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What's new in home loans in July 2021?

Many major mortgage lenders have been raising rates this month, in preparation for an increase to the cash rate forecast for 2024 (though some are predicting increased rates as soon as 2022). However, not all lenders are hiking rates, with Tic:Toc recently announcing cuts to its interest rates, and reducing interest rates on energy-efficient ‘green’ construction loans.

Meanwhile, the Australian Prudential Regulation Authority (APRA) wants banks and other Authorised Deposit taking Institutions (ADIs) to prepare “tactical solutions” in case the Reserve Bank of Australia (RBA) instead cuts the cash rate into negative figures.

And new fintech Nano has launched, attempting to use technology to help make the home loan process easier for customers.  

At the time of writing, some of the best home loan rates available on RateCity include:

Updated by Mark Bristow on 20 July 2021

What is a home loan?

A home loan is a large amount of money that you borrow from a bank or other lender to buy a house or apartment. 

As the borrower, you pledge your home as "security" or "collateral" for the loan, giving the lender the right to repossess the property if you fail to repay the loan. In legal terms, this is known as "mortgaging" your home, which is why a home loan is sometimes called a mortgage.

When you borrow money to buy a home or investment property, you'll need to pay this money back in instalments over time, plus an extra charge from the lender called "interest".

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. Your home loan’s interest rate is effectively the cost of “buying” the money you use to purchase property.

Because home loans are secured by the value of the property, most lenders consider them less risky than most personal loans or business loans, so their interest rates are usually lower.

What are the pros and cons of a home loan?
  • Access to money to purchase property, which can grow in value and/or earn you income
  • Interest rates are usually lower than other loan types
  • May be able to package with other financial products
  • Long loan term means you may be in debt for a long time
  • Interest costs and fees can build over time
  • Application process can be complex

The pros of getting a home loan can often outweigh the cons. Home ownership is not a short process, and typically loans of any kind incur several years of payments, often through lengthy applications. However the end result is a home that is entirely yours, which can provide additional value and other benefits over time.

How do home loans affect your finances?

A home loan is likely one of the biggest financial commitments you’ll make in your lifetime. When you consider the high house prices in many Australian capital cities, any Australian wanting to buy their first home or invest in property will more than likely need to borrow a large sum of money to get started.

Home loan repayments can eat up a significant percentage of your household budget, much like the cost of rent. Additionally, having a large debt to your name can make it harder to apply for other forms of credit, such as car loans or credit cards, as a bank may be wary of lending you more money than you can comfortably afford to repay.

However, having a home loan can also deliver financial benefits. Whether you’re living in your property as an owner occupier or renting it out as an investor, your property’s value may increase over time. Your equity (the current value of your property minus your outstanding mortgage) can be used to secure other forms of credit, which can offer more financial flexibility.

Keep in mind that as time passes, your personal and financial goals may change. If your mortgage no longer suits your financial situation, it is possible to switch to a new home loan, or even another lender. This is called refinancing your home loan, and it can help you benefit from a lower interest rate, more useful features and benefits, or access to the equity in your property, such as through a line of credit.

Home loan features and benefits

Loan purpose – owner occupier or investor

If you’re buying a property to live in, you’re an owner occupier. If you’re buying a property to rent out and earn income, you’re an investor. Different home loans are available for owner occupiers and investors.

Owner occupied home loans often have lower interest rates than investment loans, as lenders consider owner occupiers less likely to default on their repayments (and lose the roof over their head!). However, investor loans may have more flexible features and benefits that could help property investors better manage their property and their repayments.

Home loan interest rates – fixed or variable

Many home loans have a variable interest rate, where the interest you’re charged on each repayment may increase or decrease. Your variable rate home loan may be influenced by the national cash rate set by the Reserve Bank of Australia (RBA), availability of your lender’s overseas funding, and other changes to the economy.

You may be able to lock in your interest rate for up to five years with a fixed rate home loan. A fixed interest rate can help protect you from interest rate rises for a limited time, though you also won’t benefit from savings if rates fall during the fixed rate period. Plus, you may not be able to benefit from as many flexible features and benefits, and you may have to pay expensive break fees if you choose to refinance during the fixed period. And once the fixed rate term expires, your loan will revert to the lender’s standard variable rate, which could lead to bill shock if interest rates have risen.

Comparison rate

Many lenders don’t just charge interest on their home loan products, but upfront and ongoing fees as well. This can sometimes mean a mortgage with a low interest rate and high fees could actually cost you more than a higher-rate home loan with low or no fees.

