5 tips to avoid mortgage prison

The threat of ‘mortgage prison’ has been bearing down on Aussies in the wake of continued interest rate hikes and tightening economic conditions. However, many borrowers still have a chance to avoid this trap.
So, you might be wondering what mortgage prison even is?
In short, mortgage prison occurs when a home loan borrower can no longer refinance their debt because they lack sufficient equity or don’t meet a new lender’s serviceability requirements.
With more than 100,000 Australians potentially already facing mortgage stress, many borrowers are starting to fall into the mortgage prison trap. The question is, how do we move forward in a much tougher economic environment.
Mortgage prison explained
When a borrower can no longer refinance their home loan it can certainly feel like a prison! This can be especially bad for people who took out their loan below a 20% loan-to-value ratio (LVR), meaning the size of their actual loan was quite large to begin with because they put down a smaller deposit. Then, as higher variable interest rates have stacked up on their repayments – amid falling property prices – some borrowers find themselves in a fix, desperate to refinance but with little ability to do so.
In the most severe forms of mortgage prison, borrowers can struggle to cut back on everyday expenses as they may be living paycheck-to-paycheck or even paying for more than they can afford.
Why are more people becoming mortgage prisoners?
Mortgage prison doesn’t necessarily happen to people who are “bad borrowers” or low income earners, although these things can be significant factors.
Overall, interest rate hikes, falling property values (resulting in lower equity) and the cost of living crisis have made economic conditions difficult for many borrowers.

How do we escape mortgage prison?
With significant financial headwinds, it can seem like a monumental task to try and avoid falling into mortgage prison. However, there are some strategies that can be utilised.
Mortgage broker at Two Red Shoes , Brett Sutton offers a few of the following tips to avoid falling into mortgage prisoners.
1. Manage your debt to income ratio
Any debt you’ve got in addition to your home loan could be seriously affecting your chances of escaping mortgage prison. Checking for—and paying off—any outstanding car loans or credit card debts can drastically reduce monthly repayments.
As Sutton points out, the home loan itself isn’t always the problem. Instead, a lot of people are caught out by these subsequent smaller loans that, overall, still add up to a repayment that is significantly harder on your budget.
2. Reduce discretionary spending for 3-6 months
With economic pressures mounting, banks are increasingly weary of borrower spending habits and have increased the numbers for their living expenses calculations. This can have a significant effect on your buying power.
To give yourself the best chance of being able to refinance, make sure that you pull back your everyday spending to the essentials as much as possible.
3. Check your LVR
Negative property values can lead some borrowers on a higher Loan-To-Value-Ratio or LVR – 95% for example – to be at much greater risk of their mortgage becoming unaffordable if further market contractions occur.
Banks can also increase interest rates for all LVR tiers due to market contractions. This would mean that even relatively lower LVRs—such as those at 80%—are still at risk of having to pay higher interest rates
Overally, making sure you have enough wriggle room in your current loan in case interest rates or property values fall. If not, refinancing may be a good option to reduce your risk of mortgage imprisonment.
4. Look up your bank’s age policy
Most banks have their own individual policy in regards to the expected retirement age of the borrower. Owner-occupiers with a loan term that extends into the bank's retirement age limit can cause problems.
Sutton suggests keeping a viable exit strategy or possibly even downsizing can help borrowers to manage any potential pitfalls.
5. Consider refinancing early
Refinancing to a more competitive loan before your current one gets out of hand can help in avoiding the mortgage prison trap. Besides, refinancing now could be an advantageous move if you’re worried about continued interest rate hikes.
Part of what makes refinancing difficult in a mortgage trap is that banks will usually stress test their loans. This will often involve adding a 3% buffer to their calculation on top of the interest rate that you would be currently paying. With higher interest rates, this has put refinancing out of reach for many.
Finding the right home loan is the first step. Here at Mozo we have comparisons of all the best home loan providers to help you find the loan that suits your needs.
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Promoted
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- Low Cost Home Loan - 2025
Unloan Variable Home Loan
- Owner occupier
- Principal & Interest
- 20% min deposit
- Redraw available
- Interest rate
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5.74
%
p.a.
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- Comparison rate
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5.65
%
p.a.
- Initial monthly repayment
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$2,915
- Built by CommBank
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5.74% p.a. (5.65% p.a. comparison rate)
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n/a
- Upfront fees
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$0.00
- Ongoing fees
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$0.00
- Discharge Fee
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$0.00
- Package
-
-
- Maximum loan to value ratio
-
80.00%
- minimum borrowing amount
-
$10,000
- maximum borrowing amount
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$10,000,000
- type of mortgage
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Variable
- Repayment types
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Principal & Interest
- Availability
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Owner Occupier
- Repayment options
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Weekly, Fortnightly, Monthly
- Extra repayments
-
yes - free
- Redraw facility
-
yes - free
- Minimum redraw amount
-
-
- Offset account
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no
- Split account
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no
- Other restrictions
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-
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Rate automatically discounted by 0.01% p.a. every year up to a maximum discount of 0.30% p.a..
