For most Aussies, a home loan is the biggest financial commitment they will make in their lifetime.

Learn more about how home loans and mortgages work in order to make a sound decision for the purchase of your future home.

Most Australians do not have the luxury of being able to buy a home or property outright with their own savings, which is where a home loan comes in. A home loan or mortgage allows homebuyers to borrow money from a lender for the purposes of buying a residential property to live in, or as an investment. There are several different types of home loans, each catering to the different needs and financial circumstances of property buyers.

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With a home loan, homebuyers borrow a sum of money from a lender (financial institution or bank) which they then have to make repayments to, over a period of time, known as the loan term. Once homebuyers have been approved for the loan, it can then be used towards purchasing the desired property.

Depending on the type of home loan, repayments will be made based on an applicable interest rate. In addition to repayments, the purchased property may also be used as collateral for the loan — this arrangement is known as a mortgage.

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Though these two terms are often used interchangeably, they actually refer to two different arrangements.

A home loan refers to a borrowed sum of money provided by a lender for the purchase of the property, while a mortgage simply refers to a conditional arrangement where the purchased property is used as security for the loan. In the event that repayments are not made on a mortgage, the lender has the right to sell the property to recoup their losses.

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What Do I Need to Apply for a Home Loan?

When applying for a home loan, lenders will generally require the following documents to be provided to support a successful application: 

  • Proof of identity (Birth certificates, driver's licences, etc.)
  • Income statements (bank statements, recent payslips)
  • A breakdown of your living expenses (usually on a monthly basis)
  • Details of the property intended for purchase

There may also be other required documents which lenders may request. It’s advisable to check with your broker on what you’ll need to provide so that you can prepare it beforehand.

 

What to Look for in a Home Loan

Home loans come in different shapes and sizes, each designed to fit homebuyers with differing financial needs. In order to get a home loan that best fits your situation, you should work with a broker to consider the following factors when evaluating a home loan:

  • The type of applicable interest rate (fixed, variable)
  • The amount you can borrow with the home loan (Loan-to-value ratio)
  • Reputation of the lender
  • Length of the loan term
  • The cost of the loan’s fees (application fees, lender's insurance)
  • Flexibility of the loan for extra features (ability to redraw, offset account, extra repayments)
Frequently Asked Questions for Home Loans

A guarantor is someone that is liable to pay for the borrower’s outstanding loan amount if they default on the home loan. In most cases, having a guarantor is generally not required, to get a home loan — lenders will look at the overall outlook of your financial situation to determine your suitability. Usually, a guarantor is only requested for in cases where the lender wants additional security, though a mortgage is usually preferred.

The First Home Owner Grant is a government scheme aimed at helping first-time home buyers purchase a home. The grant awards a lump sum of money to eligible applicants to help them manage the cost of their home purchase. 

You may be eligible for the First Home Owner Grant if you:

  • Are 18 years old or older
  • Are a permanent resident or citizen of Australia
  • Have never previously owned property in Australia
  • Plan to reside in the purchased property for at least 6 months

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