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What is a home loan offer?

Lenders often promote different types of home loan offers as an incentive to get new customers onto their books. A home loan offer might come in the form of a cash back deal, a reward points bonus or something else of value to the borrower.

When selecting your home loan, it’s important to consider what features and benefits are available. As well as comparing the interest rates and fees, it’s worth looking at what special deals and introductory offers may be available with different home loan products.

As with any credit product, it’s also important to know your loan term and the different repayment types available. Before committing to a home loan product, it could be a good idea to read through the product disclosure statement.

What types of home loan offers are there?

Whether you’re an owner-occupier or an investor, the types of home loan offers that may be advertised by your lender include:

  • Cashback deals
  • Discounted interest rates
  • Reward points
  • Waived fees
  • Special features

Cashback deals

Some mortgage lenders offer to reward new customers with a fat stack of cash, to use however you like. Cashback rewards on new home loans can often get you a couple of thousand dollars in your bank account. It’s also common for banks to offer refinance cashback perks to attract new customers already with other lenders.

Cashback deals can be valuable under the right circumstances. Buying a home or investment property often involves paying a range of fees, charges and taxes such as stamp duty, which can leave your savings rather drained. Plus, you may also have moving costs or renovation expenses to consider. Having a couple of thousand extra dollars available can provide some extra budget relief, allowing you to keep your life on track after your major purchase.

Keep in mind that in some cases, the money you’d receive from a cashback offer may not provide as much value as the long-term savings you’d enjoy by taking out another loan with a lower interest rate or less fees. It could be a good idea to calculate the costs of different loans, compare the value of any rewards with the savings you could enjoy, and make a decision based on what you think may be best for you.

Given the competitive home loan market, it might also be worthwhile weighing up the cashback perks offered by different banks, though it isn’t advised to base your home loan decision solely on this.

Discounted interest rates

Some banks and mortgage lenders offer to reduce the rate of interest charged on your home loan, either as a permanent discount over the life of your loan, or as a temporary reduction during your loan’s introductory “honeymoon” period.

Interest rate discounts can make a big difference to the cost of your mortgage. Lower loan repayments can take the pressure off your budget, so you can spend your money on something else. Alternatively, if you can afford to make additional repayments onto your home loan, you can a make a valuable head start on shrinking your mortgage principal and reducing your future interest repayments. This could get you closer to paying off your property ahead of schedule.

However, it’s important to remember that no honeymoon lasts forever. Once your home loan’s introductory period expires, your discounted interest rate will revert back to the lender’s standard variable rate. This can be a shock to your budget if you’re not careful, and could leave you struggling to afford your new repayments. Consider finding out when your loan will revert, what the revert rate will be, and how your monthly repayments will be affected. Then plan your budget accordingly.

Fixed rate home loans vs variable rate home loans

Fixing your home loan interest rate can be a lot like getting a discounted introductory rate offer. By locking in the interest rate on your home loan for a few years, you can keep your home loan repayments consistent for a limited time, for much simpler budgeting.

However, fixed interest rates aren’t always lower than variable interest rates, which may increase or decrease over time. It’s possible to find yourself stuck on a higher fixed rate while other variable rate customers are enjoying interest savings and lower loan repayments from discounted rates.

Just like other introductory rate offers, it’s a good idea to check what variable interest rate your home loan will revert to once your fixed interest period ends, and budget your monthly repayments accordingly to make sure you’re not caught off-guard.

With heated competition between the banks, it could also be worth shopping around for different fixed interest rates and variable rates across different lenders. Take note that the lowest interest rate may not always indicate the cheapest deal, as fees and charges, such as application fees, also come into play.

Reward points

Several banks and mortgage lenders have partnerships with major airlines, allowing you to earn reward points by using financial products such as credit cards. These points can be redeemed for plane tickets and seat upgrades, as well as travel experiences and a variety of other products and services from the rewards program.