With this in mind, mortgage lenders in Australia are required to show a comparison rate alongside their advertised interest rates. The comparison rate combines the cost of a loan’s interest rate with its standard fees and charges, to give you a better idea of which home loans may cost you more in total at a glance. 

Not every extra fee will be included in the comparison rate, such as fees for accessing optional home loan features, so it’s still important to carefully compare home loans before making a choice. Also, keep in mind that to ensure consistency across the market, all comparison rates are calculated based on a $150,000 principal and interest home loan with a 25 year term, which may not closely reflect the mortgage you’re looking for.

Repayment type – principal & interest or interest only

Most home loans have principal and interest repayments, where each month (or fortnight, or week), you’re required to pay the lender back a portion of the money you owe (the loan principal) plus an interest charge. This slowly but surely pays off your loan, building your  equity until you own your property outright.

You may be offered the option to switch to interest-only repayments for a limited time. Because you’ll only be covering the cost of the interest charged on your mortgage principal, this can reduce the cost of your mortgage repayments, leaving some extra breathing room in your household budget for the short term. However, because these repayments don’t reduce your loan principal, it will take longer to pay off your property, costing you more in total interest over the long term.

Deposits, LVR and LMI

To apply for a home loan, you’ll first need to save up a deposit on the property you’re buying. Most mortgage lenders prefer that you pay an upfront deposit of 20 per cent of the property value, as this demonstrates your financial responsibility and helps reduce the risk of lending to you.

The deposit required on a home loan is sometimes expressed as the Loan to Value Ratio (LVR). For example, if a lender requires a 20 per cent deposit, their loan may be advertised as having an 80 per cent LVR as part of the lending criteria. If you already own a property (such as if you’re refinancing), the equity in your property may be used in place of a deposit.

It’s possible to get a home loan with a smaller deposit of 10 or even 5 per cent (LVR 90 or 95 per cent respectively). However, if your LVR is higher than 80 per cent, the lender will likely take out a Lender’s Mortgage Insurance (LMI) policy to cover them against the higher risk of you defaulting on your mortgage repayments. LMI protects the lender, not the borrower, and most lenders pass the cost of LMI on to the borrower – the higher your LVR, the more the LMI may cost, up to tens of thousands of dollars.

You may be able to get a home loan with a low deposit, or even no deposit at all, with the help of a guarantor. By having a close family member such as a parent guarantee your mortgage with the equity in their own property, you may get a home loan sooner, without having to save as much money for a deposit and LMI charges, though going guarantor comes with its own share of risks.

There are also a range of grants and incentives available from the state and federal governments that could help you with your deposit, especially if you’re a first home buyer. These include the First Home Owner Grants (FHOGs), the First Home Loan Deposit Scheme (FHLDS) and the First Home Super Saver (FHSS) scheme.


Extra repayments, redraw facility and offset account

A popular feature found with many (though not all) home loans is the ability to make extra repayments. This could include paying a lump sum onto your mortgage principal (such as when you get a tax refund), or making regular principal and interest repayments that are a bit higher than the required minimum amount. Additional repayments can help to lower your outstanding mortgage principal, potentially lowering your interest charges and helping you pay off your property sooner.

But what if you’ve put all of your spare savings onto your home loan and an emergency comes up, like having to pay for car repairs or an unexpected bill? In cases like this, it can be handy to have a home loan that features a redraw facility, which will let you take any extra repayments you’ve previously made onto your home loan back out again, putting the cash back in your bank account when you need it.

Another popular home loan feature is an offset account – a savings or transaction account that’s linked to your mortgage. Money deposited in your offset account is included when calculating your home loan’s interest charges, which can help you pay less interest. For example, if you have a $300,000 home loan, and $50,000 saved in your offset account, you’ll be charged interest as if you only owed $250,000 on your mortgage.

All of these extra features and benefits can give your home loan additional value. But keep in mind that the more “bells and whistles” a home loan has, the more likely you’ll pay higher fees or a higher interest rate. Sometimes a “no frills” home loan with a low rate and no fees can be a more affordable alternative that better suits your needs.

How long does a home loan last?

Most mortgages have a loan term measured in decades, with 25 to 30 years being common. The longer your loan term, the lower your monthly repayments will be, but the more interest you’ll be charged on your property over the long term. The reverse is also true – a shorter loan term means budgeting for higher monthly repayments, but you’ll pay off your property sooner, costing you less in total interest.

Refinancing your home loan onto a longer loan term may mean being in debt for even longer. Even if you switch to a lower interest rate, you may pay more in total interest charges.

Similarly, if you make interest only repayments for a limited time, or temporarily freeze your mortgage payments due to financial hardship, you’ll enjoy some valuable relief in the short term, but you may be charged more interest over the longer term.

