates are usually much lower.

Everything you need to know about home loans

When it comes to securing a home loan in Australia, there are various factors to take into account that extend beyond the funds borrowed for acquiring a property. Regardless of whether you're a first-time homebuyer, in the market for a new property, contemplating a loan refinance, or delving into real estate investment, it's crucial to grasp the diverse elements and expenses associated with the loan, which go beyond the initial loan sum.

Loan purpose: owner-occupier or investor

There are distinct options available for two different types of borrowers: owner-occupiers and investors.

  • Owner-occupiers: Buyers who purchase a property with the intention of living in it themselves. This is a home loan to finance your residence, creating a comfortable and secure living space. The property serves as their primary dwelling, and you may choose to pay off the loan over a long period of time, typically with the goal of eventually owning it outright.
  • Investors: Buyers who purchase a property with the purpose of renting it out to tenants and generating rental income. This loan is geared towards those making a financial investment in an attempt to maximise their returns. The property is an asset that ideally generates regular cash flow through rental payments.

Both owner-occupier and investor loans have specific features and considerations tailored to their respective needs. Lenders may offer different interest rates, loan terms, and eligibility criteria for each category. This differentiation is based on the varying risks and factors associated with each type of loan.

It's important for borrowers to understand their intentions and goals when considering a home loan, as it will help you select the most suitable option for your specific circumstances.

Home loan interest rates: fixed or variable

Home loan interest rates may either be: 

  • Fixed - Lock in your interest rate for up to five years. During a fixed rate period, your mortgage repayments will not change; or
  • Variable - The interest you’re charged on each repayment may increase or decrease at the lender’s discretion. Your variable rate home loan may be influenced by the national cash rate set by the Reserve Bank of Australia (RBA), availability of your lender’s overseas funding, and other changes to the economy.

In the event of an increase in the cash rate, opting for a fixed interest loan could offer a safeguard against potential rate hikes, albeit for a limited duration. However, it's essential to note that you wouldn't enjoy the advantages of interest savings if rates were to decrease during your fixed rate period.

Conversely, the flexibility and benefits that come with variable rate home loans might not be as accessible with fixed interest options. If you opt to refinance during the fixed term, there could be substantial break fees to consider. Additionally, once the fixed rate period concludes, your loan will transition to the lender's standard variable rate, which might lead to surprise expenses if interest rates have climbed.

An alternative to consider is a split rate home loan, where you allocate a portion of your repayments to both fixed and variable rates. This division need not be an even 50/50 split; it could be tailored to your preferences, such as 80/20 or 60/40. The advantage of a split rate loan is that it presents a balanced approach, with a portion of your payments locked in at a stable rate while simultaneously accessing features through the variable rate component of the loan.

Home loan fees

Some of the home loan fees you may expect to see include: 

  • Upfront fees: These are the fees you pay when you kick off your home loan. They help cover the administrative costs of processing your application.

  • Ongoing fees: These are either annual or monthly charges that help take care of the lender's continuous administrative expenses.

  • Break fees: If you decide to bail on a loan during a fixed-rate period, like when you're refinancing to another lender, they might hit you with these charges.

  • Exit and discharge fees: Exit fees got the boot from the Federal Government in 2011, but keep an eye out for discharge fees, which may be levied when you complete your home loan's term.

  • Redraw fees: If your mortgage includes a redraw feature, using it to access extra repayments you've made in the past might come with a fee.

Comparison rate

At times, a mortgage boasting a low interest rate but hefty fees might end up being pricier than a home loan with a higher rate and minimal or no fees. This is why mortgage lenders in Australia are obligated to display a comparison rate alongside their advertised interest rates.

The comparison rate combines a loan's interest rate with its standard fees and charges, giving you a clearer picture of which home loans could potentially cost more overall, at a glance. This rate is calculated based on a $150,000 principal and interest home loan spanning 25 years. While this figure might be much lower than the average home loan today, it provides an additional way to readily compare the actual expense of a loan.

For example, a mortgage with a low advertised rate but a much higher comparison rate may indicate there are many hidden fees involved. If a comparison rate is 1% or more than the advertised rate, you may want to be wary of the fees involved.  