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Mozo experts choice awards won:
- Offset Home Loan - 2025
- First Home Buyer Loan - 2025
Variable Home Loan
- Owner occupier
- Principal & Interest
- 10% min deposit
- Offset available
- Redraw available
- Interest rate
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5.78
%
p.a.
Variable
- Comparison rate
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5.82
%
p.a.
- Initial monthly repayment
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$2,927
- $0 application fee to pay
- Unlimited additional repayments
- Apply in as little as 15 minutes
- interest rate
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5.78% p.a. (5.82% p.a. comparison rate)
- Fixed loan revert rate
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n/a
- Upfront fees
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$495.40
- Ongoing fees
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$0.00
- Discharge Fee
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$325.00
- Package
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-
- Maximum loan to value ratio
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90.00%
- minimum borrowing amount
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$50,000
- maximum borrowing amount
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$3,000,000
- type of mortgage
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Variable
- Repayment types
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Principal & Interest
- Availability
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Owner Occupier
- Repayment options
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Weekly, Fortnightly, Monthly
- Extra repayments
-
yes - free
- Redraw facility
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yes - free online, fees apply for assisted redraws
- Minimum redraw amount
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$1.00
- Offset account
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yes - optional for $10 per month - comparison rate does not include this fee.
- Split account
-
-
- Other restrictions
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Settlement fee comprises of upfront fee and loan processing fee. Valuation fee varies. Comparison rates displayed do not take into account the Optional Offset Account monthly fee.
- Other benefits
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-
- Special Offers
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Read reviews and learn more about NRMA Home Loans home loans
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Mozo experts choice awards won:
- First Home Buyer Loan - 2025
Variable Home Loan 90
- Owner occupier
- Principal & Interest
- 10% min deposit
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- Redraw available
- Interest rate
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5.79
%
p.a.
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5.83
%
p.a.
- Initial monthly repayment
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$2,931
- No monthly or ongoing fees
- Option to add an offset for 0.10% p.a.
- interest rate
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5.79% p.a. (5.83% p.a. comparison rate)
- Fixed loan revert rate
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n/a
- Upfront fees
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$530.00
- Ongoing fees
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$0.00
- Discharge Fee
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$0.00
- Package
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- Maximum loan to value ratio
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90.00%
- minimum borrowing amount
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$50,000
- maximum borrowing amount
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$2,000,000
- type of mortgage
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Variable
- Repayment types
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Principal & Interest
- Availability
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Owner Occupier
- Repayment options
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Weekly, Fortnightly, Monthly
- Extra repayments
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yes - free
- Redraw facility
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yes - free
- Minimum redraw amount
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$0.00
- Offset account
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yes
- Split account
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yes
- Other restrictions
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Offset sub-account available for additional +0.10%. $300 discharge fee and $250 discharge documentation fee applicable if loan doesnt go to full term.
- Other benefits
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-
- Special Offers
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Fixed Rate Home Loan
- Fixed rate
- Owner occupier
- Principal & Interest
- Interest only
- 20% min deposit
- Interest rate
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5.49
%
p.a.
Fixed 2 years
- Comparison rate
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5.96
%
p.a.
- Initial monthly repayment
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$2,836
- Free extra repayments of up to $25,000 during the fixed rate period.
- Split loan available
- Weekly, fortnightly, or monthly repayment options
- interest rate
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1 year - 5.69% p.a. (6.03% p.a. comparison rate)
2 years - 5.49% p.a. (5.96% p.a. comparison rate)
3 years - 5.59% p.a. (5.94% p.a. comparison rate)
4 years - 6.49% p.a. (6.23% p.a. comparison rate)
5 years - 6.49% p.a. (6.26% p.a. comparison rate)
- Fixed loan revert rate
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6.04% p.a.
- Upfront fees
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$300.00
- Ongoing fees
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$0.00
- Discharge Fee
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$395.00
- Package
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-
- Maximum loan to value ratio
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80.00%
- minimum borrowing amount
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$20,000
- maximum borrowing amount
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-
- type of mortgage
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Fixed
- Repayment types
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Principal & Interest, Interest Only
- Availability
-
Owner Occupier
- Repayment options
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Monthly
- Extra repayments
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yes - free up to $25,000 during fixed period
- Redraw facility
-
no
- Minimum redraw amount
-
-
- Offset account
-
no
- Split account
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yes
- Other restrictions
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Legal and valuation fees charged at cost.
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-
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Read reviews and learn more about P&N Bank home loans
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Home Loan
- Owner occupier
- Principal & Interest
- 40% min deposit
- Redraw available
- Interest rate
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5.69
%
p.a.
