6 home loan red flags to watch out for

By Evlin DuBose · · 4 min read
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Comparing home loans can be tricky when you’re in the thick of it. After a while, many mortgages start to feel the same and the differences can be hard to spot. Which home loans offer the best value? Which lenders have your best interest at heart? 

So to help simplify your comparison process, here are some immediate red flags to watch out for in a home loan.

It might be a red flag if...

The home loan features aren’t good enough

Sad woman laptop

Some home loans are designed to be bare-bones basic – and that’s okay! Not every borrower is looking for all the bells and whistles. However, if a home loan’s features still don’t inspire you, or don’t feel useful, then it’s a red flag. 

Some of the best features a home loan can have include:

All of these can help save on interest repayments long-term, which can help you pay down your home loan faster. Keep in mind these features are more common with variable interest rate home loans, rather than fixed ones. 

Some home loans offer special extras, such as Unloan’s unique interest rate discount. Look for features that are useful, valuable, and exciting – if you can visualise yourself using them, that’s a green flag.

The mortgage terms and conditions aren’t clear

Man frowning paperwork

Home loan jargon can be hard to understand, and some lenders overuse it to confuse borrowers. After all, a confused borrower is an easy borrower to fool. So if a lender isn’t writing the terms and conditions of a home loan in plain, clear language, it’s a red flag. 

As a rule of thumb, important disclaimers should be immediately obvious, not hidden at the bottom of the page. If you have to go hunting for the bad news, it might be bad news all around.

The interest rate makes you cringe

Couple cringing

The headline interest rate is often the most eye-catching part of a home loan. A good interest rate is usually lower than the competition and comes attached to a loan with features to suit you, a lender you like, and the borrowing power you need. 

However, be wary of ‘honeymoon’ or introductory rates – they can mislead you by making a mortgage seem cheaper than it really is. Always look at the comparison rate, usually given beside the headline rate, as this gives you a more accurate picture of how much a home loan costs. 

If you’re comparing fixed rate home loans, always check the rollover interest rate, too, as this is what you’ll be paying when your fixed term expires.

Fixed rate ending calculator

The mortgage fees add up

Unhappy woman calculator

Fees can seem like little annoyances next to the large costs of home loan deposits and stamp duty, but it’s vital to consider them. The main types of fees home loan lenders can charge include:

  • Property valuation fees
  • Settlement fees
  • Application fees
  • Account fees
  • Monthly fees
  • Annual fees
  • Redraw fees
  • Extra repayment fees
  • Transaction fees
  • Discharge fees

There is no such thing as a fee-free loan, no matter how much lenders may advertise their offers as such. Third-party fees may apply, and there may be dishonour fees or other hidden charges if you miss a repayment or break a fixed term early. 

However, there are plenty of low-fee loans to compare, usually with small or online mortgage lenders. Factor any fees a home loan has into your own affordability calculations, and make sure to speak to a financial adviser so you know your budget.

Your home loan borrowing power is too low

Person thumbs down

Different lenders will let you borrow different amounts of money for a home loan. For example, some may have eligibility requirements that let you buy in with a deposit smaller than 20%, or some may only let you borrow up to $3-5 million. 

Others simply have varying comfort levels when it comes to borrower risk, so your debt-to-income ratio might earn you different sums from different lenders. 

If you’ve checked with the lender’s borrowing calculator and find your borrowing capacity isn’t enough for the property you want, it could be a red flag for either the lender or you. Perhaps you need to look at cheaper properties or other kinds of home loans so you can safely meet serviceability requirements. 

After all, the last thing you want to do is take out a home loan you can’t afford to repay.

Signs YOU are the red flag

The home loan lender makes it hard to leave

Collage running away from grabby hand

Ultimately, the goal is to finish paying off and discharge your mortgage. But if a lender slows down your progress to the finish line by charging outrageous discharge fees, hiking interest rates, or punishing you for making extra repayments, then consider your starting line littered with red flags. 

Lenders make money by charging you interest on the principal amount you borrow, so it makes sense why they would want to maximise their profits and fleece you for what you’re worth. The faster you pay down a home loan, after all, the less interest a lender earns. 

However, a good lender will put affordability first and reward you for paying off your mortgage, whether it’s consistently over your loan term or quickly with extra and/or fortnightly repayments. Remember, the mission is to own your home, not debt. Any lender that remembers this is an automatic green flag.

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Compare low-interest rate home loans in the table below.

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Last updated 30 October 2024 Important disclosures and comparison rate warning*

Home loan comparisons on Mozo

Promoted

  • Fixed Home Loan

    • Owner Occupier
    • Principal and Interest
    Interest rate
    5.54 % p.a.
    Fixed 2 years
    Comparison rate
    5.93 % p.a.
    Initial monthly repayment
    $2,852
    Go to site

    Competitive fixed rate on up to a 30 year loan term. No application fees to pay. Additional repayments up to $20,000 per year without penalty. Free online redraw. Optional 100% offset feature ($10/month) 10% minimum deposit. Fees & charges apply, Australian Credit Licence 237879 is held by Bendigo and Adelaide Bank Limited, the credit provider.

  • Unloan Variable

    • Owner Occupier
    • LVR <80%
    Interest rate
    5.99 % p.a.
    Variable
    Comparison rate
    5.90 % p.a.
    Initial monthly repayment
    $2,995
    Go to site

    Built by CommBank, the Unloan is the first home loan with an increasing discount (conditions apply) for borrowers. No application or banking fees. No monthly account keeping or early exit fees. Apply online in minutes.

