What's the difference between fixed and variable rate home loans

You can choose between a fixed interest rate and a variable rate loan . Variable rates Fixed rates Variable rates can change at any time, but it's easier (and fewer fees apply) to switch to a new loan or make extra repayments. Fixed rates don't change but are often slightly higher and less flexible (harder to exit the loan or make extra repayments).

What's the difference between principal-and-interest and interest-only repayments?

Most borrowers choose home loans with principal-and-interest repayments . This means you borrow the money (principal) and pay it back each month, plus interest on top. There is another option, which is interest-only repayments . This type of home loan starts out cheaper because you don't pay any principal at the start. You just pay the interest charge on top. But later, you'll have to pay the principal back and you'll end up paying more. Learn more: How do home loans work?

What's the difference between a home loan and a mortgage?

To the ordinary person looking to buy a property, there's usually no actual difference between the words "mortgage" and "home loan". They are used interchangeably to mean the money you borrow to buy a property. However, if you want to get very technical, a home loan refers to the money you borrow. The mortgage is a legal document that ties you and your property to the lender. In the event you cannot repay the home loan, the mortgage acts as the lender's security and gives it the right to sell your home to recover your debt.

How long does it take to get approved for a home loan?

Home loan approval times vary from lender to lender and also depend on how complex your borrowing situation is. A lender may be understaffed or very busy when you apply, and an approval might take several weeks. Some online lenders have developed faster digital approvals that allow them to process an application in a matter of days. A big bank may take weeks to approve a loan. If you have all your loan paperwork, financial information and identity documents organised, the approval process might be faster.

How can a mortgage broker help?

If you're finding it too hard or confusing to compare home loans, a mortgage broker can help. Brokers are qualified professionals who compare home loans for you. They don't compare every loan on the market, but they have access to a panel of up to 30 lenders – and sometimes more.

How your credit score affects your home loan?

It's tough to definitively state what the cut-off point is for getting home loan approval, as banks and lenders consider their own internal credit assessments along with your score when reviewing your application. However, credit score providers like Experian do have benchmarks that can be useful in getting an idea of how likely you are to be approved for a home loan. Below is a guide of how your credit score could influence your home loan approval odds with Experian, who run their credit scores between 0 and 1000. The higher the number, the better your credit score is. Excellent: A score between 800-1,000 is considered Excellent. This means the bank view you as being extremely low risk of defaulting on your loan. If your score is in this range, home loan approval is likely. Very Good: A score from 700-799 is considered Very Good and puts you in the second-top tier of creditworthiness. Most lenders would look very favourably on your application. Good: A score from 625-699 is classified as Good. This still puts you in good standing and the bank views the likelihood of an "adverse event" occurring on your credit file in the next 12 months to be low. Fair: A score from 550-624 puts you in the Fair category. This means you're more likely to suffer an adverse event on your credit file in the next 12 months, so lenders may apply additional loan criteria or charge you a higher rate. Weak: Any score below 549 puts you in the Weak category. Lenders consider the likelihood of an adverse credit event high. You may have trouble obtaining finance from traditional lenders.

How do I compare lenders?

There are many lenders in the Australian mortgage market. Most of them are regulated as banks, and all of them must follow the National Credit Code. The Big Four banks. The Big Four are the dominant players across Australian banking. Most customers stick with Commonwealth Bank, NAB, Westpac or ANZ. They all offer banking apps, large customer service teams, extensive branch and ATM coverage, and lots of mortgages to choose from. You won't get the absolute lowest rates with the Big Four, but they are always competitive. Other banks. There's more to mortgages than the biggest players, of course. There are state and regional banks as well as nationwide operators and local arms of international banks like ING and Citibank. Credit unions and non-bank lenders. There is an enormous number of Australian credit unions, non-bank lenders, building societies and other institutions that are member-owned. This means they work for their members and don't pay dividends to shareholders. Digital banks, fintechs, neo-banks and online lenders. There are lenders that do business entirely online (with phone support). Lenders such as loans.com.au, Tiimely Home and UBank are examples of online lenders with competitive rates. Some newer players in the market include neobank or fintech lender like Athena, which use apps and big data to offer customers a convenient online mortgage experience.

Can I trust a smaller lender?

Banks, credit unions, building societies and online lenders are supervised by the Australian Prudential Regulation Authority (APRA) as authorised deposit-taking institutions (ADIs). Lenders are also subject to the National Credit Code, which is administered by the Australian Securities and Investments Commission (ASIC) under the National Consumer Credit Protection Act (2009). Some smaller lenders may not be treated as ADIs. The main drawback here is that if you have money saved with the lender (in a savings account or offset), you might not be covered by the bank guarantee if the lender goes bust.

What is Loan to Value Ratio?

The loan-to-value ratio (LVR) is another way of defining the minimum deposit you have to save. Banks prefer a maximum LVR of 80%, meaning you need a 20% deposit. Many loans also have a maximum insured LVR of up to 95%. This means that you can get the loan with a smaller deposit, but you will need to pay lenders mortgage insurance (LMI) if your deposit is under 20%. Some professions enable higher LVRs without the need for LMI. Typically these professions include doctors, lawyers and accountants, and more recently police officers, nurses and other university trained occupations, but different banks have different policies in relation to this benefit.

Can I get a home loan on maternity leave?

Although you possibly can get a home loan while on maternity leave, lenders may see you as a riskier borrower because your income is reduced. This means you would not be able to borrow as much as you would on a full income. There are a few things you could do to improve your chances of being approved: Get documention from your employer detailing the terms of your maternity leave, such as the dates and your salary upon your return. Save at least a 20% deposit. Set a realistic budget and loan amount. Talk to multiple lenders before applying. Too many rejected applications will look bad on your credit report, so be sure you get the answers before you apply. Consider talking to a mortgage broker. If you want to increase an existing home loan, you may be able to do this while on maternity leave. The increase would need to be a reasonable amount with a lender who will accept you and you can prove that you can afford it.

Can you get a 40-year home loan?

The vast majority of Australian borrowers get home loans with 30-year loan terms. This is the maximum amount most lenders allow. But it is possible to get a loan with a longer term of 40 years. A 40-year home loan is otherwise identical to other home loans: You borrow money and pay it back with interest charged on top. The difference is the time involved and the amount of interest you pay. The main benefit for borrowers who take out 40-year loans is that they pay reduced ongoing repayments, as the debt is structured over a longer time period. The main drawback is that because they have their loan for longer, they end up paying a higher amount of interest in total. It's a really good idea to talk to a mortgage broker before committing to a 40-year home loan.

Hannah Nissen-Ellison, Subeditor at Finder

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