These partnerships sometimes extend to home loans, where signing up for a mortgage can earn you a one-time reward of bonus points, similar to a cashback deal. Some loans even offer reward points for making mortgage payments, so paying your mortgage could bring you closer to taking a holiday or enjoying other rewards.

Much like cashback offers, it’s often worth comparing the value of the reward points you could receive to the loan’s cost. Sometimes, a simpler “no frills” loan with a low rate and fees can offer greater value than one that offers frequent flyer rewards. Also, it’s often worth checking the terms and conditions of the rewards program linked to the offer – if you’re unlikely to use your points before they expire, for example, you may not get much value out of them.

Waived fees

Taking out a home loan often means paying an establishment or application fee, covering the administration costs of setting up your loan. However, some banks offer to waive this fee or other upfront expenses to help ease your financial pressure.

Some home loan products also charge ongoing fees, paid monthly or annually, to help cover the cost of maintaining your mortgage. Depending on your loan type, some lenders may offer to waive these ongoing mortgage fees for selected customers, mostly for a set period or, less commonly, over the life of the loan.

As always, consider looking at the home loan’s other features, benefits and costs to work out the overall value of the fee waivers before you sign on the dotted line.

Note that if your home loan qualifies for a fee waiver, you may get a different comparison rate from the one listed. You may want to double check and see how this might affect how it compares with the other home loan products you were considering.

What about low deposit home loans?

Some lenders offer home loans where you can apply with a deposit of less than the customary 20 per cent of the property value. This means you can spend less time saving a deposit and enter the property market sooner.

While it’s possible to get a home loan with a 10 or five per cent deposit, this typically also means covering the cost of a lender’s mortgage insurance (LMI) policy, which covers your lender (and not you) against the risk that you’ll default on the mortgage. Generally, the lower your deposit, the higher the cost of LMI, which could be thousands or tens of thousands of dollars. Some lenders may offer to reduce this cost for selected borrowers (such as first home buyers or other new owner occupiers), but it’s still a significant expense to consider. Most lenders will have rules around the maximum LVR (loan to value ratio) a borrower can have, so it’s important to take note of this before applying.

If you can find a home loan that offers a guarantor option, it may be possible to apply for a mortgage with a low deposit, or even no deposit at all. A guarantor is a relative that offers to secure your mortgage deposit with the value of their own home, and agrees to take responsibility if you can’t pay your home loan. It’s a big ask, so make sure you and your guarantor know the risks involved before agreeing to the arrangement.

Special features

A home loan that offers the right features and benefits for your needs can provide just as much value as a special deal. For example:

  • Extra repayments directly reduce the principal you owe on your mortgage. This can reduce your future interest charges, and bring you closer to paying off the property and exiting the loan early.
  • A redraw facility can be used to withdraw any additional repayments you’ve made on a home loan, and put them back in your pocket. This can let you put your spare savings onto your mortgage to help reduce your interest repayments, while still being able to access this money if a sudden expense comes up.
  • An offset account is a savings or transaction account attached to your home loan, where you can deposit or withdraw money as often as you like. Money in your offset account is included when calculating interest on your loan amount, meaning you may pay less in interest repayments. For example, if you have a $300,000 home loan, and an offset account with $10,000 saved, you’ll be charged interest as if you only owed $290,000 on your mortgage.

Keep in mind that the more features and benefits that are included in a home loan offer, the more it may cost. Check the interest rates and fees, and consider whether a cheaper “no frills” home loan could provide you with a more competitive offer.

What are the terms and conditions?

Many special offers on home loans require you to meet certain eligibility criteria, on top of the standard lending criteria. For example, a home loan with a discounted interest rate may only be available to borrowers taking out a new loan as an owner occupier, paying principal & interest, with a deposit of at least 20 per cent or a maximum LVR of 80 per cent. If you hold an investment loan, or want to pay interest-only, you may not be eligible for some offers.

Alternatively, you may be able to enjoy a lower rate on your home loan if you bundle the mortgage offer with other financial products from the same bank, such as a transaction account and a credit card. This could also get you a better deal on these products, though you may need to pay an annual package fee in some cases.

