Compare first home loans for June

Ready to buy your first home? Compare first home loans using our expert guides, comparison tools, and calculators to crunch costs and get on the property ladder.

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Last updated 13 June 2024 Important disclosures and comparison rate warning*

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Knowledge Hub

Everything you need to know about first home loans

Never owned property before? Congratulations, you're a future first home buyer.

First home buyers can have the odds stacked against them in the Australian property, between steep prices and a competitive market.

However, first home buyer home loans are designed to help you save costs and get on the property ladder.

Below, we run through everything you need to know to make sure you put your best foot forward.

Hand receiving first home keys

What to look for in a home loan

Home loans come with a variety of features and costs, so here are the important things to look for when comparing first home loan options. 

Home loan interest rates

Low interest rates

The interest rate is a lending charge on what you borrow. Interest is calculated daily and included in your mortgage repayment, whether it's weekly, fortnightly, or monthly. 

A low interest rate is a crucial thing to what, since a high interest rate can significantly add to your home loan costs.

There are two main type of interest rates to compare:

  • Variable interest rates, which change at the lender's discretion based on the market.
  • Fixed interest rates, which stay the same for a period of time (called a fixed term). 

Generally, variable rate home loans have lower interest rates and come with features that can help you save money

Fixed rate home loans can be great for managing your repayments, they usually come with fewer features and you could face hefty break fees if you plan to exit your fixed loan early. 

If you can’t decide between the two, you can opt for a split home loan. This lets you divide your loan into two accounts, one with a fixed rate and the other with a variable rate. Generally, you can nominate the percentage split, e.g. 60% fixed, 40% variable.

Low fees

If you can limit the fees you pay, you can reduce the overall cost of your home loan (freeing up your budget to buy furniture and appliances for your new home). Fees can fall into two categories: upfront and ongoing.

Upfront fees include:

  • Application fees: Payable to the lender to process your home loan application.
  • Property valuation fees: Payable to the lender to value your property. Some lenders will waive this fee if you proceed through to settlement.
  • Settlement fee: Covers the cost of establishing your loan during home loan settlement.

Ongoing fees include:

  • Package fees: Payable annually if you opt for a home loan package (which includes things like an offset account, credit card or discounted insurance).
  • Service fees: Administrative fees payable to your lender, which can be charged monthly or annually.
  • Offset account fees: Some lenders will charge a monthly fee for use of an offset account.
Hand with Australian money

Surprise fees!

You may incur other fees, depending on your home loan, such as loan termination or loan discharge fees, which are payable at the end of the loan to transfer the title into your name.

Hand paying coins

Flexible features

You don’t want your first home loan to feel limited, so make sure you keep an eye out for any features that will make the path to home ownership much smoother. Here are a few of the main ones.

  • Offset account: An offset account is a transaction or savings account linked to your home loan. The amount in this account is offset against the balance owing on your home loan.
  • Extra repayments: Paying more than the minimum amount required by your lender can pay off your principal faster, saving you interest and years off the life of your home loan. See our extra repayments calculator.
  • Redraw facility: Many home loans that allow extra repayments come with a redraw facility. This lets you retrieve any extra funds you've contributed to your mortgage to use for other purposes.
  • Flexible repayments: Some home loans let you choose how often you make repayments, either weekly, fortnightly, or monthly. This can come with cost savings.
  • Repayment holiday: Some home loans let you hit pause on your repayments, which can come in handy if you’re experiencing a temporary setback or have to cover a surprise expense. Generally, you will need to be ahead on your repayments to make use of this feature.

Depending on your lender, not all of these features will come free with the loan. So if you don’t plan to use them, consider opting for a no-frills home loan with a lower rate.

Loan term

The standard term for a home loan is 25 years but most lenders have a maximum loan term of 30 years.

As a first home buyer, it can be tempting to opt for the longest possible term as this reduces your loan repayments, but the catch is you'll pay more in interest over the life of the loan. 

Hand holding piggy bank

What home loan terms do I need to know?

There's a lot of financial jargon that gets thrown around in with property buying and mortgages, and as a first time buyer it can all be a bit confusing.

Let's unpack some of the main terms you'll need to understand to get a great home loan deal.

Deposit

The home loan deposit is the downpayment you make towards your home purchase. It establishes your home equity and your loan-to-value ratio (see more below) by giving you security and ownership of some of the property.

It’s recommended that borrowers have at least 20% of a property’s purchase price saved up for a deposit, though there are options for those who fall short of that requirement. See low deposit home loans.

Loan-to-value ratio

Your loan-to-value ratio (LVR) is the amount you plan to borrow as a percentage of the total value of the property. Essentially, it's the size of your loan divided by the property value.

LVR (%) = Loan value / property value

For example, say you’re looking to buy a property valued at $500,000. If you have saved up 20% of the purchase price, you will have to borrow the remaining 80%. This means you’ll have an LVR of 80%.

In the past it was possible for first home buyers to borrow up to 100% of the loan amount but lending criteria was tightened following the GFC and the maximum amount major banks will now lend is up to 95%. (See no deposit home loans).

Home equity

Home equity is the value of your home ownership. For example, if your home is valued at $1 million, and you own 80% of it because you've been paying off your mortgage, then you have 80% (or $800,000) equity. 

Equity ($) = Property value - loan value

Equity is a form of wealth that can be used for a variety of things, from lowering your home loan interest rate to becoming a guarantor on someone else's mortgage and funding an investment property.

