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Home loan FAQs

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Buying a home for the first time can be both stressful and liberating. So naturally, most people have a lot of questions about how it all works. To make the process easier, we’ve compiled the most frequently asked questions about home loans, covering everything from the difference between fixed and variable rates, to the right time to make an offer on a property. 

Make sure to check out our home loan resources section too, where you’ll find tips, reviews, and guides to help round-out your knowledge and boost your confidence. 

Jump to the section you're interested in using the buttons below or check out our step-by-step guide on how to get a home loan

Getting started

How do home loans work?

Home loans let you borrow money to buy a property, which you repay with interest over a set period of time.

What is the difference between a home loan and a mortgage?

While the terms home loan and mortgage are often used interchangeably, there is a technical difference between the two. 

A home loan is the sum of money loaned to you to buy a property, while a mortgage refers to the agreement between you and your lender that outlines the terms and conditions of the loan, including the repayment period and frequency. It also allows them to sell your property to recoup the loan if you default on your repayments.

Do I need to pay stamp duty?

When you buy a property in Australia you are required to pay stamp duty, unless exempt under a government scheme

Stamp duty is a state government tax, based on the purchase price of your property. Different state and territory governments calculate stamp duty differently, so how much you pay also depends on which state you’re buying in.

What is principal & interest and interest only?

Principal & interest and interest-only are home loan repayment options. Principal & interest repayments reduce your loan balance and interest, while interest-only repayments only require you to repay the interest on your home loan. Interest-only repayments are typically only available for 5 to 10-year terms.

Learn more about interest-only vs principal and interest repayments.

What is the difference between variable and fixed rates?

Fixed rates will not change during the fixed period, which is usually between 1 to 5 years, depending on the loan option chosen by the borrower. Variable rates can fluctuate over the loan term.  

Learn more about fixed vs variable home loans.

What is the First Home Owner Grant, and am I eligible?

The First Home Owners Grant (FHOG) helps first-time buyers afford to purchase a home with a lump-sum payment. Find out your eligibility for the FHOG here.

What are the different types of home loans?

The different types of home loans in Australia include: 

What sort of fees are there with a home loan?

Home loan fees may include:

Getting a loan

How can I get a home loan with my parents' help?

Parents can help you get a home loan by gifting you money for a deposit or acting as guarantors. However, lenders prefer to see deposits come from genuine savings.

Can I get a home loan with no deposit?

No, you can not get a home loan without a deposit. However, using a guarantor, the equity in another property you own, or a government scheme can help you to buy with a lower deposit. Generally, you will need a 5% deposit minimum. 

Compare low deposit home loans on Mozo.

Can I get a home loan with a low deposit?

Yes, you can use a low deposit home loan if your deposit is under 20%. However, this may result in higher interest rates and paying lenders mortgage insurance (LMI).

Can I get a home loan with no credit history?

If you don’t have a credit history, you don’t have a credit score. While this doesn’t make it impossible to qualify for a home loan, it could make it harder.  

A lender will want to see a good track record of managing your finances, so it will be important to be able to demonstrate your savings and spending habits and show detailed bank statements. 

Here’s what to do if you don’t have credit history.

Can I get a home loan if I'm self-employed?

Self-employed borrowers can use low doc home loans if they lack proof of income documents, such as payslips and group certificates. However, low doc loans tend to have higher interest rates and stricter loan-to-value ratio (LVR) limits.

Can a retiree get a home loan?

Income and age-related risks, and the fact that home loans typically last for 25-30 years, means it can be harder for retirees to get a home loan – but, not impossible. Retirees may face stricter limits on how much they can borrow and higher interest rates, due to the increase in risk.

Can I take out a home loan while on a disability pension?

You can take out a home loan while on the disability pension in Australia. Lenders consider the disability pension as genuine income and will treat your application the same as any other, considering your income, expenses, and credit history. 

Can I use my partner's income to help get a home loan?

If you want to team up with your partner to boost your borrowing power, then you may be able to take out a joint mortgage, where both parties share repayment responsibilities.

Can I use other income sources like Centrelink for a home loan?

Centrelink payments, such as the age pension, the Family Tax Benefit, disability payments, and carers payments, may be counted as extra income to supplement your employment income. However, relying solely on payments like JobSeeker is unlikely to get you over the line when you apply for a home loan.

