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How to choose your first home loan

Peter Terlato avatar
Peter Terlato
- 7 min read
How to choose your first home loan

Choosing your first home loan doesn’t have to be a difficult process. There is a ton of easily digestible information available to help you research and compare home loan options that may suit your needs.

As a first home buyer, there’s a lot to consider before you get to the point where you’re shopping around for home loans. You’ll need to assess your financial health and position, save a deposit, apply for any relevant grants, schemes or incentives and on top of all that, find your ideal property to purchase.

When you’re on the hunt for your first home loan, it’s not uncommon to be inundated by banks trying to win your business and overly opinionated family members and friends that suggest you follow in their footsteps or “know what’s best” for you.

The truth of the matter is, only you know your specific financial situation and budget, as well as your home loan goals. 

When selecting your first home loan, don’t be complacent. Take the time to compare your options, otherwise you might miss out on generous sign-up deals and helpful features, or worse, you may end up paying thousands more in higher interest charges and fees.

Let’s explore the ways in which first home buyers can choose their ideal first home loan.

Disclaimer

This article is over two years old, last updated on June 22, 2022. While RateCity makes best efforts to update every important article regularly, the information in this piece may not be as relevant as it once was. Alternatively, please consider checking recent home loans articles.

What to compare for your first home loan

There are more home loans available than the one your childhood bank may advertise. In fact, there’s a multitude of home loan factors that are worth comparing to ensure you’re choosing a suitable home loan, including:

Interest rate

The rate your lender will charge on top of your loan amount owing. This is arguably the most significant factor affecting the cost of the loan. You can find home loans with low interest rates but you might be required to meet certain lending conditions to be eligible.

Comparison rate 

While many people talk about home loan interest rates, far fewer people talk about comparison rates. This is unfortunate, as home loan comparison rates can make a big difference when you’re estimating the costs of different mortgage options, whether you’re applying for your first home loan or you’re refinancing.

A comparison rate aims to show you a more realistic view of the true total cost of a loan. It combines the advertised rate, fees and other standard charges, for a principal and interest home loan of $150,000, paid monthly over 25 years.

Fees, costs and charges

Lenders may charge you a range of fees including upfront fees (i.e. application fees and valuation costs), ongoing fees (i.e. annual fees and late payment charges) and exit fees (i.e. discharge fees and break costs).

These fees can vary based on factors such as the lender, loan type, and individual circumstances.

There are lenders that offer home loans with no upfront or ongoing fees. However, to be eligible for a no fee home loan you may have to meet certain requirements and could still incur costs if you break the terms of the mortgage contract.

Loan features

Some home loans offer helpful features like an offset account or redraw facility, while others may include the ability to make extra repayments or split your interest rate.

Interest rate type - fixed or variable

Choose from variable or fixed-rate home loan repayments. Variable rates fluctuate with the market, meaning if rates rise, it’s likely that your repayments will too, and vice versa for rate cuts. Fixed rates lock in your interest rate for a set period, usually 1-5 years. This can offer stability in your budgeting and protection from rate hikes but means you may miss out on rate cuts, if any were to occur during the term.

Repayment arrangement and frequency

Choose from paying the principal and interest owing on your home loan or paying interest-only. Interest-only repayments are especially popular with investors looking to keep expenses down over the short-term.

Introductory rate

Many lenders offer introductory home loan rates to first home buyers, also known as ‘honeymoon’ rates, usually extending for the first year of the mortgage. These incentivised offers may help borrowers save money over the short term. However, at the end of the introductory period the interest rate usually reverts to a much higher figure for the remainder of the loan.

Choosing a lender

Don’t underestimate the benefit of researching and comparing the lender itself before you apply with it. There are advantages and disadvantages to opting for a big four bank or choosing a smaller lender. If you favour innovative fintech and speedy technology rollouts, smaller, online lenders may suit you better. But if you like the stability and convenience of big banks, this may be a better fit for you.

Government assistance

If you’re a first home buyer, chances are you may qualify for one or more of the numerous first home buyer government assistance schemes available in your state. These may include but are not limited to:

How to compare first home buyer loans

While you may be subjected to a lot of overzealous opinions, it’s often worthwhile to listen to advice from others who have already been through the home loan process. However, it’s still important to conduct your own research, as everyone’s financial circumstances are different. What might’ve worked for a friend may not work for you. Individual circumstances will vary.

Now you know what factors of a home loan to compare, you can use helpful comparison tools, like calculators and tables, to create a home loan short list.

Comparison tables

RateCity’s comparison tables allow you to view home loan options side by side, so you can compare apples with apples. Enter your details, such as the loan amount you want to borrow and your deposit size, and narrow down the home loan factors above that you prefer. 

You can then sort your results via lowest advertised rates or filter through options that offer cashback deals or are from online only lenders.

Repayment calculator

Once you have a short list, you can then review your potential home loan repayments via the Mortgage Repayment Calculator. This may allow you to narrow down your home loan options by determining which ones may better suit your budget and help you avoid mortgage stress (that is, paying more than 30% of your income towards your home loan).

calculator

Repayment Calculator

Calculate what your repayments could be on your home loan.

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Real Time RatingsTM

If you’re new to comparing home loans, it’s not unusual to be unable to pinpoint your best loan option if there are a few that stand out. That’s where RateCity’s Real Time RatingsTM system may offer a helping hand.

Real Time RatingsTM results show you a score out of five stars for each home loan, based on loan costs and flexibility. It also factors in your loan size, deposit amount and borrowing type. And unlike other comparison websites that grade their products once or twice a year, the Real Time RatingsTM scores are calculated as you use the site, making them as up to date as possible.

Mortgage brokers

If you’re still unsure and feel you need some expert advice, it may be worth reading out to a mortgage broker. A mortgage broker may be able to guide you through the whole home loan process, including assisting with research and organising the paperwork to apply.

Compare home loans in Australia

Product database updated 14 Jul, 2024

This article was reviewed by Personal Finance Editor Mark Bristow before it was published as part of RateCity's Fact Check process.