Spring property buyers: Why your home loan choice is as important as your new address

By Tom Watson ·

The spring property season is already underway and this year there seems to be a renewed sense of optimism among buyers.

Whether it’s because of price drops in major cities like Sydney and Melbourne, or just the result of pent up demand, buyers seem to be preparing themselves to enter the market this spring - particularly first-time buyers. 

According to the latest ABS figures released last month, first home buyer loan commitments increased by over 14% in July (seasonally adjusted), making up 32.5% of all owner occupier commitments. 

First-time buyers, upsizers, downsizers - whoever the buyer - their number one priority is likely going to be finding a home that ticks all the boxes in terms of price, location and the features of the property itself!

However, the vast majority of buyers also need finance. And while it might not be as exciting as visiting different open homes, putting the effort into comparing home loans can be seriously important for a number of reasons.

1. It could affect the deposit you need

You need a 20% deposit to get a home loan, right? 

It’s certainly true that the majority of banks require borrowers to take out lenders mortgage insurance (LMI) if they’ve got a deposit lower than 20%, but borrowers willing to shop around will be able to find plenty of loans available for deposits as low as 10% or even 5%. 

True, LMI can be a substantial additional cost, plus a larger loan will obviously mean that borrowers will need to be able to make larger repayments. However, a low deposit home loan may also allow buyers - notably first home buyers - to get into the market sooner. 

2. You could miss out on useful features

A lot of buyers simply focus on finding a loan that will let them buy a home. That’s fair enough, but there’s no reason why you can’t grab a mortgage with a great rate and useful features too, which may come in handy over the long run.

Want to reduce the amount of interest you're paying on your loan while still having access to that cash funds in case? An offset account could be just the feature for you. What about the ability to pay off your loan faster via extra repayments? 

Not every lender offers home loan features such as an offset account, redraw facility or split loan function, or the ability to make extra repayments. Yes, there may be extra costs associated with them but they’re certainly worth considering when comparing loans.

3. You could save yourself tens of thousands of dollars

It’s no joke. Depending on the interest rate and size of the mortgage, the difference in the amount of interest you pay over the life of the loan could be huge.

Take this example where Luke and Emma take out a $400,000 home loan which will be paid off over the next 25 years. Here’s the difference in interest repayments over the life of the loan using the average variable rate currently in the Mozo database (3.33%) and one of the lower rates on the market:

  • 3.33% variable rate: $189,863 total interest paid
  • 2.50% variable rate: $138,340 total interest paid

That’s a difference of $51,523 over that 25-year period, and it just goes to show the potential savings borrowers can make by comparing home loans. 

RELATED: Lenders slash rates as spring property season heats up

Ready to compare the latest rates on the market? Our handy home loan comparison tables make it easy to compare offers from a range of lenders side-by-side on everything from rates and features to fees.

Compare home loans - last updated December 05, 2020

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Tom Watson
Finance journalist

Tom Watson is a financial journalist at Mozo, specialising in fintech, property and business banking. Whether it’s reporting on banking trends or uncovering the latest product innovations, Tom’s mission is to keep our readers up to date with breaking Australian financial news. His work is often sourced in the media and across social media channels. Tom has a degree in Journalism from the University of Technology, Sydney.