Repayment type: principal & interest or interest-only

Most home loans have principal and interest repayments, where you pay the lender back a portion of the money you owe (the loan principal) plus an interest charge. This slowly but surely pays off your loan, building your equity until you own your property outright. 

Another repayment option typically offered to investors is interest-only repayments. As the name suggests, you only repay the interest charges, and not the principal owing, for a limited time. Interest-only repayments are typically recommended as a short-term strategy. This can reduce the cost of your mortgage repayments, leaving some extra breathing room in your household budget for the short term, and allowing investors to boost their rate of return. 

Typically, lenders only offer interest-only loans to investors. For owner-occupiers, lenders may sometimes extend this option in times of financial hardship as a temporary relief measure.

If you’re considering this option, keep in mind that the interest-only period is only for a limited duration.  Once this period expires, your loan will revert to principal and interest repayments.

While you may have enjoyed some flexibility in your household budget during the interest-only phase, you haven’t actually chipped away at your outstanding debt. This means your mortgage principal remains unchanged  before and after the interest-only period. As a result, you may find your repayments to be considerably higher than before at the end of the interest-only term, owing to the reduced time left to repay your principal owing.

Deposits, LVR and LMI

To apply for a home loan, you’ll first need to save up a deposit on the property you’re buying. Most mortgage lenders prefer that you pay an upfront deposit of 20% of the property value, as this demonstrates your financial responsibility and helps reduce the risk of lending to you.

The deposit required on a home loan is sometimes expressed as the loan-to-value ratio (LVR). If a lender requires a 20% deposit, their loan may be advertised as having an 80% LVR as part of the lending criteria. If you already own a property (such as if you’re refinancing), the equity in your property may be used in place of a deposit.

It’s possible to get a home loan with a smaller deposit of 10% or even 5% (LVR 90 or 95% respectively). However, if your LVR is higher than 80%, the lender will likely take out a Lenders Mortgage Insurance (LMI) policy to cover them against the higher risk of you defaulting on your mortgage repayments. LMI protects the lender, not the borrower, and most lenders pass the cost of LMI on to the borrower – the higher your LVR, the more the LMI may cost, up to tens of thousands of dollars.

Features: extra repayments, redraw facility, offset account, and more



Extra repayments

This involves paying a lump sum onto your mortgage principal (such as when you get a tax refund), or making regular principal and interest repayments that are a bit higher than the required minimum amount. Additional repayments can help to lower your outstanding mortgage principal, potentially lowering your interest charges and helping you pay off your property sooner.

Redraw facility

Access the extra repayments you’ve previously made onto your home loan, putting the cash back in your bank account when you need it. This can be useful if you are paying for renovations, paying for a family holiday or just have an emergency payment you need to make.

Offset account

A linked transaction account to your mortgage, in which funds deposited in the account are included when calculating your home loan’s interest charges. These funds help to ‘offset’ or reduce the amount of interest you pay. 

For example, if you have a $300,000 home loan, and $50,000 saved in your offset account, you’ll be charged interest as if you only owed $250,000 on your mortgage.

Repayment frequency

Lenders typically allow you to choose the frequency of your repayments. You can usually opt to make weekly, fortnightly, or monthly payments, aligning them with your salary schedule for straightforward budgeting.

Changing your repayment frequency could also impact the amount of interest you pay on the loan.  For instance, paying more often, like switching to fortnightly payments, might save you some money.

Mortgage holiday

Some lenders allow you to pause repayments on your home loan for a limited time period in the event of financial hardship. This is also known as a repayment holiday or a mortgage freeze. Depending on your lender, a mortgage holiday may last for up to 6 months. However, some lenders may extend it to up to a year, depending on the circumstances of the borrower.

Considering that a home loan is a long term commitment, having the option to pause your repayments for a few months during the term could help you tide over unexpected emergencies, like loss of job or a serious injury. However, remember that your repayment size could increase at the end of your mortgage holiday, which may restrict your household budget.

Incorporating additional features and benefits into your home loan can enhance its value. However, it's important to note that the more features and extras a home loan offers, the higher the likelihood of incurring elevated fees or interest rates. Sometimes, opting for a "no frills" home loan with a low interest rate and zero fees can be a more cost-effective option that aligns better with your requirements.

Home loan terms

It's common for mortgages to have loan terms that stretch over several decades, typically ranging from 20 to 30 years.

