Compare Australian Home Loans

These days there are plenty of home loan options on the market, which means there’s sure to be one that suits your needs. Mozo’s simple home loan comparison tools can help you find it.

We compare home loans from lenders all over Australia to help you find the best mortgage rates, whether you’re buying your first family home, refinancing, or adding to your property portfolio.

What is a home loan? 

A home loan (or mortgage) is money borrowed from a bank or lender to fund the purchase of a property. 

Australia has one of the most expensive real estate markets in the world, so the vast majority of people who want to buy a home will need to take out a loan to do so.

Borrowed money is paid off in instalments over a 25 to 30 year period. During this time, you will pay back the loan principal (the amount borrowed) plus interest (the rate charged by your bank to borrow money).

Every cent that you can save on interest and fees is more money that can be put towards paying off your home loan. This is why it’s so important to do your research and compare what’s currently on the market before making any decisions.

How are home loan interest rates calculated?

On the first Tuesday of every month (except for January), the Reserve Bank of Australia meets to decide whether official interest rates, also known as the cash rate, should be changed.

Increases or decreases to the cash rate have important implications for the Australian economy, as they have direct and indirect effects on things like spending, employment, investment and inflation. 

Importantly, the cash rate serves as a benchmark rate for home loans, meaning any changes will usually flow through to mortgage holders in the form of higher or lower rates. 

That said, it’s one of many factors that inform banks’ pricing decisions (including market competition, funding costs, and shareholder returns), and out-of-cycle rate changes are not uncommon. Even in the event of an RBA cut banks are not necessarily obligated to pass it on to customers in full.

How much should I save as a deposit?

Banks and lenders recommend that you have at least 20% of a property’s value saved up for a deposit. That means if you intend to buy a home that’s valued at $800,000, you should ideally have $160,000 upfront. This gives you a loan-to-value ratio (LVR) of 80%. 

The good news is that many home loan lenders offer loans that allow you to borrow up to 95% of the property value. 

However, this will require you to purchase Lenders Mortgage Insurance, which protects your lender in case you default on your loan. LMI can cost up to 3% of your home loan amount, and will be included either as an upfront cost or built into your loan repayments.

How do I apply for a home loan?

The question of how to take out a mortgage might feel completely overwhelming. But it doesn’t have to be. Here are four steps to follow in the process of applying for a home loan.

Step 1: Figure out what type of mortgage you need

This is the question of whether you plan to live in the home you buy, making you an owner occupier, or rent it out as an investment property. You’ll see these different borrower types listed on home loans, so it’s clear what is available to you.

Owner occupiers and investors are usually offered varying interest rates and mortgage features to match their circumstances and the risks associated with each.

Step 2: Compare home loan interest rates and features

When comparing home loans, advertised interest rates offer a handy starting point but it's the comparison rate you should pay attention to. This combines the interest rate with most other associated fees, giving you the 'true' cost of the loan. 

Mozo’s home loan comparison tables show these costs across numerous mortgages side-by-side. You’ll also be able to see the differences between fixed and variable rate home loans (more on this later).

You should also compare home loan features available between lenders’ products. This includes things like being able to make free extra repayments on the loan and redraw on that cash without penalty, splitting the loan between fixed and variable rates, and having access to an offset account (more details about these features below).

Step 3: Find out how much you can borrow

The process of figuring out what size loan you’re eligible for before putting down a deposit is known as mortgage ‘pre-approval’ or ‘conditional approval’. While it’s not a guarantee you’ll be granted the loan, it does give you a ballpark figure of how much you can borrow from specific lenders for a better idea of your buying budget. 

To get mortgage pre-approval you’ll need to supply documents that show you can manage your finances well, making you a reliable borrower. This includes:

• Proof of income (like payslips & tax returns)

• Bank statements & proof of savings (i.e. your home loan deposit)

• A list of your current assets (like a car or investments) and liabilities (like credit card or personal loan debt)

• Multiple forms of ID (e.g. driver’s license, passport, birth certificate & Medicare card)

Some borrowers wait to approach lenders until after they’ve put a deposit down on a home. Generally, this will involve signing a contract with the seller known as a ‘finance clause’ which states the sale is dependent on you securing a loan within a set time period. 

Without this you could be at risk of losing your deposit or even being sued if you can’t come up with the money. You may want to employ a conveyancer (lawyers who specialise in property law) at this time to guide you through the contract of sale and other legal preparations with your lender.

Step 4: Prepare the mortgage application

Once you’ve settled on a lender and home loan, it’s time to get into the practical side of applying for a mortgage. Whether you’re doing it off the back of pre-approval or applying after putting down a deposit, the application process will usually involve:

• An assessment by the lender of your current financial situation

• You officially submitting your application for a home loan to the lender

• The lender completing a valuation of the property you intend to buy

• The lender approving the loan and sending an offer (or rejecting the application)

Then the loan will be settled and the funds advanced to you for this very big, important purchase. Before settlement, your conveyancer or solicitor will organise the necessary legal checks to transfer the property title from the seller to you, and communicate with your lender around the supplying of funds.