Lenders Mortgage Insurance

Borrowers who don’t meet lenders’ LVR requirements will have to purchase lenders mortgage insurance (LMI), which covers the home loan lender if you default on your loan. 

LMI shouldn’t be confused with mortgage protection insurance, which protects the home loan borrower.

Just keep in mind that LMI is not transferable between loans. This means that if you want to refinance to another lender, you’ll need to have built up 20% equity in your home or you will have to pay the insurance again. This can negate any savings you'd make by switching loans.

Genuine savings

Most mortgage lenders have a mandatory genuine savings policy, which means that as an applicant you need to demonstrate that you can save consistently and without outside assistance. 

That means having a growing balance (at least three months worth) in a savings account, term deposit or managed fund, and not relying on things like a tax refund, government first home buyer grants, or gifts from family members.

Comparison Rate

The comparison rate combines the interest rate (the cost of borrowing) with any fees that you may have to pay upfront, such as application, valuation or ongoing fees for a home loan. 

In essence, the comparison rate gives you a more accurate picture of how much your loan will cost, and banks and lenders are required by law to list it wherever their home loan interest rates are advertised. 

Usually, the comparison rate is given in parentheses beside the headline rate. For example:

  • 5.55% p.a. (7.00% p.a. comparison rate*)

It’s important to note the comparison rate displayed by a lender is just an example, and it’s typically based on monthly and principal interest repayments on a $150,000 loan over 25 years. If you’re borrowing more or less than this, your comparison rate will be different.

First home grants and calculators, what do I need to know?

Whether you are borrowing as an individual or you're sharing a mortgage with a partner, friend or family member, how much you will be able to borrow will depend on your combined income, current assets and liabilities.

To get a ballpark for how much you will be able to borrow from a bank or lender, try Mozo's borrowing calculator. Plug in your income and expenses, and it will tell you how much you can afford to borrow at today's average rate and how much your monthly repayments will be.

Another cost you will need to factor in to your home buying budget is stamp duty. This is a fee charged by state and territory governments in Australia. But did you know you could avoid this cost completely if you're a first time buyer eligible for your state's First Home Owner Grant, where you'll receive a one off grant and pay no stamp duty?

If you're not eligible for the first home owner grant, then you can use Mozo's first home loan stamp duty calculator which will give you an estimate of how much stamp duty will cost you on your first property.

Woman thinking about first home buyer grants

Home loan calculators for first home buyers

Not sure how much your home loan will cost? Try our free home loan calculators to estimate. See more

FAQs

Am I eligible for a first home loan?

If you’re over 18 years old, and you’re an Australian citizen or resident who has never owned property in Australia before, you would be considered a first home buyer. That means you would be eligible to take out a first home loan.

Can I take out a first home loan with bad credit?

While bad credit won’t completely shut off all your options, you can expect higher interest rates and much fewer home loans to choose from. 

So before you apply for your first home loan, it’s a good idea to obtain a free copy of your credit report to check your credit score. The next step would be to clear all of your debt, including any personal loans or credit card repayments you may have missed, so you can remove the red mark against your name. 

Need help? Check out our guide to paying off credit card debt

Can I refinance a first home loan?

You can, and it’s also a good idea to review your first home loan a few years down the track to make sure you’re still getting a good deal with low interest rates.

Where can I compare first home loans?

Right here at Mozo! Scroll up to the table at the top of the page and start comparing a variety of first home loans to find a deal that suits you.

Once you have a more in-depth look at the table, you’ll begin to notice features mentioned in the guide above, including interest rates, comparison rates, fees, as well as additional benefits like free extra repayments and an offset account. 

Select the home loan you want by clicking on the blue “go to site” or green “enquire now” button beside the product of your choice. You’ll then have the opportunity to apply for the loan through the lender’s site. 

How can I apply for a first home owners loan?

Start by preparing your documents and getting all the paperwork ready. Requirements will vary from lender to lender, but typically you’ll be asked to provide: 

  • 100 points of ID
  • Proof of income
  • Details of your assets and liabilities 

You’ll also need a clean credit record, although bad credit won’t necessarily rule you out. 

If you’re an eligible first home buyer, it’s a good idea to complete your First Home Owner Grant application before applying. 

And if you’ve decided to take out your first home loan with a guarantor, make sure they also have their documents prepared, including identification, income, assets and liabilities. 

What other home buying costs should I budget for?

When budgeting for your first home, you’ll also have to factor in costs like:

  • Stamp duty, which varies according to which state you’re in and what house you’re buying.
  • Council rates and strata fees.
  • Lenders mortgage insurance, if you've saved less than 20% deposit.
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JP Pelosi

RG146
Managing editor

Jean-Paul (JP) Pelosi is an experienced journalist and editor who has contributed to many of Australia's leading media outlets including The Guardian, News.com.au, Domain.com.au, Investment Magazine and ANZ's Bluenotes. He has also edited news and communications for large financial services companies such as CommBank, Suncorp, Allianz and Amex. He loves a well told story and applying his editorial experience to content that readers both care about and enjoy. JP heads up our writing team.

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Evlin DuBose

RG146
Senior Money Writer

Evlin is RG146 certified for general advice (Tier 2) and has become a leading voice in finance news since joining Mozo two years ago. She is regularly featured in Google's Top Stories alongside major publications like News.com.au and Yahoo Finance, and seasoned journalists. Despite being in the industry for just two years, she is Mozo's go-to writer for all things RBA and her research has been referenced by the Victorian Government. With a Bachelor of Communications degree from UTS, where she won the Dean's Merit Award and acted as the Director of Student Publications.

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