When it comes to choosing a home loan term, it's important to understand the trade-off between monthly (or fortnightly, or weekly) repayments and the total interest you'll end up paying on your property.

If you opt for a longer loan term, your monthly repayments will be lower, which can make it more manageable for your budget. However, keep in mind that this means you'll end up paying more interest over the life of your loan, increasing the total cost of your property in the long run.

On the other hand, if you choose a shorter loan term, your monthly repayments will be higher, as you'll be paying off the loan more quickly. While this might put some pressure on your budget, the advantage is that you'll pay less total interest on your property, ultimately saving you money in the long term.

It's essential to carefully consider your financial situation and long-term goals when deciding on a home loan term. Evaluating factors such as your income, expenses, and future plans can help you determine whether a longer or shorter loan term is more suitable for your needs.

How are interest rates on home loans set?

Banks and mortgage lenders set their home loan interest rates based on a range of factors, including the national cash rate, which helps determine the ‘wholesale’ cost of funding for lenders to provide home loans and other financial services. 

The cash rate is set by the Reserve Bank of Australia (RBA), which meets every month (except January) to decide whether to increase, decrease, or keep the cash rate on hold. Mortgage lenders often pass on changes in the cash rate to their customers, with home loan interest rates rising or falling in line with cash rate movements.

However, not every lender will automatically pass on every rate change in full. Some may choose to adjust their rates by a lesser or greater amount than that dictated by the RBA. Othrers may not change rates at all. There is no obligation on banks to mimick cash rate movements.

Additionally, some lenders may decide to only adjust rates for selected home loan products. Mortgage lenders may also choose to increase or decrease their interest rates out of cycle with the RBA, based on other factors affecting the Australian and international economies.

What is the average interest rate for a home loan?

Home loan interest rates vary across a wide scale, and typically follow the movements of the Reserve Bank of Australia's cash rate. If the cash rate currently sits at, say, 4%, you could expect home loan interest rates to be upwards of this rate. 

As of 30 September 2023, the average variable interest rates in Australia are as follows:

Loan TypeRepayment Type Average
Owner OccupierPrincipal and Interest6.74%
Owner OccupierInterest only7.25%
InvestmentPrincipal and Interest6.97%
InvestmentInterest only7.23%

Data by RateCity (excludes fixed rate home loans). Average interest rates updated on 30 September 2023.

How mortgage rates affect your home loan

The lower your home loan’s interest rate, the more you could save in home loan interest charges over time.

For example, imagine you have 20 years left on your mortgage and you refinance from a home loan with an interest rate of 4.50% to one at 4.00%. Here's how much you could save, based on the size of your loan amount: 

Total repayments at 4.5%$455,508$759,179$1,062,851
Total repayments at 4.0%$436,306$727,176$1,018,047
Potential interest savings$19,202$32,003$44,804

Above hypothetical examples are for illustrative purposes only. Assumes monthly repayments and no fees. Calculations source: MoneySmart

How much will a home loan cost you?

Buying a property often means paying for more than just the house itself. While your deposit plus your loan amount should cover the property’s purchase price, you’ll also need to have enough money saved to cover other upfront costs, such as: 

These costs can vary, and you can use online calculators to estimate how much extra you may need to budget for.

How much money can you borrow?

While the exact amount you can be pre-approved for will depend on your financial situation and the lender’s policies, a borrowing power calculator can provide an estimated loan amount that you may be approved for. However, it’s not necessary to borrow the full amount.

Just because you have a higher borrowing capacity doesn’t mean you have to borrow the maximum loan amount. Instead, take a closer look at your finances to determine a loan size that you can comfortably repay. You can use a mortgage repayment calculator to work out your potential monthly repayments for various loan sizes. Understanding how much you can repay monthly could help you better estimate the loan amount you can comfortably afford.

Generally speaking, you’ll want to keep your mortgage and debt less than four to six times your household income (minus the deposit) to avoid mortgage stress and to boost your chances of approval. 

How much can you afford for a deposit?

Most lenders prefer that a borrower pays an upfront deposit on a property of at least 20% of the purchase price, with the mortgage covering the remainder. That said, it may be possible to get a home loan with a deposit as little as 5%. However, you'll need to discuss these options with your preferred lender to see what options are available to you.

