Lowest rates from banks in the First Home Loan Deposit Scheme

The First Home Loan Deposit Scheme (FHLDS) is officially accepting applications, with 3,000 first home buyers already reserving a place as of 1 January, according to Domain data.

As of 10 January, 190 first home buyer applications have been pre-approved. They are mostly single buyers with a median income of around $68,000.

The FHLDS, which sees eligible first home buyers get home loan approval with deposits as little as 5 per cent, will be implemented by 27 Australian lenders. Read more about how the First Home Loan Deposit Scheme works.

What do the experts think?

Minister for Housing, Michael Sukkar, boasted that the scheme will make home ownership “a reality for more Australians”.

“This Scheme is a fantastic way of helping even more customers, allowing them to potentially save thousands of dollars on their mortgage,” he said.

Domain economist Trent Wiltshire warned that although the scheme will be helpful for some individual buyers, it was not a “silver bullet” to improve affordability.

“I think the scheme will put a little bit of upward pressure on prices at the lower to middle end,” he said.

“Any impact when prices are rising quickly is not ideal.”

Further, a recent Domain article noted that Mr Wiltshire expects first-home buyers to be “active in 2020, trying to get into the expensive Sydney market before rebounding prices rise too much, and take advantage of low interest rates”.

Sally Tindall, research director at RateCity, said while the program will help people avoid costly lenders mortgage insurance, which can run into the tens of thousands of dollars, first home buyers should consider the scheme cautiously.

“Just because the government is encouraging people to borrow with as little as a 5 per cent deposit doesn’t necessarily make it a great idea,” she said.

“People that borrow with a wafer-thin deposit might get into the property market faster, but they’re likely to make higher monthly repayments and shell out tens of thousands in extra interest over the life of the loan.

“If you are thinking about signing up to this scheme, go in with your eyes wide open because it’s peppered with potential drawbacks.

What home loan rates are on offer?

The National Housing Finance and Investment Corporation (NHFIC) is the government body administering the FHLDS.

Fiona Benson of the NHFIC has stated that “all participating lenders are supporting the Scheme by not charging eligible customers higher interest rates than equivalent customers outside of the Scheme”.

If you are considering taking up the FHLDS, it’s still crucial you compare your options and weigh up the pros and cons. Just because a lender could approve your home loan, doesn’t mean that home loan is the most competitive one for your financial needs.

A small home loan deposit also comes with its own set of risks, including:

  • If property prices fall by more than 5 per cent, you could find yourself in negative equity; and
  • When home loan rates rise again, the impact could really sting your budget.

With all of this in mind, these are the lowest rates being offered by the approved lenders for the FHLDS. These rates may not be what first home buyers are offered but can be a helpful starting point to familiarise yourself with the rates potentially on offer.

Lowest rates offered by approved lenders

Approved lenders Lowest owner-occupier variable rate Comparison rate
Australian Military Bank

3.31%

3.32%

Auswide Bank

3.09%

3.50%

Bank Australia

3.18%

3.55%

Bank First

3.19%

3.24%

Bank of us

3.18%

3.20%

Bendigo Bank

3.14%

3.31%

Beyond Bank Australia

3.15%

3.56%

Commonwealth Bank of Australia

3.22%

3.23%

Community First Credit Union

3.75%

3.82%

CUA

2.98% (Loan > 500K)

3.03%

Defence Bank

3.36%

3.36%

G&C Mutual Bank

2.79%

2.79%

Gateway Bank

3.01%

3.09%

Indigenous Business Australia

From 2.00% (depending on Gross Income)

-

Mortgageport

2.99%

3.05%

MyState Bank

3.08%

3.11%

National Australia Bank

3.09%

3.09%

P&N Bank

3.17%

3.17%

People’s Choice Credit Union

2.99%

2.99%

Police Bank (including the Border Bank and Bank of Heritage Isle)

3.18%

3.26%

QBANK

3.04%

3.07%

Queensland Country Credit Union

3.39%

3.79%

Regional Australia Bank

3.31%

3.75%

Sydney Mutual Bank and Endeavour Mutual Bank (divisions of Australian Mutual Bank Ltd)

3.22%

3.25%

Teachers Mutual Bank Limited (including Firefighters Mutual Bank, Health Professionals Bank, Teachers Mutual Bank and UniBank)

3.29%

3.34%

The Mutual Bank

3.73%

4.13%

WAW Credit Union

3.44%

3.49%

Source: RateCity.com.au

Note: Figures show lowest variable owner-occupier home loan rates. Data accurate as at 8 January.

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Learn more about home loans

Who offers 40 year mortgages?

Home loans spanning 40 years are offered by select lenders, though the loan period is much longer than a standard 30-year home loan. You're more likely to find a maximum of 35 years, such as is the case with Teacher’s Mutual Bank

Currently, 40 year home loan lenders in Australia include AlphaBeta Money, BCU, G&C Mutual Bank, Pepper, and Sydney Mutual Bank.

Even though these lengthier loans 35 to 40 year loans do exist on the market, they are not overwhelmingly popular, as the extra interest you pay compared to a 30-year loan can be over $100,000 or more.

What is a variable home loan?

A variable rate home loan is one where the interest rate can and will change over the course of your loan. The rate is determined by your lender, not the Reserve Bank of Australia, so while the cash rate might go down, your bank may decide not to follow suit, although they do broadly follow market conditions. One of the upsides of variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts.

What are the pros and cons of no-deposit home loans?

