With the loans.com.au Essentials Variable Home Loan enjoy a home loan with no application or ongoing fees as well as a competitive interest rate. Borrow up to 80% of the property's value. For owner occupiers and principal and interest repayments only.
The total cost of a loan depends on how much you borrow, as well as the interest rate and any fees you need to pay.
Home loans also come with fees charged at three different stages:
1. Upfront fees
Application fees. This fee pays for your lender to process and finalise your application. This can also be called an establishment fee.
Settlement fees. This is charged to cover costs when transferring your funds to you.
Valuation fees. Your lender will organise an independent valuation to make sure the sale price is reasonable.
Legal fees. A legal professional will need to look over your application to make sure it's compliant.
Lenders Mortgage Insurance (LMI). Lenders need borrowers to have at least 20% of the price of the property as a deposit. Some loans need as little as 5% deposit, but will come with LMI fees. LMI is an upfront fee charged to cover your lender in the event that you default on your home loan.
Stamp duty. Don't forget that when buying a property you should factor in how much stamp duty costs. You'll usually have to pay this tax as an upfront fee within 30 days of settlement. Stamp duty is calculated differently depending on what state you live in.
2. Ongoing fees
Repayments. The biggest cost of a home loan is in the regular repayments you have to make on it. Your repayment amount is set by your lender and takes into account the interest rate, how often you'll be repaying and the length of the loan.
Annual fees. This is usually charged on package loans.
Monthly fees. Some loans charge account keeping fees each month, which are usually below $20.
Redraw fees. Some loans allow you to make extra repayments on it to pay it off earlier. A redraw facility allows you access these funds, but can come with a fee. Depending on the loan, it might be waived if you conduct your redraws online.
A comparison rate is an interest rate which includes many of the fees and charges you'll pay on your loan.
Comparison rates are calculated using the same example, regardless of how much you're borrowing. This example is a $150,000 loan taken out over 25 years. If your loan size or length is different to this, the comparison rate could be less accurate.
3. Exit fees
Title discharge fees. You'll pay these fees when you close your loan and they cost between $150 and $700. They're different to early exit fees, which apply to loans entered into before 1 July 2011.
Break costs. These are fees charged when you exit a fixed rate home loan during the fixed rate term. These fees are worked out based on multiple factors relating to your loan and the market.
Am I eligible for a loan if...
I'm self-employed. Most lenders will offer loans to those who are self-employed. Lenders will usually want business bank statements, BAS and/or accountant's letters verifying your income.
I have a low income. Yes, lenders will accept borrowers with low incomes. Loan approval will depend on the size of your deposit, the amount you're borrowing and whether your lender thinks you can afford it.
I have impaired credit. Yes, speciality lenders do offer loans to credit impaired borrowers. These loans generally have higher interest rates than regular home loans. They can also have larger deposit requirements.
I'm on a pension. Some lenders will see a pension as they would a regular salary. Some lenders may also set age limits on certain products and will require a good showing of your capacity to repay. Find out more in our guide on getting a loan if you're a pensioner.
I'm a casual or seasonal worker. There are major and smaller lenders which will grant loans to casual workers. Lenders will want to see employment contracts as well as invoices for prior work.
I have a temporary visa. Yes, but the amount you can borrow and the requirements may be stricter than for regular borrowers. You might also need approval for the purchase from the Foreign Investment Review Board (FIRB). Find out what you need to know when getting a loan on a temporary visa.
I don't have a deposit, but have a home with equity in it. You might be able to use a line of credit loan to buy a home. A line of credit or home equity loan allows you to borrow money from a lender using the equity in your home as security.
One of us is onmaternity leave? Whether your lender approves your loan will depend on your income. They'll want to see you can still service the loan on the one income.
If I've recently gotten anew job? Some lenders will only want to see borrowers at least out of probation. Others will want to see a borrower in the same job for at least six to 12 months.
You can boil down Australian mortgages into the following types:
Standard variable rates
These have an interest rate which changes over time. Your lender will decide on how often it changes and by how much depending on various economic factors.
These are loans where you lock in an interest rate for some years (usually 1- 5). During the locked period your rate won't change at all.
You don't have to pay off the principal with an interest only loan. This leaves you responsible for just the interest charges each month. In effect this makes the repayments much smaller on comparable loans. Interest only loans appeal to investors because of this, and the tax benefits they come with.
There is an added risk with this type of loan because you're not paying the actual loan amount down.
These loans have a lower interest rate for the first year or two. Once the intro period ends, the rate reverts to the lender’s standard variable rate. They can be useful for first home buyers due to the lower costs during the first years of home ownership.
You may also consider this type of loan if you are building your home as it allows you to continually draw funds from the borrowed amount which is suitable when you are paying for different stages of construction.
SMSF home loans
A Self Managed Super Fund (SMSF) can use this type of loan to borrow money to buy a property. They're limited recourse borrowing arrangements, are only able to be used to purchase investment properties and are suitable for more experienced investors. Read more about them in our guide on SMSF home loans and how they work.
For example, imagine a loan of $100,000 which has an offset account with $10,000 in it. When interest is calculated on the loan, it’s only calculated on $90,000. This is because the $10,000 is subtracted from the loan amount for the purpose of calculating interest.
Offset accounts can come with monthly fees ranging between $5 - $20 per month.
There are two types of offset accounts:
100% offset accounts. Where the full amount in the account is used when offsetting the home loan balance.