A larger upfront deposit and smaller loan amount may help to make your mortgage repayments more affordable, so you can pay off the property faster and pay less interest in total. But a bigger loan with a lesser deposit means you could spend less time saving and join the property market sooner. 

If your deposit is under 20%, you'll be required to pay Lender’s Mortgage Insurance (LMI), which could potentially add tens of thousands of dollars to your upfront costs. Calculating the costs of LMI can help you work out which home loans you might qualify for.

Does the government help home buyers?

Both the state and federal governments offer a variety of grants and incentives to help home buyers, especially first home buyers. Most state and territory governments offer a First Home Owners Grant (FHOG) or similar incentives (such as discounted or waived stamp duty) to assist borrowers buying their first property.

The federal government’s Home Guarantee Scheme (HGS), previously known as the First Home Loan Deposit Scheme (FHLDS) is a program that allows borrowers to apply for a mortgage with a deposit of just 5% and pay no LMI, as the government will step in to guarantee the remainder of the deposit. 

Keep in mind that there are a limited number of places available in this program each financial year, and only a limited number of lenders are participating in the program. Also, both the borrower(s) and the property being bought will need to satisfy a number of terms and conditions to be eligible.

Another government program that may be useful to home buyers is the First Home Super Saver (FHSS) scheme. This allows borrowers to make extra contributions into their superannuation fund, where you can’t easily access your cash for everyday spending. These contributions can later be withdrawn from your super fund to help cover the cost of your deposit – up to $15,000 of voluntary contributions per financial year, up to a total of $30,0000 in contributions across all years.

How do the big four banks compare?

One starting point for many home buyers will be Australia's biggest banks, also known as "the big four". Responsible for the largest amount of mortgages in Australia, the big four banks include ANZ, Commonwealth Bank, NAB, and Westpac, and are a clear starting point for many home buyers whether they're buying for the first time, second, refinancing, or investing.

Lowest ANZ home loan rate
Interest Rate



Comparison Rate*



Principal and Interest

Lowest NAB home loan rate
Interest Rate



Comparison Rate*



Principal and Interest

Lowest CBA home loan rate
Interest Rate



Comparison Rate*



Principal and Interest

Lowest Westpac home loan rate
Interest Rate



Comparison Rate*



Principal and Interest

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How to compare home loans

Your home loan is one of the largest and most significant financial commitments of your life. Just as you wouldn't buy the first car you saw at a dealership, you should never apply for the first home loan you see.

It’s important to choose the home loan that best suits your lifestyle, financial needs and personal goals. Finding the best home loan involves more than just hunting for the lowest interest rates. Comparing loans and looking at the rates, fees, features and benefits of home loans from a variety of different banks and other mortgage lenders can help you work out which mortgage offers are the best for you, and not just the cheapest. 

Even after successfully taking out a home loan, it’s often a good idea to conduct home loan comparisons at regular intervals, to make sure that your mortgage still suits your needs. If you find another home loan with a lower interest rate or features and benefits that better suit your changing circumstances, you may have the option to refinance.  

As you get started on your home loan comparison, consider asking yourself the following questions:

1. Are you an owner-occupier or an investor?

The home loan you choose will be influenced by the type of borrower you are. As mentioned earlier, the two main types of borrowers in Australia are owner-occupiers and investors. 

Owner-occupied home loans often have lower interest rates than investment loans, as lenders consider owner-occupiers less likely to default on their repayments (and lose the roof over their head). However, investor loans may have more flexible features and benefits that could help property investors better manage their property and their repayments.

2. What is the advertised rate and comparison rate?

A handy way to compare the total cost of different home loans is to look at both the advertised rate and comparison rate. While the advertised rate is the interest rate charged on the loan, the comparison rate combines the cost of interest plus standard fees and charges into a single percentage figure. This is a great way to get a better understanding of the true cost of a loan. 

3. What are the fees and features of the loan?

Not all of a home loan’s fees and charges are included in its comparison rate. Consider checking for any extra costs, such as application fees, ongoing fees and exit fees, that you may need to pay.  

Further, some mortgage lenders have special offers for new customers, such as interest rate discounts or even cashback offers. You may also be able to take advantage of helpful features, like offset accounts and redraw facilities, which can assist in reducing your interest charges. 

