- The home loan market can be daunting, particularly for first home buyers
- This guide explains basic terminology and home loan features
- It also outlines the general process of applying for a home loan
The home loan market is burgeoning with products, interest rates, packages, features, add-ons, terms, and conditions.
Our guide is here to help you navigate it all, so let's start at the beginning.
What is a home loan?
A home loan is money you borrow from a lender to buy a property. You are required to repay the loan over a set term through regular instalments covering the amount you borrow and interest.
The property you buy is used as security against the loan, meaning if you fail to repay it, your lender can take ownership of the property.
What is a mortgage?
Many people think the terms 'home loan' and 'mortgage' can be used interchangeably but a mortgage is the legal agreement in place when a lender gives you a home loan to buy a property.
A home loan is the money the lender hands over for you to buy the property. A mortgage is the legal arrangement that sees the lender use the property as security for the loan, giving them the right to assume ownership of it should you default on repayment.
See also : What's the difference between a mortgage and a home loan?
How to get a mortgage?
1. Save for a deposit (and other costs)
Before you even think about a home loan, you will need to have saved a deposit, ideally 20% of a property's value although you can get home loans with a deposit as low as 5% from some lenders.
See also : How to save up for a house deposit
You may receive financial help with your deposit from parents or family members but many lenders prefer to see what's called ' genuine savings ', meaning you must have saved for your deposit yourself.
See also :
You will also need to have enough money set aside for other costs associated with buying a home including home loan fees , legal costs , and stamp duty.
2. Clean up your finances
This means paying down other debts such as personal loans, credit cards, or buy now, pay later debts. If it's not possible to pay them out, make sure you're making regular, on-time repayments on them.
See also : Will credit card debt affect my mortgage application?
It's also wise to hold off on making big purchases and strive to maintain job stability in the period leading up to applying for a home loan.
See also: How to improve your chances of getting a home loan?
3. Seek home loan pre-approval
Once your financial affairs are in order, you can apply for home loan pre-approval to give you a solid idea of the amount you'll be able to borrow.
Pre-approval involves a lender giving an 'in-principle' agreement to lend up to a certain amount, based on an initial assessment of your finances.
Many buyers seek pre-approval before they embark on their homebuying quest so they know exactly what price bracket of properties to be targetting.
It's best to have done your research on which lender you'll target for a home loan as applying to multiple lenders for pre-approval can affect your credit score.
Our Home Loan Lender Reviews can help you decide which lender may best suit your needs. The list below features lenders that offer pre-approvals - it's also a good place to start:
Lender Home Loan Interest Rate Comparison Rate* Monthly Repayment Repayment type Rate Type Offset Redraw Ongoing Fees Upfront Fees Max LVR Lump Sum Repayment Extra Repayments Split Loan Option Tags Features Link Compare Promoted Product Disclosure
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It's important to note here that getting pre-approved for a loan doesn't guarantee your formal home loan application will be successful.
See also: Conditional vs unconditional home loan approval
4. Find a suitable property in your price range
There's no easy way to do this other than by putting in the legwork. Make sure you:
- research the market
- inspect multiple properties
- consider pros and cons of each
- let location be your guiding principle
Our Ultimate Aussie Homebuying Guide offers some tips and tricks. If you don't have time or feel overwhelmed, you could consider engaging a buyer's agent.
4. Apply for a home loan
Once you have found a suitable property, made an offer, and signed a contract (generally subject to finance), it's time to submit a formal home loan application.
Even if you have pre-approval (which generally lasts between three and six months), you may have to produce your documentation again and/or supply additional information.
You are also not tied to the lender that has provided pre-approval if you believe you can find a more competitive rate or home loan deal on the market.
In any case, it pays to be prepared. Here are the basics most lenders will ask for - or check themselves:
- Your home deposit
- Credit history
- Evidence of a stable income
- Pay slips and bank statements
- Minimal or no other debts
- Identity documents
- Other documents, which may involve government schemes or programs
See also:
How do lenders decide how much you can borrow?
Every lender will have its own lending policies but all lenders will generally base their decisions on:
your annual pre-tax salary
other regular income (rental income, second job, side gig, etc.)
regular loan and credit repayments
savings history
number of dependents
marital status
type of home loan (owner-occupier, investor etc.)
term of the loan
Savings.com.'au's Borrowing Power calculator can give you some idea of how much you may be able to borrow.
Home loan types
When you're looking for a home loan, you'll no doubt encounter terminology you may not be familiar with. Here are some basics:
Variable-rate home loan
Variable-rate home loans are those where the interest rate will fluctuate in response to market conditions and decisions of your lender.
A typical owner-occupier variable-rate loan is generally taken out over 30 years, but one advantage of a variable-rate loan is that you can pay it off sooner by making larger or more frequent repayments.
Fixed-rate home loan
Fixed-rate home loans allow you to 'lock in' an interest rate over a set period of time, generally between one to five years.
