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How to search for a home loan

To begin your home loan journey, you first need to know how to search for and compare your options. This is where comparison tools, as well as trusted experts, can lend a helpful hand.

  • Comparison tables

A comparison table is a way to compare apples with apples, meaning, it allows you to perform side by side comparisons of various home loan products you have filtered down to suit your financial situation.

Simply enter the details of your ideal home loan (loan amount, property value) and filter down the results by entering your loan type, rate type and more. You’ll then be able to view a range of options side by side to create a short list of home loans with competitive interest rates, repayment amounts and features, as well as fees you may want to avoid.

(Not sure of your ideal loan type? Don’t fret - these details are explained further in this guide.)

  • Home loan calculators

Once you have a short list of home loans you may be interested in, you’ll want to continue your search by seeing how they may suit your budget. This is where home loan calculators come in.

Simply, enter in the amount you’d like to borrow, the interest rate, loan term, repayment type and whether you’re an owner-occupier or investor. You’ll then be given an estimate of your potential monthly repayments. If this figure would break your budget, for example, you’ll know that loan may not be the one for you. However, if the repayments are easily affordable (including any potential ongoing fees) you may have a loan contender.

  • Real Time RatingsTM

Tossing up between a few home loan options? It can always help to listen to what the experts have to say. This is where Real Time RatingsTM may be able to help make the search a little clearer. Real Time RatingsTM is a world-first rating system that provides up-to-date assessments of home loans based on your individual requirements.

Other comparison site rating systems may only be graded once or twice a year. However, Real Time RatingsTM is calculated daily, with each loan given a rating out of 5 stars. This rating is based on loan cost and flexibility, factoring in your loan size, deposit amount and borrowing type. Consider using Real Time RatingsTM as a handy guide when searching for your ideal home loan.

  • Mortgage brokers

Speaking of experts, if you’re absolutely stuck in your home loan search, or just want a little more specific financial advice, a mortgage broker can offer a lifeline for would-be borrowers.

You’ll not only get the insider view from an industry-expert, but they can aid in guiding you through the home loan application process, ensuring your application is as stress-free as possible.

What is a comparison rate?

An interest rate may not always give you the full picture of the true cost of a home loan, and this is where comparison rates can come in handy. A comparison rate also factors in various fees and charges associated with the loan. The calculation is based on a (now somewhat dated) Australian model of a $150,000 loan with a loan term of 25 years.

As home loans are typically much larger, the comparison rate may not be an exact reflection of the full costs you may incur. However, it is a good way to gauge just how many fees and costs a loan has. For example, if a loan advertises a rate of 2 per cent, but the comparison rate is a percentage point higher or more, you can expect a fair few ongoing costs with that home loan.

What Aussies search for in a good home loan

Ideally, you’re aiming for a home loan that suits your borrowing type and keeps costs down.

Another key component to look at when performing a home loan search is what exactly makes up the home loan itself, including the interest rates, fees and ongoing costs and type of loan you’ve taken out.

  • Interest rate – the interest rate is one of the most important components of a home loan. The interest charged on your principal amount will make up a large sum of your ongoing repayments. The higher the interest rate, the higher your ongoing repayments. But a low rate loan may not come with the same bells and whistles as a more costly option.
  • Fees and costs – there are a range of potential fees and costs you may be charged for your home loan, including upfront fees, annual fees, early exit (break) fees and discharge (settlement) fees. You also may be charged lenders mortgage insurance (LMI) if your loan-to-value-ratio (LVR) is above 80 per cent, meaning you have a home loan deposit or home loan equity below 20 per cent of the property's value. Your loan may also be subject to stamp duty, depending on your state or territory.
  • Interest rate types – you may choose between paying a variable interest rate or a fixed interest rate on your home loan. A variable rate home loan is subject to market fluctuation and is influenced by both the lender and the Reserve Bank of Australia’s cash rate. If your lender were to cut rates, your rates would fall, and vice versa if they were to hike rates. However, a fixed rate home loan will lock in an interest rate for a set period of time, protecting you from any hikes, but limiting you from decreases. A fixed rate also allows for greater stability in your budget, as your loan repayments will all be the same amount. If you can’t choose between the two you may want to opt for a split loan, where a portion of your loan is variable, and a portion is fixed.
  • Repayment types - You can choose between paying both the principal and interest (easiest way to pay down your debt) or an interest-only loan. The latter is a popular option for investors, as it helps ensure their properties are as affordable as possible. However, as cheap as paying only the interest may be, you’re not actually paying off your debt. Once the interest-only term ends, you’ll find your repayments much higher, as your debt has stayed the same but the years you have to pay off your loan have shrunk. 
  • Loan types – there are different home loan types based on the loan purpose. You can choose between an owner-occupier loan (if you live in the property you buy) or an investor loan (you choose to rent out the property). Owner-occupiers are typically offered lower home loan interest rates as a lender generally sees less risk of a default on the home loan if you’re living in the house itself.
  • Repayment frequency – you may choose to make mortgage repayments monthly, fortnightly or weekly. Monthly repayments are the most common, but the shorter your frequency, generally the faster you’ll be able to pay off your debt.
  • Features – typically, the more features your loan has, the higher the ongoing costs. However, various home loan features can actually help you pay down your debt faster, including an offset account, redraw facility and the ability to make extra repayments. You may also bundle your home loan with other lender products, such as a credit card or savings account - also called a loan package.