Partial offset accounts. Where only a portion e.g 70% of the balance of the account is used when offsetting the loan balance.
A repayment holiday is a period of time where you don’t have to make repayments on your home loan, which is useful for unexpected situations such as if you get sick or lose your job.
Some lenders only offer this option to borrowers who have made extra repayments.
A rate lock allows you to lock in an advertised rate so that in the time taken for your loan to be approved, it doesn’t change.
This is usually offered only on fixed rate loans.
Rate locks generally have a fee which can be either a dollar amount, or percentage of the loan amount, or both.
Portability allows you to take your loan with you if you sell your property. This means you can bring it to your new home without having to worry about signing up for a new loan, with this you can also avoid fees.
This feature allows you to have both a fixed rate and variable rate on your loan. This means you can enjoy some of the benefits of a fixed rate, and some of the benefits of a variable rate. In many cases, a loan can be split more than once.
Some lenders don’t charge a fee for this, while others will charge a fee per split
What's pre-approval and do I need it?
Pre-approval means your lender will 'conditionally' approve you for a specific loan amount. They'll take into account your income, debts and liabilities when deciding this.
It's usually extended for a few months, allowing you to look for a property with a bit more confidence.
Is your credit file in order? Find out how to get a copy of your credit file and make sure there are no errors on it. If you have defaults or late repayments on your file, be able to explain them. Close any credit cards you're no longer using.
Are you getting a joint loan? Think about how strong your relationship is with the other party. Changes to your relationship could make it hard if one party wishes to sell their part of the property.
What are your plans for the property over the next few years? Match your loan to your future plans. For example, avoid taking out a fixed rate loan if you plan to sell the property shortly after buying it. Fixed rate loans have break costs which can be expensive.
Are you eligible for the loan? Borrowers generally need to be over 18 years of age. There are other requirements too, but these depend on the lender. Some will want you to have a good credit rating. Others might not allow you to buy inner city apartments. Always read these before applying.
What paperwork do I need to give my lender when applying for a home loan?
Your lender will want to work out whether or not you can afford a loan, so will want to see a bit of information from you. This includes:
This includes your full name, tax file number, driver's licence number or some other form of photo ID, phone number and address.
Your lender wants to know about your job and how long you've been in your position and industry and may ask for the contact details of your HR department to confirm these details.
Your lender will want to know how much you earn and spend. They'll want to see recent payslips, as well as details of your expenses and debts including other personal loans or credit cards.
Information about your property
The exact paperwork required will depend on the type of property you're buying. You'll need to tell your lender the property address, the type of property it is, the number of rooms it has and more.
What type of lender should I go with?
Lenders all have to abide by the same strict guidelines and laws. This makes choosing between the a bank, a not-for-profit credit union or an online or non-bank lender a matter of savings and personal preference.
A bank is an institution where you can deposit and withdraw funds. They also offer loans.
Banks have larger client bases than other lenders, so offer more products. These include longer fixed term lengths and loans for low doc borrowers.
Another benefit of using a bank is that they usually have branches for you to do your banking in person.
Credit unions generally won't have the large product ranges a bank does. Instead, they'll offer the most popular loans. In some cases they might also limit their products to workers in a specific industry, such as teachers or university employees.
Online or non-bank lenders
Online lenders often offer competitive rates and products. This is because they don't have to pay for the physical branches a regular lender has to. This has a downside, as you'll usually only be able to carry out your banking over the phone or online.
Lenders want borrowers who have good track records of paying back credit cards and loans. This can be a good sign that they'll pay back their loan.
Some lenders will auto-decline those with defaults. Others might give you a chance to explain them. Specialist lenders like Pepper, Bluestone Mortgages and Liberty consider borrowers with credit impairment issues. Be aware that they might raise the interest rate to accommodate the extra risk they're taking on.
Extra repayments made towards your loan go towards paying off your principal.
Putting money into an offset account reduces the amount of your loan that interest is charged on.
The differences between the two come into play later on once you want to withdraw your money.
Can access money using the redraw facility debit card
Generally offered on basic and no frills loans
Can have a minimum withdrawal amount and redraw fees
Some loans might have limits on how many redraws you can do per year
Some loans can limit the amount of extra repayments you can make each year, especially fixed rates
Can access your offset money through your linked debit card
Usually no minimum withdrawal amounts or fees
Can come with tax benefits in certain situations
Are not always offered on no frills loans
Most lenders will allow you to switch from a fixed rate to a variable rate or vice versa but some may charge a fee for this.
If you're switching from a fixed rate loan, be aware that you'll usually have to pay a break cost. This is because you'll be leaving your fixed term before it's completed.
If your loan has a redraw facility, this is possible.
You'll have to contact your lender to request the redraw, or in most cases, conduct the redraw online.
The FHOG is handled by your state or territory office of revenue.
This differs depending on the lender and your application. If you provide all the required information, your lender can approve your loan in 2 - 3 business days.
Some lenders like CBA even advertise that they will provide a decision in as little as 60 minutes.
Remember that the more complicated an application, the longer approval can take.
Your lender will want to get an independent valuer to find out what the value of your property is. They'll then use this valuation to work out how much they will lend to you.
Where to from here?
You can start a home loan comparison or speak to a mortgage broker by viewing our table above. This shows interest rates, comparison rates, maximum LVRs, application fees and upfront fees. There's also a calculator at the top of the table which you can use to find out what your monthly repayments might be.
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