Before you make a home loan application based on its special offers and rewards, make sure that it’s a home loan that will suit your financial situation, and that you can fulfil the requirements to enjoy the most value from the rewards on offer.

Can a broker help you find a home loan?

What is a mortgage rate?

The interest rate on a home loan is sometimes called the mortgage rate. This percentage indicates how much interest the lender will charge you with each home loan repayment. Your interest rate is effectively the “cost” of “buying” the money you’re using to buy a property – the higher your mortgage rate, the more your home loan repayments may cost.

Using a home loan calculator, you can estimate how much your home loan repayments may cost, based on your mortgage rate, loan term, and loan amount. This may also be affected by whether you’re making principal and interest repayments or interest-only repayments, if you have a fixed rate or variable rate mortgage, and any fees and other charges that may apply.

How do I apply for a home improvement loan?

When you want to renovate your home, you may need to take out a loan to cover the costs. You could apply for a home improvement loan, which is a personal loan that you use to cover the costs of your home renovations. There is no difference between applying for this type of home improvement loan and applying for a standard personal loan. It would be best to check and compare the features, fees and details of the loan before applying. 

Besides taking out a home improvement loan, you could also:

  1. Use the equity in your house: Equity is the difference between your property’s value and the amount you still owe on your home loan. You may be able to access this equity by refinancing your home loan and then using it to finance your home improvement.  Speak with your lender or a mortgage broker about accessing your equity.
  2. Utilise the redraw facility of your home loan: Check whether the existing home loan has a redraw facility. A redraw facility allows you to access additional funds you’ve repaid into your home loan. Some lenders offer this on variable rate home loans but not on fixed. If this option is available to you, contact your lender to discuss how to access it.
  3. Apply for a construction loan: A construction loan is typically used when constructing a new property but can also be used as a home renovation loan. You may find that a construction loan is a suitable option as it enables you to draw funds as your renovation project progresses. You can compare construction home loans online or speak to a mortgage broker about taking out such a loan.
  4. Look into government grants: Check whether there are any government grants offered when you need the funds and whether you qualify. Initiatives like the HomeBuilder Grant were offered by the Federal Government for a limited period until April 2021. They could help fund your renovations either in full or just partially.  

What is a home loan?

A home loan is a finance product that allows a home buyer to borrow a large sum of money from a lender for the purchase of a residential property. The home is then put up as "security" or "collateral" on the loan, giving the lender the right to repossess the property in the case that the borrower fails to repay their loan.

Once you take out a home loan, you'll need to repay the amount borrowed, plus interest, in regular instalments over a predetermined period of time.

The interest you're charged on each mortgage repayment is based on your remaining loan amount, also known as your loan principal. The rate at which interest is charged on your home loan principal is expressed as a percentage.

Different home loan products charge different interest rates and fees, and offer a range of different features to suit a variety of buyers’ needs.

Is the lowest home loan rate always the cheapest?

The home loan with the lowest interest rate may not always be the cheapest mortgage option for you. Sometimes a home loan with a low interest rate may charge high fees, which may cost more in total than a mortgage with a higher interest rate and no fees.

Consider checking the comparison rate, which combines interest and standard fees, to get a better idea of the overall cost of different home loan options.

How do you find cheap home loans?

With so many interest rate options and repayment types available, finding the cheapest home loan may depend on the type of loan you choose.

Whether you’re looking for an owner-occupier or investor loan, with interest-only or principal and interest repayments, on a fixed or variable interest rate, the cheapest home loan rate available may vary greatly.

One way to find the cheapest option for you is to narrow down your search and compare the options that best suit your individual requirements. RateCity’s home loan comparison tables can help you get started on your search and take the hassle out of shopping around.

Fact Check Verification

The information on this page was fact checked by Mahesh Perera, a broker in Queensland specialising in home loans, car financing, personal loans, debt consolidation, and asset financing. For more information on how brokers like this can assist you, look for a broker near you