If having a competitive feature or cashback offer is important to you, ensure you factor this into your home loan comparison.

4. How long would you need to repay the mortgage?

Most home loans terms could last between 20-30 years, and the loan term can affect how much you pay. Shorter loan terms typically come with higher repayments but lower overall interest costs. In contrast, longer loan terms often offer lower monthly repayments but may result in higher interest costs over the life of the loan.

You coulduse a repayment calculator to work out your monthly repayments for different loan sizes and terms. This could help you select a suitable loan term that allows for affordable monthly repayments while also considering your long-term financial goals.

5. How does the home loan compare against the rest?

A quick way to estimate the cost and flexibility of a home loan before you enquire is to look at a comparison table. Comparison tables help you to compare apples with apples, as you can filter down a range of home loan options based on your needs, and view them side by side. This allows you to easily compare your options, and see how they rank based on rates, fees and monthly repayments. 

You can also look at the home loan’s Real Time Rating™ , which more closely indicates a home loan’s overall value. You can also compare some of the top-rated home loans on the RateCity Leaderboards, or look for which mortgages have won a RateCity Gold Award.

6. Do you need help from a broker?

Talking to a mortgage broker is one way you can help make sense of the mortgage maze. These home loan experts can look at your finances and recommend mortgage deals that may suit your personal goals and financial needs.  

Brokers can also negotiate on your behalf to help you get a better deal, provide access to exclusive home loan offers, and manage your mortgage application on your behalf, to help save you time and hassle.

Online home loans: everything you need to know

Nowadays, chances are that at least part of the application process will take place online. Where an owner occupier or investor may have once filled out paper application forms and sent off supporting documentation by fax or express post, today you may be able to manage the entire process from home on your laptop, or even using your tablet or smartphone.

Some specialist mortgage lenders are taking online home loans to their logical conclusion and conducting their entire operation online - also known as online home loans. 

As these lenders don’t need to worry about the upkeep costs of maintaining branches or ATMs, or offering other financial products than just home loans, online-only mortgage lenders can often provide new customers with some great rates compared to some of the large banks.

Benefits of online home loans

  • Online-only mortgage lenders generally offer lower interest rates and fees on average compared to bigger banks due to fewer overhead costs.
  • These cost savings make online home loan options attractive for borrowers looking to refinance at a lower interest rate.
  • Online lenders typically roll out innovative technology and financial products well before the big institutions can, providing customers with new and convenient options for managing home loans and personal finances.

Risks of online home loans

  • If you like all your banking products in one place, online mortgage lenders may lack convenience, as they often specialise solely in home loans.
  • Some homeowners rely on face-to-face customer service and online-only lenders do not have physical branches. That being said, they can still be contacted via phone, apps, and email.
  • Big banks and institutions are typically seen as ‘safer’ options, as their sheer size and government support may make them seem less likely to default if the worst were to occur.  

Mortgage pre-approval online

Almost every mortgage provider in Australia, including traditional banks and online-only lenders, should be able to offer home loan pre-approval online.

Pre-approval allows you to determine your maximum budget before finding a property, giving you confidence when negotiating with real estate agents or participating in auctions. You provide the lender with information about your income, expenses, assets and expenses. They analyse this to work out how much you may be able to afford in monthly repayments, and in turn, the loan amount the lender may be willing to lend you.

Are online mortgage lenders safe?

The big banks in Australia are seen as ‘safe as houses’, so it’s fair to ask if your mortgage is just as safe with a smaller, online lender. However, checking the lender's credentials, such as having an Australian Credit License (ACL), can provide reassurance that they follow proper regulations and lend money responsibly.

It’s worth noting that several online mortgage lenders are actually backed by bigger banks, offering not only their finances but their legal protections as well. Doing a little digging into who owns an online lender and where it sources its funding from may be able to help build your confidence in its performance. 

Further, if the bank backing an online lender is an authorised deposit-taking institution (ADI) then money deposited with the bank is protected by the government up to the value of $250,000 thanks to the Financial Claims Scheme

When it comes to privacy and security, every online lender should have thorough encoding and security settings in place to protect your data and your money from malicious individuals. Online security features such as two-factor authentication may help you keep your personal information safe at every step of the home loan process.