Are you searching in the right place for a home loan?

Now you understand what makes up a home loan, you need to ensure you’re searching in the right place for your ideal home loan.

Not all loans are created equally, and different loans will have varying eligibility criteria, interest rates and ongoing costs based on your borrowing type and loan purpose. These include:

  • First home buyer

A first home buyer is looking for their first home loan to help them achieve the Great Australian Dream of getting a foot on the property ladder. Whether you’ll be living in the property or planning on renting it out, being a first home buyer will impact your mortgage search.

Firstly, you may not have saved up a 20 per cent deposit for your loan, as property prices in capital cities (particularly Sydney and Melbourne) are sky high. A smaller deposit may be enough to get the loan, but it may see your lender charge you a higher interest rate. Plus, you’ll have to pay LMI for the loan, which can creep into the tens of thousands of dollars.

Secondly, younger first home buyers may not have as established credit history and excellent credit scores. Your credit history plays a large role in not only the approval of your home loan, but the interest rate you may be offered. Australians with excellent credit scores are seen as more ‘reliable’ borrowers and less likely to default on their loans. The less risk you pose to a lender, the more competitive your interest rate may be.

However, first home buyers are also offered government support to help them get on the property ladder. Depending on the value of the property, you may be eligible for stamp duty exemptions or concessions. You may also be eligible for a first home owner grant. The details of this support will vary based on the state or territory you’re purchasing property in.

  • Investor

As mentioned above, if you’re looking for an investment loan so you can rent out a property, you may face higher ongoing costs on your loan. This is because lenders view property investors as having a greater risk of defaulting on the mortgage, as there is less incentive to pay your bills when you don’t live in the property that you’re paying off. By charging a higher interest rate, lenders are ensuring they’re getting something back from an investor, in the event they default on the loan.

Your loan application may be viewed with greater scrutiny by the lender because of this. You may need to save a larger deposit, or show your reliability in other ways, such as having a large amount of savings or having no outstanding debts.

  • Refinancer

If you’ve already purchased one or more properties and are looking to refinance your home loan, this will also impact your home loan search.

Whether you’re looking for a lower rate, fewer fees, or a loan with greater features, refinancing your home loan may help you to reduce your ongoing costs and create more flexibility in your mortgage.

If you’ve already paid off a significant chunk of your home loan, you will have built up some equity over the years. This is your leverage tool that may be able to help you nab a lower rate. Lenders may offer more competitive interest rates to borrowers with lower LVRs.

Comparing your options is invaluable for refinancers, so ensure you do your research and use comparison tables and calculators to nab the best new home loan for your financial needs.

  • Self-employed 

If you’re a small business owner or sole trader, you may find the home loan application process tends to be geared towards full-time employed Australians. Having a full-time job for more than 12 months looks favourable on an application, plus a lot of paperwork calls for employer and income details.

In the 1990s, mortgage brokers realised not all lenders fit into the one mortgage applicant category. This spurred the creation of ‘low-doc home loans’ for these viable borrowers. As the name suggests, a low doc loan is aimed towards Australians with low documentation – aka those who are self-employed and have the deposit for a loan but lack the standard documentation to prove they can maintain repayments.

While you will be offered typically the same rates, fees and features as a standard home loan, you’ll need to ensure you’re boosting your application with the right documentation. This may include:

  • Proof of identification
  • Proof of working in same industry for 12 months
  • Registered business name and ABN
  • 12 months of Business Activity Statements (BAS)
  • Proof of registration for GST
  • Personal and business bank statements
  • Income declaration from your accountant.

Fact Check Verification

The information on this page was fact checked by Tedjo Hadiwidjojo, a broker in Victoria specialising in home loans, go-between loans, commercial property loans, reverse mortgages, SMSF, asset finance, business finance, cash-flow finance, short term finance, personal loans, and non-conforming finance. For more information on how brokers like this can assist you, look for a broker near you