Variable
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5.70
%
p.a.
- Initial monthly repayment
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$2,899
- Offset and non-offset options for flexible payments
- No application and monthly account keeping fees
- Get up to $4,000 cashback (T&Cs apply)
- interest rate
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5.69% p.a. (5.70% p.a. comparison rate)
- Fixed loan revert rate
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n/a
- Upfront fees
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$250.00
- Ongoing fees
-
$0.00
- Discharge Fee
-
$250.00
- Package
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-
- Maximum loan to value ratio
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60.00%
- minimum borrowing amount
-
$100,000
- maximum borrowing amount
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-
- type of mortgage
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Variable
- Repayment types
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Principal & Interest
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Owner Occupier
- Repayment options
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Weekly, Fortnightly, Monthly
- Extra repayments
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yes - free
- Redraw facility
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yes - free
- Minimum redraw amount
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$500.00
- Offset account
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no
- Split account
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no
- Other restrictions
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Valuation fee payable at cost
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Fixed Home Loan
- Fixed rate
- Owner occupier
- Principal & Interest
- 5% min deposit
- Redraw available
- Cashback
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5.69
%
p.a.
Fixed 2 years
- Comparison rate
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6.00
%
p.a.
- Initial monthly repayment
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$2,899
- Get up to $4,000 cashback (T&Cs apply)
- Up to 12 months repayments in advance without penalties
- Split loan available
- interest rate
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1 year - 5.89% p.a. (6.05% p.a. comparison rate)
2 years - 5.69% p.a. (6.00% p.a. comparison rate)
3 years - 5.69% p.a. (5.98% p.a. comparison rate)
4 years - 5.89% p.a. (6.03% p.a. comparison rate)
5 years - 5.89% p.a. (6.03% p.a. comparison rate)
- Fixed loan revert rate
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5.99% p.a.
- Upfront fees
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$799.00
- Ongoing fees
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$6.00 monthly
- Discharge Fee
-
$350.00
- Package
-
-
- Maximum loan to value ratio
-
95.00%
- minimum borrowing amount
-
$10,000
- maximum borrowing amount
-
$5,000,000
- type of mortgage
-
Fixed
- Repayment types
-
Principal & Interest
- Availability
-
Owner Occupier
- Repayment options
-
Weekly, Fortnightly, Monthly
- Extra repayments
-
yes - free up to 1 year in advance
- Redraw facility
-
yes - free
- Minimum redraw amount
-
$500.00
- Offset account
-
no
- Split account
-
yes
- Other restrictions
-
Monthly fee only applies to fixed period of loan.
- Other benefits
-
-
- Special Offers
-
$4,000 cashback for loans $750,000 and above with a maximum LVR of 80%, settled within 90 days of application for refinancers or 180 for purchase loans. $3,000 for loans between $500k and $749k, $2,000 for loans between $250k and $499k.
Read reviews and learn more about IMB Bank home loans
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Mozo experts choice awards won:
- Low Cost Home Loan - 2025
Unloan Variable Home Loan
- Owner occupier
- Principal & Interest
- 20% min deposit
- Redraw available
- Interest rate
-
5.74
%
p.a.
Variable
- Comparison rate
-
5.65
%
p.a.
- Initial monthly repayment
-
$2,915
- Built by CommBank
- The first home loan with an increasing discount (conditions apply)
- No application or banking fees
- interest rate
-
5.74% p.a. (5.65% p.a. comparison rate)
- Fixed loan revert rate
-
n/a
- Upfront fees
-
$0.00
- Ongoing fees
-
$0.00
- Discharge Fee
-
$0.00
- Package
-
-
- Maximum loan to value ratio
-
80.00%
- minimum borrowing amount
-
$10,000
- maximum borrowing amount
-
$10,000,000
- type of mortgage
-
Variable
- Repayment types
-
Principal & Interest
- Availability
-
Owner Occupier
- Repayment options
-
Weekly, Fortnightly, Monthly
- Extra repayments
-
yes - free
- Redraw facility
-
yes - free
- Minimum redraw amount
-
-
- Offset account
-
no
- Split account
-
no
- Other restrictions
-
-
- Other benefits
-
Rate automatically discounted by 0.01% p.a. every year up to a maximum discount of 0.30% p.a..
- Special Offers
-
-
Read reviews and learn more about Unloan home loans
Go to site -
Fixed Home Loan
- Fixed rate
- Owner occupier
- Principal & Interest
- 10% min deposit
- Offset available
- Redraw available
- Interest rate
-
5.74
%
p.a.
Fixed 2 years
- Comparison rate
-
5.81
%
p.a.
