Home loans in Australia
Whether you're an investor looking for your next big property purchase, a home owner seeking a better deal or a first home buyer ready to take the plunge into home ownership, this home loan cheat sheet has you covered when it comes to comparing home loans in Australia.
If you're a seasoned property pro and know the type of home loan you're after and just need some help comparing home loan interest rates, then check out the next section "compare home loans"
On the other hand, if you're feeling a bit confused by all the financial mumbo-jumbo around home loans in Australia, then please scroll down to our helpful section on "finding the right home loan for you where we highlight all the must-knows for securing a top home loan.
Compare home loans
If you're looking to compare home loans, Mozo's home loan comparison database is here to help. We compare home loans from hundreds of banks, building societies and credit unions as well as specialist home loan lenders. Mozo helps you weigh up different home loans with ease, including fixed interest rate loans, variable interest rate loans, full feature loans, refinance loans, no fee loans and more. You can also get the inside story on everything from customer service to hidden fees with reviews of home loan providers by the Mozo community on our site to help you make an informed decision before you commit.
a. Home loan negotiator
A home loan is probably one of the biggest financial commitments you'll ever make, so negotiating a better deal could literally save you hundreds, even thousands of dollars. But if haggling isn't your thing, try Mozo's free home loan negotiator service. With our free negotiating service, our home lending experts deal with the banks, including the Big 4, on your behalf to secure you a top rate home loan. We negotiate the rate and then connect you directly with the home loan lender of your choice to finalise the paperwork. More money in your pocket - yes please!
Finding the right home loan for you
Do you need a home loan with all the bells and whistles, or are you simply after the lowest interest rate with no frills? This is an important question to ask yourself, as the cheapest home loans don't always offer flexible features, like the ability stash your cash in an offset account, make extra repayments or redraw on that amount. So when you begin to compare different home loans, consider what features you'll need, as well as the interest rates and fees. Here's a look at the most popular types of home loans in the market:
a. Fixed vs variable interest rates
As the name suggests, a fixed rate home loan allows you to lock in a competitive rate when interest rates are low. This option is great if you're on a budget, as it means your monthly repayments remain the same for an agreed period, regardless of whether interest rates go up or down during that time.
As with all good things, fixed interest rate home loans come with a catch, as you won't be able to make extra repayments and you could be slapped with a pricey break cost fee, if you want to switch to a variable rate or another lender before the fixed term is up (usually from 1 to 5 years).
By comparison, a variable interest rate changes according to the Reserve Bank of Australia's monthly rate decision and comes with more flexible features like an offset account and extra repayments facility. However, if the RBA board decides to increase the official cash rate, your provider is likely to follow suit and hike up your home loan's variable interest rate. For instance, say your 5% variable interest rate increases by 0.25% to 5.25%, on a $300,000 home loan over 25 years, you will then have to budget for an extra $44 each month. Use Mozo's rate change calculator to see how a shift in the market could affect you.
Want the best of both worlds? Try a split home loan, which fixes a portion of your home loan, meaning interest rate rises won't hit you as hard, while the remainder will be left variable, so you can still benefit from falls in the interest rate and flexible features like an extra repayments facility.
b. Refinance an existing home loan
Most home loans are taken out over a period of 25 years but this doesn't mean you have to have the same home loan all that time. It's a good idea to get into the habit of searching the home loan market on a regular basis (which is where Mozo helps) to ensure you're still signed up with a good deal. If not, then you will want to refinance.
When you refinance your home loan you can do this with your current mortgage lender or you could change lenders completely depending on how much savings you could make. Switching from an average interest rate loan to a better home loan deal, could save you big bucks over the life of the home loan, and Mozo's switch and save calculator makes it easy to see how much you could save by refinancing. Just make sure you budget for any fees (valuation, legal and settlement fees) to ensure the move will put more money in your pocket, in the long run. Read our refinancing guide for more great switching advice.
c. First time buyers
Buying your first home or investment property is an exciting time, but before you plunge head first into home ownership, figure out how much you can afford to borrow with our home loan borrowing calculator. Once you know your borrowing power, aim to save a 20% deposit.
If you find it difficult to save that amount, you can look for a low deposit home loan specially designed for first home buyers. These loans allow you to borrow up to 95% of the property's value (this means you only need a 5% deposit). But keep in mind with a low deposit home loan you'll have to pay lender's mortgage insurance, which protects the provider if you forfeit on your home loan. The cost for this is added to your mortgage repayments.
Another option for first time home buyers is taking out a longer term home loan. So instead of paying off your home loan over 25 years, the home loan timeframe will be extended to 30 years. While a longer term home loan will reduce your monthly repayment amount, you'll pay more interest over the life of the loan. So, once your salary starts to increase as your career progresses it is a good idea to get into the habit of making extra repayments or higher repayments that the minimum amount due.
Need more advice about purchasing your first home? Head on over to Mozo's first home buyers hub for home loan hints and tips.
d. No fees
A no fee home loan usually means the loan has no application or ongoing fees. While living in a completely fee free world would be a true financial utopia, alas many home loans can still have other sneaky fees like legal, valuation, settlement or discharge fees. So always read the fine print, to avoid getting caught out by the bite of an unexpected fee or service charge.
e. Interest only
Interest only home loans are all the rave with investors - but is it right or risky for your own home? Well, many investors argue that an interest only home loan can be the right way to go, as your repayments will be lower, giving you more breathing room and all you have to do is kick back while the equity in your investment property grows in value.
However, the risk is obvious. An interest only home loan means you're not making any headway paying off the balance. So if you're going to go down the interest only path for your primary residence, make sure you're not stretching yourself too thin and can afford to meet the repayments once the interest only repayment period comes to an end (usually 1-5 years).
Most home loans these days give you the option to make principal and interest or interest-only repayments. If you are unsure what option you should take, speak to Mozo's home loan experts.
f. Home loan interest rates
When looking for a home loan, you'll probably be tempted to go with one of the big bank players, but it is worth shopping around as there are many options for borrowing money to purchase a home. Small online lenders and credit unions often have some of the most competitive interest rates due to lower overheads.
If you do decide to go for an online only home loan lender, there are some trade offs like giving up face to face contact and branch access but you can generally organise one point contact, which means you'll speak to the same person each time you have an enquiry about your home loan.
As discussed in the earlier section on fixed or variable rate home loans, home loan interest rates can vary depending on the loan features and what's happening in the wider economy.
One thing that all home loan providers are required to include when advertising home loans is the comparison rate. It is important for you to take this interest rate into account when selecting a home loan. The comparison rate shows you the ‘true cost' of servicing the home loan, as it combines the interest rate with the fees you're required to pay.
For more information on finding the right home loan for you, read our home loan features in a nutshell guide.
Compare home loans with our calculators
If you're looking to make a home loan interest rate comparison, there is no way around number crunching. Whether you are calculating repayments or how much stamp duty you'll need to pay, Mozo's handy home loan calculators make it simpler to do the maths.
For first home buyers, Mozo's borrowing calculator will help you work out your budget and how much you can afford to spend on your home loan. You can assess if a low deposit home loan is for you. And once you have a shortlist, compare home loans with Mozo's handy home loan comparison calculator to see which one will save you the most.
We also have a couple of other helpful calculators. Using the Rate Change Calculator you can see how interest rate changes will affect your repayments. You can also check out options for getting rid of your debt faster and seeing how much you can save by increasing your payments.
Once you've decided which loan is right for you by comparing home loans, you can link straight through to the lenders website and begin the application process.