How to find and compare home loans

  1. Calculate your budget: Consider using a mortgage calculator to work out how much you can borrow, what your repayments could be, and how much you can pay as a deposit (including grants and incentives).
  2. Compare advertised rates and comparison rates: The home loans with the lowest rates may not be the best home loans for you, or even the cheapest. The comparison rate combines the costs of interest, fees and charges into a single percentage, so you can quickly get a better idea of how much a home loan may cost you overall.
  3. Check the fees, features and other benefits: Not all of a home loan’s fees and charges are included in its comparison rate. Consider checking for any extra costs that you may need to pay, to avoid nasty surprises. Also, some mortgage lenders have special offers for new customers, such as interest rate discounts or even cashback. Consider the value of these deals before you apply, and don’t forget to check the eligibility criteria and the terms and conditions.
  4. Check Real Time Ratings™: A quick way to estimate the cost and flexibility of a home loan before you enquire is to look at its Real Time Rating™ which is updated daily to more closely indicate a home loan’s overall value. You can also compare some of the top-rated home loans on the RateCity Leaderboards, or look for which mortgage have won a RateCity Gold Award.
  5. Consider help from a mortgage broker: These home loan experts can look at your finances and recommend mortgage deals that may suit your personal goals and financial needs. Brokers can also negotiate on your behalf to help you get a better deal, provide access to exclusive home loan offers, and manage your mortgage application on your behalf, to help save you time and hassle.

How to apply for a home loan

  1. Check your finances: Compare your income and expenses to the cost of home loan repayments, as well as the deposit, stamp duty, and any other fees and charges that may apply, such as an annual package fee for a bundled home loan deal.
  2. Collect financial documents: Payslips, bank statements, bills etc. can be used to confirm your income and expenses.
  3. Fill out a lender’s home loan application form: This could be a paper form or online.
  4. Get pre-approval: This is where a lender agrees in principle to provide a loan, but you or the lender can still walk away.
  5. Make an offer on a property: Whether you’re buying at auction or by private treaty, make sure the price is within your budget.
  6. Credit check and valuation: The lender will check your credit score (based on your history of managing money) and calculate the value of the property to make sure you haven’t over-borrowed.
  7. Application approval: Assuming you’re successful, sign the formal home loan offer and contract.
  8. Prepare for settlement: This is the legal transfer of the property from one owner to another. A solicitor or conveyancer can help confirm that everything is done correctly.
  9. That’s it! Time to move in or start looking for tenants.

Frequently asked questions

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 are the different types of home loan interest rates?

A home loan interest rate is used to calculate how much you’ll pay the lender, usually annually, above the amount you borrow. It’s what the lenders charge you for them lending you money and will impact the total amount you’ll pay over the life of your home loan. 

Having understood what are home loan rates in general, here are the two types you usually have with a home loan:

Fixed rates

These interest rates remain constant for a specific period and are a good option if you’re a first-time buyer or if you’re looking for a fixed monthly repayment. One possible downside of a fixed rate is that it may be higher than a variable rate. Also, you don’t benefit from any lowering of interest rates in the market. On the flip side, if rates go up, your rate won’t change, possibly saving you money.

Variable rates

With variable interest rates, the lender can change them at any time. This change can be based on economic conditions or other reasons. Changes in interest rates could be beneficial if your monthly repayment decreases but can be a problem if it increases. Variable interest rates offer several other benefits often not available with fixed rate home loans like redraw and offset facilities and free extra repayments. 

Does the Home Loan Rate Promise apply to discounted interest rate offers, such as honeymoon rates?

No. Temporary discounts to home loan interest rates will expire after a limited time, so they aren’t valid for comparing home loans as part of the Home Loan Rate Promise.

However, if your home loan has been discounted from the lender’s standard rate on a permanent basis, you can check if we can find an even lower rate that could apply to you.

How do you determine which home loan rates/products I’m shown?

When you check your home loan rate, you’ll supply some basic information about your current loan, including the amount owing on your mortgage and your current interest rate.

We’ll compare this information to the home loan options in the RateCity database and show you which home loan products you may be eligible to apply for.


Can I take a personal loan after a home loan?

Are you struggling to pay the deposit for your dream home? A personal loan can help you pay the deposit. The question that may arise in your mind is can I take a home loan after a personal loan, or can you take a personal loan at the same time as a home loan, as it is. The answer is that, yes, provided you can meet the general eligibility criteria for both a personal loan and a home loan, your application should be approved. Those eligibility criteria may include:

  • Higher-income to show repayment capability for both the loans
  • Clear credit history with no delays in bill payments or defaults on debts
  • Zero or minimal current outstanding debt
  • Some amount of savings
  • Proven rent history will be positively perceived by the lenders

A personal loan after or during a home loan may impact serviceability, however, as the numbers can seriously add up. Every loan you avail of increases your monthly installments and the amount you use to repay the personal loan will be considered to lower the money available for the repayment of your home loan.