It’s no longer possible to get a no-deposit home loan in Australia. In some circumstances, you might be able to take out a mortgage with a 5 per cent deposit – but before you do so, it’s important to weigh up the pros and cons.

The big advantage of borrowing 95 per cent (also known as a 95 per cent home loan) is that you get to buy your property sooner. That may be particularly important if you plan to purchase in a rising market, where prices are increasing faster than you can accumulate savings.

But 95 per cent home loans also have disadvantages. First, the 95 per cent home loan market is relatively small, so you’ll have fewer options to choose from. Second, you’ll probably have to pay LMI (lender’s mortgage insurance). Third, you’ll probably be charged a higher interest rate. Fourth, the more you borrow, the more you’ll ultimately have to pay in interest. Fifth, if your property declines in value, your mortgage might end up being worth more than your home.

What is a bad credit home loan?

A bad credit home loan is a mortgage for people with a low credit score. Lenders regard bad credit borrowers as riskier than ‘vanilla’ borrowers, so they tend to charge higher interest rates for bad credit home loans.

If you want a bad credit home loan, you’re more likely to get approved by a small non-bank lender than by a big four bank or another mainstream lender.

What happens to my home loan when interest rates rise?

If you are on a variable rate home loan, every so often your rate will be subject to increases and decreases. Rate changes are determined by your lender, not the Reserve Bank of Australia, however often when the RBA changes the cash rate, a number of banks will follow suit, at least to some extent. You can use RateCity cash rate to check how the latest interest rate change affected your mortgage interest rate.

When your rate rises, you will be required to pay your bank more each month in mortgage repayments. Similarly, if your interest rate is cut, then your monthly repayments will decrease. Your lender will notify you of what your new repayments will be, although you can do the calculations yourself, and compare other home loan rates using our mortgage calculator.

There is no way of conclusively predicting when interest rates will go up or down on home loans so if you prefer a more stable approach consider opting for a fixed rate loan.

How can I get a home loan with bad credit?

If you want to get a home loan with bad credit, you need to convince a lender that your problems are behind you and that you will, indeed, be able to repay a mortgage.

One step you might want to take is to visit a mortgage broker who specialises in bad credit home loans (also known as ‘non-conforming home loans’ or ‘sub-prime home loans’). An experienced broker will know which lenders to approach, and how to plead your case with each of them.

Two points to bear in mind are:

  • Many home loan lenders don’t provide bad credit mortgages
  • Each lender has its own policies, and therefore favours different things

If you’d prefer to directly approach the lender yourself, you’re more likely to find success with smaller non-bank lenders that specialise in bad credit home loans (as opposed to bigger banks that prefer ‘vanilla’ mortgages). That’s because these smaller lenders are more likely to treat you as a unique individual rather than judge you according to a one-size-fits-all policy.

Lenders try to minimise their risk, so if you want to get a home loan with bad credit, you need to do everything you can to convince lenders that you’re safer than your credit history might suggest. If possible, provide paperwork that shows:

  • You have a secure job
  • You have a steady income
  • You’ve been reducing your debts
  • You’ve been increasing your savings

How do I refinance my home loan?

Refinancing your home loan can involve a bit of paperwork but if you are moving on to a lower rate, it can save you thousands of dollars in the long-run. The first step is finding another loan on the market that you think will save you money over time or offer features that your current loan does not have. Once you have selected a couple of loans you are interested in, compare them with your current loan to see if you will save money in the long term on interest rates and fees. Remember to factor in any break fees and set up fees when assessing the cost of switching.

Once you have decided on a new loan it is simply a matter of contacting your existing and future lender to get the new loan set up. Beware that some lenders will revert your loan back to a 25 or 30 year term when you refinance which may mean initial lower repayments but may cost you more in the long run.

How do I take out a low-deposit home loan?

If you want to take out a low-deposit home loan, it might be a good idea to consult a mortgage broker who can give you professional financial advice and organise the mortgage for you.

Another way to take out a low-deposit home loan is to do your own research with a comparison website like RateCity. Once you’ve identified your preferred mortgage, you can apply through RateCity or go direct to the lender.

What is a guarantor?

A guarantor is someone who provides a legally binding promise that they will pay off a mortgage if the principal borrower fails to do so.

Often, guarantors are parents in a solid financial position, while the principal borrower is a child in a weaker financial position who is struggling to enter the property market.

Lenders usually regard borrowers as less risky when they have a guarantor – and therefore may charge lower interest rates or even approve mortgages they would have otherwise rejected.

However, if the borrower falls behind on their repayments, the lender might chase the guarantor for payment. In some circumstances, the lender might even seize and sell the guarantor’s property to recoup their money.

What is breach of contract?

A failure to follow all or part of a contract or breaking the conditions of a contract without any legal excuse. A breach of contract can be material, minor, actual or anticipatory, depending on the severity of the breaches and their material impact.

What happens when you default on your mortgage?

A mortgage default occurs when you are 90 days or more behind on your mortgage repayments. Late repayments will often incur a late fee on top of the amount owed which will continue to gather interest along with the remaining principal amount.

If you do default on a mortgage repayment you should try and catch up in next month’s payment. If this isn’t possible, and missing payments is going to become a regular issue, you need to contact your lender as soon as possible to organise an alternative payment schedule and discuss further options.

You may also want to talk to a financial counsellor. 

How often is your data updated?

We work closely with lenders to get updates as quick as possible, with updates made the same day wherever possible.

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