How to apply for a home loan

  1. Check your finances: Compare your income and expenses to the cost of home loan repayments, as well as the deposit, stamp duty, and any other fees and charges that may apply, such as an annual package fee for a bundled home loan deal.
  2. Collect financial documents: Payslips, bank statements, bills etc. can be used to confirm your income and expenses.
  3. Fill out a lender’s home loan application form: This could be a paper form or online.
  4. Get pre-approval: This is where a lender agrees in principle to provide a loan, but you or the lender can still walk away.
  5. Make an offer on a property: Whether you’re buying at auction or by private treaty, make sure the price is within your budget.
  6. Credit check and valuation: The lender will check your credit score (based on your history of managing money) and calculate the value of the property to make sure you haven’t over-borrowed.
  7. Application approval: Assuming you’re successful, sign the formal home loan offer and contract.
  8. Prepare for settlement: This is the legal transfer of the property from one owner to another. A solicitor or conveyancer can help confirm that everything is done correctly.
  9. That’s it! Time to move in or start looking for tenants.

The information on this page was fact checked by Matthew Tinson, a broker in Queensland specialising in home loans, car financing, personal loans, debt consolidation, and asset financing. For more information on how brokers like this can assist you, look for a broker near you

Frequently Asked Questions

What is Lender’s Mortgage Insurance (LMI)

Lender’s Mortgage Insurance (LMI) is an insurance policy, which protects your bank if you default on the loan (i.e. stop paying your loan). While the bank takes out the policy, you pay the premium. Generally you can ‘capitalise’ the premium – meaning that instead of paying it upfront in one hit, you roll it into the total amount you owe, and it becomes part of your regular mortgage repayments.

This additional cost is typically required when you have less than 20 per cent savings, or a loan with an LVR of 80 per cent or higher, and it can run into thousands of dollars. The policy is not transferrable, so if you sell and buy a new house with less than 20 per cent equity, then you’ll be required to foot the bill again, even if you borrow with the same lender.

Some lenders, such as the Commonwealth Bank, charge customers with a small deposit a Low Deposit Premium or LDP instead of LMI. The cost of the premium is included in your loan so you pay it off over time.

How much deposit will I need to buy a house?

A deposit of 20 per cent or more is ideal as it’s typically the amount a lender sees as ‘safe’. Being a safe borrower is a good position to be in as you’ll have a range of lenders to pick from, with some likely to offer up a lower interest rate as a reward. Additionally, a deposit of over 20 per cent usually eliminates the need for lender’s mortgage insurance (LMI) which can add thousands to the cost of buying your home.

While you can get a loan with as little as 5 per cent deposit, it’s definitely not the most advisable way to enter the home loan market. Banks view people with low deposits as ‘high risk’ and often charge higher interest rates as a precaution. The smaller your deposit, the more you’ll also have to pay in LMI as it works on a sliding scale dependent on your deposit size.

What is the difference between fixed, variable and split rates?

Fixed rate

A fixed rate home loan is a loan where the interest rate is set for a certain amount of time, usually between one and 15 years. The advantage of a fixed rate is that you know exactly how much your repayments will be for the duration of the fixed term. There are some disadvantages to fixing that you need to be aware of. Some products won’t let you make extra repayments, or offer tools such as an offset account to help you reduce your interest, while others will charge a significant break fee if you decide to terminate the loan before the fixed period finishes.

Variable rate

A variable rate home loan is one where the interest rate can and will change over the course of your loan. The rate is determined by your lender, not the Reserve Bank of Australia, so while the cash rate might go down, your bank may decide not to follow suit, although they do broadly follow market conditions. One of the upsides of variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts.

Split rates home loans

A split loan lets you fix a portion of your loan, and leave the remainder on a variable rate so you get a bet each way on fixed and variable rates. A split loan is a good option for someone who wants the peace of mind that regular repayments can provide but still wants to retain some of the additional features variable loans typically provide such as an offset account. Of course, with most things in life, split loans are still a trade-off. If the variable rate goes down, for example, the lower interest rates will only apply to the section that you didn’t fix.

What is a loan-to-value ratio (LVR)?