  • Fixed Express Home Loan

    • Owner Occupier
    • Principal & Interest
    Interest rate
    5.54 % p.a.
    Fixed 2 years
    Comparison rate
    6.11 % p.a.
    Initial monthly repayment
    $2,852
    Go to site

    Lock in a low 2 year fixed rate with the Mozo award winning Home Lender of the Year. Available for live-in borrowers with just a 10% deposit required. Free extra repayments (up to 20% in fixed period), free redraw and partial offset available. $10 monthly service fee. Aussie support centre. Fast approvals. Up to 6 free offset accounts (T&Cs apply).

  • Fixed Home Loan

    • Owner Occupier
    • Principal and Interest
    Interest rate
    5.54 % p.a.
    Fixed 2 years
    Comparison rate
    5.93 % p.a.
    Initial monthly repayment
    $2,852
    Go to site

    Competitive fixed rate on up to a 30 year loan term. No application fees to pay. Additional repayments up to $20,000 per year without penalty. Free online redraw. Optional 100% offset feature ($10/month) 10% minimum deposit. Fees & charges apply, Australian Credit Licence 237879 is held by Bendigo and Adelaide Bank Limited, the credit provider.

  • Fixed Express Home Loan

    • Owner Occupier
    • Principal & Interest
    Interest rate
    5.54 % p.a.
    Fixed 2 years
    Comparison rate
    6.11 % p.a.
    Initial monthly repayment
    $2,852
    Go to site

    Lock in a low 2 year fixed rate with the Mozo award winning Home Lender of the Year. Available for live-in borrowers with just a 10% deposit required. Free extra repayments (up to 20% in fixed period), free redraw and partial offset available. $10 monthly service fee. Aussie support centre. Fast approvals. Up to 6 free offset accounts (T&Cs apply).

  • Fixed Rate Home Loan

    • Owner Occupier
    • Principal & Interest
    • LVR <60%
    Interest rate
    5.59 % p.a.
    Fixed 5 years
    Comparison rate
    6.27 % p.a.
    Initial monthly repayment
    $2,867

    Get repayment certainty with HSBC’s low 2 Year Fixed Rate Home Loan. Make up to $10,000 of extra repayments a year. The option to split your home loan between fixed and variable. Plus, score $3,288 cashback when you refinance an existing home loan of $250,000. Must apply by 28 February 2023 and settle by 30 April 2023.

  • Fixed Rate

    • Owner Occupier
    • Principal & Interest
    • <80% LVR
    Interest rate
    5.74 % p.a.
    Fixed 3 years
    Comparison rate
    6.81 % p.a.
    Initial monthly repayment
    $2,915

    Enjoy up to $3000 cashback for eligible first home buyers and $2000 cashback for refinancers on eligible home loans with the ANZ Fixed Rate Home Loan. Get the security of repayment certainty with a competitive locked in rate. No ongoing fees to pay. Offset account on 1-year fixed loans ($10/month fee applies). Interest-only payments allowed.

  • Variable Home Loan

    • Owner Occupier
    • Principal and Interest
    Interest rate
    5.98 % p.a.
    Variable
    Comparison rate
    6.02 % p.a.
    Initial monthly repayment
    $2,991
    Go to site

    Competitive variable rate on up to a 30 year loan term. No application fees to pay. Unlimited additional repayments. Free online redraw. Optional 100% offset feature ($10/month) 10% minimum deposit. Fees & charges apply, Australian Credit Licence 237879 is held by Bendigo and Adelaide Bank Limited, the credit provider.

  • Unloan Variable

    • Owner Occupier
    • LVR <80%
    Interest rate
    5.99 % p.a.
    Variable
    Comparison rate
    5.90 % p.a.
    Initial monthly repayment
    $2,995
    Go to site

    Built by CommBank, the Unloan is the first home loan with an increasing discount (conditions apply) for borrowers. No application or banking fees. No monthly account keeping or early exit fees. Apply online in minutes.

  • Discounted Home Value Loan

    • Owner Occupier
    • Principal & Interest
    • LVR <60%
    Interest rate
    5.99 % p.a.
    Variable
    Comparison rate
    5.99 % p.a.
    Initial monthly repayment
    $2,995

    Enjoy competitive rates for owner occupiers. Enjoy unlimited free extra repayments. Flexibility to redraw additional payments for free. No ongoing monthly service fee. Receive $3,288 cashback when you refinance an existing home loan. Minimum loan amount of $250,000, settle within 120 days from applying.

  • Express Home Loan

    • Owner Occupier
    • Principal & Interest
    • LVR <90%
    Interest rate
    6.09 % p.a.
    Variable
    Comparison rate
    6.22 % p.a.
    Initial monthly repayment
    $3,027
    Go to site

    Get online approval from the award-winning Bendigo Bank Express Home Loan. Multiple offset accounts and redraw available. 100% offset on variable rate loans and partial offset on fixed rate. Flexible repayment options. New home loans only.

  • Mortgage Simplifier

    • LVR<80%
    • Owner Occupier
    • Principal & Interest
    Interest rate
    6.14 % p.a.
    Variable
    Comparison rate
    6.17 % p.a.
    Initial monthly repayment
    $3,043

    Get a competitive variable rate with ING’s Mortgage Simplifier. Free extra repayments, no monthly or annual fees. Freedom to make free extra repayments or redraws.

  • Elevate

    • Owner Occupier
    • Principal & Interest
    • <80% LVR
    Interest rate
    6.18 % p.a.
    Variable
    Comparison rate
    6.18 % p.a.
    Initial monthly repayment
    $3,056

    Get competitive rates on loan terms of 5 to 30 years with the Aussie Elevate Home Loan. Structure your loan with up to five splits. Make additional repayments (T&Cs apply). Offset accounts available. Unlimited redraw using your online banking account. Choose from weekly, fortnightly or monthly payments For loan amounts from $10,000 to $5 million.

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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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