Comparing rates: Should I pick a fixed or variable rate?

When signing up for a home loan, you’ll have two types of interest rate to choose from: variable or fixed. A variable rate can fluctuate over the life of the home loan, while a fixed rate stays the same for a set period. 

Variable rate home loans

A home loan with a variable rate can be increased or decreased at your lender’s discretion, either in response to decisions by the RBA or simply due to business demands. 

Even a modest increase will translate to higher repayments, so make sure you have a strong idea about where rates are heading before you sign up.

Variable interest rate home loans tend to suit borrowers who prefer flexibility and aren't too concerned about their interest rate going up or down over the course of the loan. Some of the main benefits are:

• They often come with more features than fixed rate loans, such as offset accounts and redraw facilities.

• Most allow you to make extra repayments without being penalised, meaning you can pay off your loan ahead of schedule.

• Your repayments will decrease if your bank decides to lower rates.

Fixed rate home loans

A fixed rate home loan lets you lock in a rate for a set period of time (usually between one and five years). This ensures your repayments will remain the same for the duration of the fixed period.

Some of the main benefits of fixed rates are:

• Knowing exactly how much you’ll be paying each month can be useful, particularly if you don’t have much wiggle room in your budget.

• Recent activity by the Reserve Bank has seen fixed rates overtake variable rates as the cheaper of the two. Among lenders we track, the average 2-year fixed rate currently sits at 2.25% p.a.

Of course, locking in your rate means you won't see any benefits if rates fall. Fixed rate loans can also be less flexible than variable options when it comes to making extra repayments, and high fees might apply if you pay out the loan early.

You should also be mindful of the revert rate. This is the variable rate that automatically kicks in once your fixed term expires. As it’s usually much higher than the market rate, it pays to shop around or negotiate a better deal with your lender before the fixed term ends.

What types of home loan repayments can be made? 

Like it or not, you’ll need to pay back the money you’ve borrowed with your home loan. To do that, most lenders will offer borrowers two different types of repayment options: principal and interest repayments or interest-only repayments. 

• Making principal and interest repayments means that you’ll be paying back both the principal (the amount you borrowed) and the interest (what the lender charges for the privilege of borrowing that money). This type of loan is usually the most common for owner-occupiers.

• Interest-only repayments only cover the ‘interest’ portion of the loan, meaning you won’t be making a dent into the ‘principal’ portion. Interest-only loans also generally come with higher rates than principal and interest loans, plus they can only be made for a limited time (e.g. 5 years) before borrowers are required to switch over to principal and interest repayments. These loans are usually more popular with property investors. 

What home loan features are available in Australia?

Important features to consider when comparing home loans include extra repayments, redraw, offset account and split loan functionality. 

Basic features like the ability to make free extra repayments are quite standard these days, even among the cheaper home loans on the market. However, if you want an offset account you may find your choice of home loan more limited.

Below are the main features to look out for:

• Free extra repayments: Making extra contributions to your loan reduces your outstanding balance at a faster pace, potentially saving you thousands in interest over the long-run. Most variable rate loans allow you to make extra repayments; while some fixed rate loans offer this feature, annual limits might apply.

• Redraw facility: On loans they allow you to make extra repayments, a redraw facility will often be available in the event you need to retrieve those funds. 

• Split loan: If you can't decide between the certainty of a fixed rate and the flexibility (and features) of a variable rate, consider splitting your loan. This will divide your loan into two smaller accounts, one assigned a fixed rate and the other a variable rate. 

• Offset account: An offset account functions like a normal bank account, except that every dollar held there is offset against your loan amount. So if you have a home loan of $500,000 and have $10,000 savings in your offset, you’ll only be charged interest on $490,000.

How much money will I be able to borrow?

The amount a bank will agree to lend you to purchase property depends on a number of factors, chief among them your serviceability. To calculate your serviceability, banks will examine your after-tax income as well as any expenses and liabilities.

Your spending habits over the three months prior to applying for a home loan will be scrutinised quite heavily, so if you want to increase your borrowing power you’ll need to show you can be responsible with your money and rein in any unnecessary expenses.

Banks will also add a buffer to your interest rate to account for any future interest rate hikes. That means if you sign up for a home loan with an interest rate of 2.5% p.a., you might be assessed on your ability to pay it off at 5% p.a.

Before you set your heart on a property, use our home loan borrowing calculator to get an idea of how much a bank might lend you.

Do home loans come with fees?

There are a number of fees that may apply to your home loan and which you’ll need to budget for. These include:

• Application fee: This is an upfront fee that you pay in order to first apply for a home loan.