These loans are popular with borrowers who want the certainty of knowing their minimum repayments won't rise during the fixed-rate period.
On the downside, that also means they won't benefit from any RBA cash rate reductions that may occur during that time.
Borrowers can choose to break a fixed-rate loan but there are costs and penalties that will apply.
A downside to many fixed-rate loans is that you can't make extra payments on them - or can only make them up to a certain amount during the fixed period.
The rules around this vary according to different lenders and different fixed-rate products so you'll need to research how this could apply to your preferences and circumstances.
See also :
- How to choose between a fixed-rate or variable-rate home loan
- Should you fix your home loan interest rate?
Basic home loan
Many lenders will offer a simple, no frills home loan product - the basic home loan (although it may not necessarily be marketed using that term).
These are typically low-interest, low-fee, variable-rate loans that don't come with too many other features or add-ons like offset accounts (more on these soon), although not always.
These loans are relatively simple to understand. You get approved for a loan amount and you make principal and interest (P&I) repayments to pay it back.
Most basic home loans allow you to make extra or more frequent repayments, but some may limit them.
Split-rate home loan
A split home loan essentially allows you to take out a portion of your loan at a variable rate with the remaining portion at a fixed rate.
You can decide how you'd like to split your loan (e.g. 60:40, or 75:25) so you get the predictability of a fixed rate for part of the loan and the benefit of a variable rate for the other.
This set-up allows you to make extra repayments without a cap or penalty on the variable portion of your loan.
Again, it's worth checking with lenders how they charge fees on setting up a split rate loan. Some may charge twice the establishment and ongoing fees for both parts of the loan.
Package home loans
This is a term you may come across when you are researching the home loan market.
Some lenders may offer you a discounted interest rate as part of a package that often includes linked savings accounts, credit cards, and sometimes other products like insurance.
While packaged home loans can provide simplicity for some borrowers by having all their financial products tied to the same lender, not all the products may be offering the best deals on the market.
Many package loans also come with annual fees which, in some cases, may account for the discount you are getting on your home loan interest rate.
Be sure to do your figures before you sign up to one.
See also : What are the different types of home loans?
Common home loan features
Here are some loan features that can make a considerable difference to how much your home loan could cost you.
Offset account
An offset account is a transaction account that's linked to your home loan.
The best feature of an offset account is that its balance is deducted from the amount you owe on your loan when interest is calculated.
Simply put, if you have a home loan of $600,000 but have $50,000 in your linked offset account, you'll only pay interest on $550,000.
Often loans with an offset account will come with higher interest rates and fees than a basic home loan with the same lender but a well-used offset account can save you tens, even hundreds, of thousands of dollars in interest and considerably reduce the term of your loan.
Our Home Loan Offset Calculator can give you some idea of how much money and time you can save on your home loan.
Redraw facility
A redraw facility also effectively reduces the amount of interest you pay on a home loan but works in a slightly different way.
Rather than having a linked account where you can keep extra cash, you can pay extra payments into the loan account itself and withdraw them as and when you need them.
Bear in mind, it is only your extra payments you are allowed to access. Interest is calculated on what you owe so the more extra payments you make, the lower the balance owing will be.
Redraw facilities are typically available on every home loan but can sometimes come with restrictions like minimum withdrawal amounts or limits on how often you can redraw.
You need to check the conditions applied by individual lenders.
See also : What's the difference between redraw facilities and offset accounts?
What to compare
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| Loan features (and any associated fees) |
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Savings.com.au's two cents
More than 77% of new home loans written in Australia (as at the end of 2025) were sourced via a mortgage broker.
No doubt brokers play a valuable role in assisting homebuyers to navigate the mortgage market, particularly first-time borrowers and those with more complex situations.
While brokers can save time and legwork, it's worth checking their recommended offering against a few other advertised home loans with the same features and at least comparing the key criteria above.
While brokers are legally obliged to act in your best interests, they don't work with all lenders and generally receive their payment as an upfront and/or trailing commission from the lender, which may be better coming off the interest rate attached to your home loan.
If you have a good existing relationship with your bank or other lender and are confident in your knowledge, it can be a good place to start.
What is lenders mortgage insurance (LMI)?
Lenders mortgage insurance, or LMI, is an insurance policy that covers the lender for any losses they may incur if the borrower fails to meet their home loan repayments at some time in the future.
Although the insurance covers the lender, it is paid for by the borrower as a one-off, upfront cost.
It is another important consideration if your home deposit is less than 20% of the purchase price, meaning a loan-to-value ratio (LVR) of more than 80%.
LMI is typically levied on borrowers with less than 20% deposit and it can add tens of thousands of dollars to your home loan costs.
However, not all lenders require a 20% deposit to avoid LMI and some may chose to waive the insurance for select borrowers, generally those in high-income professions.