A loan-to-value ratio (otherwise known as a Loan to Valuation Ratio or LVR), is a calculation lenders make to work out the value of your loan versus the value of your property, expressed as a percentage.   Lenders use this calculation to help assess your suitability for a home loan, and whether you need to pay lender’s mortgage insurance (LMI). As a general rule, most banks will require you to pay LMI if your loan-to-value ratio is 80 per cent or more.   LVR is worked out by dividing the loan amount by the value of the property. If you are looking for a quick ball-park estimate of LVR, the size of your deposit is a good indicator as it is directly proportionate to your LVR. For instance, a loan with an LVR of 80 per cent requires a deposit of 20 per cent, while a 90 per cent LVR requires 10 per cent down payment. 


While this all sounds simple enough, it is worth doing a more accurate calculation of LVR before you commit to buying a place as there are some traps to be aware of. Firstly, the ‘loan amount’ is the price you paid for the property plus additional costs such as stamp duty and legal fees, minus your deposit amount. Secondly, the ‘property value’ is determined by your lender’s valuation of the property, not the price you paid for it, and sometimes these can differ so where possible, try and get your bank to evaluate the property before you put in an offer.

What is a comparison rate?

The comparison rate is known as the ‘real’ interest rate you have to pay – unlike the advertised interest rate, which is often an artificially low number. That’s because the comparison rate includes both the advertised rate and the associated fees. According to the industry standard, comparison rate calculations are made on the assumption that the car loan will be for $30,000 over five years.

What happens to your mortgage when you die?

There is no hard and fast answer to what will happen to your mortgage when you die as it is largely dependent on what you have set out in your mortgage agreement, your will (if you have one), other assets you may have and if you have insurance. If you have co-signed the mortgage with another person that person will become responsible for the remaining debt when you die.

If the mortgage is in your name only the house will be sold by the bank to cover the remaining debt and your nominated air will receive the remaining sum if there is a difference. If there is a turn in the market and the sale of your house won’t cover the remaining debt the case may go to court and the difference may have to be covered by the sale of other assets.  

If you have a life insurance policy your family may be able to use some of the lump sum payment from this to pay down the remaining mortgage debt. Alternatively, your lender may provide some form of mortgage protection that could assist your family in making repayments following your passing.

What does ‘pre-approval’ mean?

Pre-approval for a home loan is an agreement between you and your lender that, subject to certain conditions, you will be able to borrow a set amount when you find the property you want to buy. This approach is useful if you are in the early stages of surveying the property market and need to know how much money you can spend to help guide your search.

It is also useful when you are heading into an auction and want to be able to bid with confidence. Once you have found the property you want to buy you will need to receive formal approval from your bank.

Can you remove a cosigner from a home loan?

Taking out a home loan is an act of financial responsibility and a cosigner on a home loan shares that responsibility. For this reason, removing a cosigner from a home loan may not be straightforward. Usually, you can add a cosigner, or become a cosigner, when applying for the home loan. In such a circumstance, the lender may ask you to stipulate the conditions for a cosigner release, which are the terms for removing a cosigner from the home loan. For instance, you may agree that you can remove a cosigner once half the loan amount has been repaid.

However, not stipulating such conditions doesn’t mean it’s impossible to remove a cosigner. If the primary home loan applicant has a sufficiently high credit score and has not delayed any repayments, the lender may be willing to remove the cosigner. You should confirm that doing so doesn’t affect the terms of the loan. If the lender doesn’t agree to remove the cosigner, the primary home loan applicant may have to refinance the loan in order to do so. If there were specific reasons for needing a cosigner and those reasons are still valid, then you may have some challenges with refinancing.

Can I salary sacrifice my home loan?

You can pay for your home loan straight from your pre-tax salary by salary sacrificing. Of course, this will depend on your employer’s policy. 

Salary sacrifice for home loans is offered exclusively for owner-occupied properties, so it cannot be used for investments.

Your employer may need to pay Fringe Benefits Tax (FBT), but non-profit organisations are exempt from this tax up to a certain limit. Some organisations may charge you an administrative fee to set this up. 

Keep in mind not all lenders accept salary sacrifice payments on your mortgage. Some lenders, like NAB, accept salary sacrificing for home loans.

Salary sacrificing won’t work for everyone, but in certain circumstances there are benefits to paying your home loan from your pre-tax income. These include reduced tax liability and potentially paying off your home loan quicker.

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