What credit score do you need to buy a home?

A ‘good’ credit score (above 600, depending on the reporting agency) could boost your home loan approval chances. 

Learn more about what credit score you need to buy a home in Australia.

Can I get a home loan if I've been bankrupt?

If you’ve been bankrupt, it is still possible to get a home loan. But, it is generally recommended that you wait two years before applying, while you improve your credit. Some of the potential issues that could arise after declaring bankruptcy could be that you face higher interest rates and your pool of lender options can be limited. 

Interest rates

How do banks calculate home loan interest?

Home loan interest is calculated on your remaining balance at the end of each day. To do this, your lender divides your interest rate by 365 days then multiplies this daily rate by your outstanding balance. 

For example, if your loan at the end of the day is worth $400,000 and your interest rate is 6%, then your daily interest will be: 

  • 6% ÷ 365 (i.e. 0.06 ÷ 365) = 0.00016438
  • 0.00016438 x $400,000 = $65.75. 

These daily interest charges are then added together over the month, fortnight, or week and added to your mortgage repayment, which can be a combo of principal and interest, or interest-only, depending on what type of home loan you have.  

How do I get a reasonable rate on my home loan?

To get a reasonable home loan rate, save up a 20% deposit to reduce your loan-to-value ratio (LVR), ensure you have a good credit score, demonstrate your financial stability through steady employment and bank statements and reduce your existing debts to increase your serviceability.  Always shop around to find out what the best home loan rates in the market are, which increases your ability to negotiate with lenders. 

Compare home loans on Mozo.

How do I stay informed on interest rate changes?

To stay informed on interest rate changes, sign up for the Moneyzone newsletter. Crafted by Mozo’s expert team, Moneyzone gives readers a weekly rundown of rates and easy-to-digest news, straight to your inbox.

How do variable interest rates work?

Variable interest rates can rise and fall at any time and are influenced by market factors like the Reserve Bank of Australia (RBA) and lender funding costs. 

What happens if interest rates decrease?

If interest rates decrease, then the cost of borrowing money for a home loan will decrease too. However, not all lenders will decrease their rates at the same time or pace, or by the same amounts. So, if you have a variable rate home loan make sure you’re ready to refinance if rates come down and your banks rates don’t. If you’re on a fixed rate home loan, then your interest rate will not change until the end of the fixed term period.

What is the maximum interest only term?

The maximum interest-only home loan term is typically 5 years for owner-occupiers and 10 years for investors. However, this can differ depending on the lender.

Deposits

How much deposit do I need for a home loan?

Most home loans in Australia require a 20% deposit. However, you can get a home loan with a much lower deposit by using a government homebuyer scheme or by paying for lenders mortgage insurance (LMI). 

Can I use the equity in my current home as a deposit?

You can use the equity in your current home as a deposit for a new property. But be aware that releasing your equity can affect your loan-to-value ratio (LVR), if you still have a mortgage on your current property. 

Learn more about using your home equity

What if part of my deposit is gifted funds?

If part of your deposit is gifted funds, your lender may ask for a signed letter from your donor explaining that the deposit is a gift, and not a repayable loan. Outstanding loans can impact your ability to repay your home loan and will be taken into account when assessing your borrowing power.

What other options are there for a home loan deposit?

If you don’t have a deposit for a home loan or qualify for a government grant, you can opt to get a guarantor to support your loan by using their home equity as security. 

How does a guarantor work?

Guarantors use their home equity as security for your home loan, sharing in the financial risk if you default. This share of risk is why guarantors are often parents or siblings of the borrower. 

Here’s what parents need to know about going guarantor on their child’s home loan. 

Borrowing

How is my borrowing capacity calculated?

When lenders calculate your borrowing capacity they consider your income, expenses, debts, assets, credit score, deposit size, and the loan type.

Your serviceability will also be tested by adding an extra 3% to your home loan interest rate, to ensure you’re still able to pay for your home loan if interest rates rise.

How much can I borrow for a home loan?

To work out how much you can borrow for a home loan, use a borrowing power calculator.

What factors affect your borrowing power?