• Service fee: This might be charged monthly or annually, and covers the cost of maintaining your loan. Generally, the more bells and whistles are included in your loan, the more likely it is to include a service fee.

• Legal, valuation and settlement fees: These fees cover the cost of legal paperwork, as well as the cost for someone to value your property and be present at the settlement of your loan.

• Discharge fee: You might wind up paying a discharge fee when you pay your loan off in full.

• Feature fees: Some loans charge a fee for use of certain features, such as a redraw facility, offset account or the ability to make extra repayments.

Comparing lenders: What’s the difference between home loan lenders? 

There are plenty of mortgage lenders to choose from in Australia, all of which are subject to relevant regulations and guidelines enforced by the likes of the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA).  

In fact, we track 500 home loan rates from 80 lenders right here in the Mozo database so that you compare home loan options fast. Each lender is different, but they can be broadly split up into categories which will cater to the needs of different borrowers.

The Big Four Banks

ANZ, Commonwealth Bank, NAB and Westpac are all significant players in the mortgage market, accounting for a large proportion of home loans in the country. 

Aside from name recognition, part of the appeal of the major banks is the wide range of home loan products they have available, plus the extensive branch networks and customer service teams that mortgage customers can utilise. 

The downside of the big four is that they don’t always offer the most competitive interest rates, which can make a lot of difference when you’re paying off a loan for more than 20 years. For this reason, it’s always a good idea to do a home loan comparison of their offers to those of other lenders on a regular basis. 

Large and ‘challenger’ banks

There are also plenty of large or ‘challenger’ banks that offer home loans to Australians - many of which will be just as familiar as the big four:  

• Global banks like ING, HSBC and Citi 

• Large Australian banks like AMP Bank, Bendigo Bank, BOQ, Macquarie and Suncorp

• Big four subsidiaries like Bank of Melbourne, Bankwest, St. George and UBank 

Like the major banks, these lenders often have extensive customer service operations or  branches, plus well developed apps and online platforms. Some of the challenger banks above also offer more competitive rates than the big four on many of their home loans. 

Mutual banks and credit unions

One of the strengths of our banking system is the abundance of mutual banks and credit unions which not only cater to Australians in specific regions or industries, but really focus on their customers and the competitiveness of their banking products - including home loans. 

There are plenty out there (we’re tracking over 50 in our database) including the likes of Bank Australia, Great Southern Bank, Heritage Bank, Newcastle Permanent, Peoples Choice, Qudos Bank and Teachers Mutual Bank.

Online or specialist lenders 

This last group of online or ‘specialist’ lenders aren’t banks, as they tend to only offer home loans, but they’re still subject to strict credit legislation governed by ASIC. 

Because they operate predominantly online with fewer overheads the major benefit is that they are able to offer some of the lowest home loan rates on the market, plus they often have quick and simple application processes. Some of Australia’s online lenders include Athena, Homestar, loans.com.au, Tic:Toc, Yard and Well Home Loans. 

Is there any help for first home buyers?

Yes, there are a number of Australian state and federal government programs in place to help first home buyers break into the property market. These include: 

• First Home Loan Deposit Scheme

• First Home Owners Grant

• Family Home Guarantee

• First Home Super Saver Scheme

Many of these can be used in tandem with other grants and concessions you might be eligible for, potentially allowing you to purchase a home even sooner. We explore the main ones below.

First Home Loan Deposit Scheme

The First Home Loan Deposit Scheme (FHLDS) lets eligible first home buyers purchase a home with a deposit of as little as 5%, with the remaining amount guaranteed by the government.

As part of the 2021-22 Federal Budget, the Australian Government announced it will make an additional 10,000 places available on 1 July 2021. This version of the scheme will be known as the New Home Guarantee, and will cater specifically to first home buyers building or purchasing new homes.

To apply, you’ll need to register your interest with a participating lender or one of their authorised representatives, such as a mortgage broker. 

First Home Owners Grant

The First Home Owners Grant (FHOG) is a national scheme that subsidises the purchase or construction of homes that are newly built, substantially renovated or purchased off the plan. 

Like the FHLDS, it is only available to those who have not owned a home or other residential property before. The amount on offer will differ depending on the state or territory and whether you’re purchasing or building a new home, so be sure to look over the details on the relevant revenue office website.

Family Home Guarantee

Announced as part of the 2021-22 Federal Budget, the Family Home Guarantee will allow single parents to purchase a property with a deposit of as little as 2%. It is due to commence on 1 July 2021, and hopes to eliminate some of the obstacles single parents face when saving to purchase a home.

To qualify, applicants must be single parents with dependents, above the age of 18, and have an annual taxable income below $125,000. Property price thresholds will apply, with amounts varying between capital cities, regional centres with a population of more than 250,000, and other regional areas.

Importantly, the scheme can be used to purchase new builds or existing homes, and is open to both first home buyers and those re-entering the market.