Home loans in Australia: frequently asked questions
What is the difference between a home loan and a mortgage?
In practice there is no difference, and Australians use the terms interchangeably. Technically, the loan is the money borrowed, and the mortgage is the security the lender registers over the property until the loan is repaid.
How much deposit is required for a home loan?
A deposit of 20% of the purchase price avoids Lenders Mortgage Insurance (LMI). Many lenders will accept 10% or even 5% with LMI, and eligible first home buyers can purchase with 5% and no LMI under the federal Home Guarantee Scheme.
Is a fixed or a variable rate more suitable?
The answer depends on the value placed on certainty. A fixed rate provides protection if rates rise, but it excludes the borrower from rate cuts and limits extra repayments. Many borrowers split the loan to obtain some of each benefit. Consider modelling both scenarios in the fixed vs variable calculator before deciding.
What is a comparison rate?
A comparison rate is a legally required rate that combines the interest rate and most fees into a single figure, calculated on a $150,000 loan over 25 years. It makes loans easier to compare. Because most loans are larger, it is best treated as a guide rather than the true cost.
Can self-employed borrowers obtain a home loan?
Yes. Most lenders require two years of financial statements, although low-documentation options exist, as do lenders that accept one year of tax returns. A broker who is familiar with each lender's credit policy can be of considerable assistance.