- Initial monthly repayment
-
$2,915
- $0 application fee to pay
- Additional repayments up to $20,000/year
- Apply in as little as 15 minutes
- interest rate
-
1 year - 5.99% p.a. (5.84% p.a. comparison rate)
2 years - 5.74% p.a. (5.81% p.a. comparison rate)
3 years - 5.94% p.a. (5.86% p.a. comparison rate)
4 years - 6.14% p.a. (5.95% p.a. comparison rate)
5 years - 6.14% p.a. (5.98% p.a. comparison rate)
- Fixed loan revert rate
-
5.78% p.a.
- Upfront fees
-
$495.40
- Ongoing fees
-
$0.00
- Discharge Fee
-
$325.00
- Package
-
-
- Maximum loan to value ratio
-
90.00%
- minimum borrowing amount
-
$50,000
- maximum borrowing amount
-
$3,000,000
- type of mortgage
-
Fixed
- Repayment types
-
Principal & Interest
- Availability
-
Owner Occupier
- Repayment options
-
Weekly, Fortnightly, Monthly
- Extra repayments
-
yes - free, up to $20,000 p.a.
- Redraw facility
-
yes - free online, fees apply for assisted redraws
- Minimum redraw amount
-
$1.00
- Offset account
-
yes - optional for $10 per month - comparison rate does not include this fee.
- Split account
-
-
- Other restrictions
-
Settlement fee comprises of upfront fee and loan processing fee. Valuation fee varies. Comparison rates displayed do not take into account the Optional Offset Account monthly fee.
- Other benefits
-
-
- Special Offers
-
-
Read reviews and learn more about NRMA Home Loans home loans
Go to site -
Mozo experts choice awards won:
- Offset Home Loan - 2025
- First Home Buyer Loan - 2025
Variable Home Loan
- Owner occupier
- Principal & Interest
- 10% min deposit
- Offset available
- Redraw available
- Interest rate
-
5.78
%
p.a.
Variable
- Comparison rate
-
5.82
%
p.a.
- Initial monthly repayment
-
$2,927
- $0 application fee to pay
- Unlimited additional repayments
- Apply in as little as 15 minutes
- interest rate
-
5.78% p.a. (5.82% p.a. comparison rate)
- Fixed loan revert rate
-
n/a
- Upfront fees
-
$495.40
- Ongoing fees
-
$0.00
- Discharge Fee
-
$325.00
- Package
-
-
- Maximum loan to value ratio
-
90.00%
- minimum borrowing amount
-
$50,000
- maximum borrowing amount
-
$3,000,000
- type of mortgage
-
Variable
- Repayment types
-
Principal & Interest
- Availability
-
Owner Occupier
- Repayment options
-
Weekly, Fortnightly, Monthly
- Extra repayments
-
yes - free
- Redraw facility
-
yes - free online, fees apply for assisted redraws
- Minimum redraw amount
-
$1.00
- Offset account
-
yes - optional for $10 per month - comparison rate does not include this fee.
- Split account
-
-
- Other restrictions
-
Settlement fee comprises of upfront fee and loan processing fee. Valuation fee varies. Comparison rates displayed do not take into account the Optional Offset Account monthly fee.
- Other benefits
-
-
- Special Offers
-
-
Read reviews and learn more about NRMA Home Loans home loans
Go to site -
Budget Home Loan
- Owner occupier
- Principal & Interest
- 20% min deposit
- Redraw available
- Cashback
- Interest rate
-
5.79
%
p.a.
Variable
- Comparison rate
-
5.82
%
p.a.
- Initial monthly repayment
-
$2,931
- Get up to $4,000 cashback (T&Cs apply)
- Split loan available
- interest rate
-
5.79% p.a. (5.82% p.a. comparison rate)
- Fixed loan revert rate
-
n/a
- Upfront fees
-
$350.00
- Ongoing fees
-
$0.00
- Discharge Fee
-
$350.00
- Package
-
-
- Maximum loan to value ratio
-
80.00%
- minimum borrowing amount
-
$10,000
- maximum borrowing amount
-
$5,000,000
- type of mortgage
-
Variable
- Repayment types
-
Principal & Interest
- Availability
-
Owner Occupier
- Repayment options
-
Weekly, Fortnightly, Monthly
- Extra repayments
-
yes - free
- Redraw facility
-
yes - free
- Minimum redraw amount
-
$500.00
- Offset account
-
no
- Split account
-
yes
- Other restrictions
-
-
- Other benefits
-
The $449 application fee is waived for <80% LVR Owner Occupier Principal and Interest loans.
- Special Offers
-
$4,000 cashback for loans $750,000 and above with a maximum LVR of 80%, settled within 90 days of application for refinancers or 180 for purchase loans. $3,000 for loans between $500k and $749k, $2,000 for loans between $250k and $499k.
Read reviews and learn more about IMB Bank home loans
Go to site
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* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.
** Initial monthly repayment figures are estimates only, based on the advertised rate. You can change the loan amount and term in the input boxes at the top of this table. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.
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