The factors that affect your borrowing power include:

  • Income
  • Expenses
  • Debts
  • Dependents 
  • Credit score
  • Deposit size
  • Loan type
  • Interest rates. 
Can I pay stamp duty with my home loan?

You cannot pay stamp duty with your home loan, as it is a separate government tax that must be paid up-front.  

To work out how much stamp duty you may pay, use a stamp duty calculator

Applying

What fees are involved with applying for a home loan?

The fees involved with applying for a home loan can include: 

  • Mortgage registration fees
  • Conveyancing fees
  • Valuation fees
  • Application fees. 

Other fees, such as a discharge fee, are payable at different times during your home loan term. 

Can you apply for multiple home loans at once?

You can apply for multiple home loans at once, but it is not recommended because each application creates a hard inquiry on your credit report, temporarily lowering your credit score. A lower credit score can negatively impact your chances of success when applying for a loan. 

You should compare home loans first and only apply for the loan that fits your needs and budget the best.

Does applying for a home loan affect my credit score?

Applying for a home loan can temporarily lower your credit score for a few months. This is because lenders generate a hard inquiry when accessing your credit report, which is recorded on your history for up to 5 years.

When should I apply for a home loan?

You should apply for pre-approval with your preferred lender as soon as you start looking at properties to buy, so you know how much you can borrow. When you get close to making an offer, that’s when you should apply for a home loan. 

Can there be two applicants on a home loan?

A joint mortgage allows two applicants to be on the same home loan.

Can you get multiple pre-approvals or conditional approvals?

You can get multiple pre-approvals for a home loan, but it is unnecessary. Even if you have pre-approval from one lender, you can always opt to go with a different lender for the final home loan.

How do I track my home loan application?

You can track your home loan application through your lender’s website or app, or by calling them.

How long does a home loan application take?

The time it takes to get a home loan approved varies depending on how long it takes you to fill out the application, the lender’s internal processes and whether you’ve received conditional or pre-approval before applying. 

In general, it can take up to 3 days to receive pre-approval, up to 5 days to submit your application, up to 5 days for a property valuation, and 4 to 6 weeks for loan approval and settlement. 

What are the supporting documents for a home loan application?

Supporting documents for a home loan include: 

  • Proof of identity, such as driver’s licences, passports, and birth certificates. 
  • Proof of income, such as two recent payslips, a letter from your employer, tax returns, or a notice of assessment. 
  • Details about outstanding debts, if you have any existing loans or credit card debts, including balances and repayment amounts. 
  • Proof of your ability to pay for the loan, like bank statements showing you saved up your deposit, spend responsibly, and can service a home loan. 
My home loan has been approved. What happens next?

After your home loan is approved, you’ll receive a contract outlining the details of the loan, such as the interest rate, loan term, loan amount, fees, repayment schedule, and terms and conditions. If you are happy with the details of the offer, then you can sign the contract, pay any application fees and charges, and return it to your lender. Next, your lender will begin organising your settlement date.

Purchasing a home

When should I make an offer on a property?

Before you make an offer on a property, ensure you have pre-approval, have a solicitor or conveyancer review the contract of sale, inspect the property, are ready to pay the deposit, and have defined your budget i.e. the maximum price you will pay for the property. 

Once you have ticked all of those boxes, you could be ready to make an offer.

The process is different for private sales and auctions. So, read our tips for buying at auction

What are the stages between applying for a home loan and settlement?

The stages include applying for a home loan, receiving pre-approval, finding a property, finalising a contract, lender valuation, unconditional loan approval, signing documents, and settlement. On settlement day, funds are transferred, and ownership is officially yours. The process usually takes 4–6 weeks.

Not sure what any of this means?

Check out our glossary page for a comprehensive list of home loan terminology. 

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Jack Dona
Jack Dona
RG146
Senior money writer

Jack is a senior writer specialising in home loan and credit products, interest rates, and leads Mozo’s coverage of the Reserve Bank of Australia. He understands the importance of making the language of personal finance accessible to all. Jack’s stories have been quoted in AustralianBroker, Mortgage Professionals Australia magazine, the Sydney Morning Herald, and News.com.au. He has contributed to reports that have featured on Channel 7’s Sunrise program.


* 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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