As to whether you can get a personal loan after your home loan, the answer is a very likely "yes", though it does come with a caveat: as long as you can show sufficient income to repay both the loans on time, you should be able to get that personal loan approved. A personal loan can also help to improve your credit score showing financial discipline and responsibility, which may benefit you with more favorable terms for your home loan.

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 much deposit do I need for a home loan from ANZ?

Like other mortgage lenders, ANZ often prefers a home loan deposit of 20 per cent or more of the property value when you’re applying for a home loan. It may be possible to get a home loan with a smaller deposit of 10 per cent or even 5 per cent, but there are a few reasons to consider saving a larger deposit if possible:

  • A larger deposit tells a lender that you’re a great saver, which could help increase the chances of your home loan application getting approved.
  • The more money you pay as a deposit, the less you’ll have to borrow in your home loan. This could mean paying off your loan sooner, and being charged less total interest.
  • If your deposit is less than 20 per cent of the property value, you might incur additional costs, such as Lenders Mortgage Insurance (LMI).

Is a home equity loan secured or unsecured?

Home equity is the difference between its current market price and the outstanding balance on the mortgage loan. The amount you can borrow against the equity in your property is known as a home equity loan.

A home equity loan is secured against your property. It means the lender can recoup your property if you default on the repayments. A secured home equity loan is available at a competitive rate of interest and may be repaid over the long-term. Although a home equity loan is secured, lenders will assess your income, expenses, and other liabilities before approving your application. You’ll also want  a good credit score to qualify for a home equity loan. 

What is a secured home loan?

When the lender creates a mortgage on your property, they’re offering you a secured home loan. It means you’re offering the property as security to the lender who holds this security against the risk of default or any delays in home loan repayments. Suppose you’re unable to repay the loan. In this case, the lender can take ownership of your property and sell it to recover any outstanding funds you owe. The lender retains this hold over your property until you repay the entire loan amount.

If you take out a secured home loan, you may be charged a lower interest rate. The amount you can borrow depends on the property’s value and the deposit you can pay upfront. Generally, lenders allow you to borrow between 80 per cent and 90 per cent of the property value as the loan. Often, you’ll need Lenders Mortgage Insurance (LMI) if the deposit is less than 20 per cent of the property value. Lenders will also do a property valuation to ensure you’re borrowing enough to cover the purchase. 

Can first home buyers apply for an ING home loan?

First home buyers can apply for an ING home loan, but first, they need to select the most suitable home loan product and calculate the initial deposit on their home loan. 

First-time buyers can also use ING’s online tool to estimate the amount they can borrow. ING offers home loan applicants a free property report to look up property value estimates. 

First home loan applicants struggling to understand the terms used may consider looking up ING’s first home buyer guide. Once the home buyer is ready to apply for the loan, they can complete an online application or call ING at 1800 100 258 during regular business hours.

What is the Home Loan Rate Promise?

The Home Loan Rate Promise is RateCity putting its money where its mouth is. We believe that too many Australians are paying too much for their home loans. We’re so confident we can help Aussies save money, if we can’t beat your current rate, we’ll give you a $100 gift card.*

There are two reasons it pays to check your rate with the Home Loan Rate Promise:

  • You can find out how much you could save on your home loan by switching to a loan with a lower interest rate
  • If we can’t beat your current rate, you can claim a $100 gift card with our Home Loan Rate Promise*

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 can I apply for a first home buyers loan with Commonwealth Bank?

Getting a home loan requires planning and research. If you are considering a home loan with the Commonwealth Bank, you can find the information you need in the buying your first home section of the bank’s website.

You can see the steps you should take before applying for the loan and use the calculators to work out how much you can borrow, what your monthly repayments would be and the upfront costs you’d likely pay.

You can also book a time with a Commonwealth first home loan specialist by calling 13 2221.

CommBank publishes a property report that may help you understand the real estate market. The bank has also created a CommBank Property App that you can use to search for property.  The link to download this app is available on the same webpage.

If you are eligible for the First Home Loan Deposit Scheme, CommBank will help you process your application. The scheme helps first home buyers to purchase a home with a low deposit. You can read details about this scheme here and speak with a CommBank home lending specialist to understand your options.

Who has the best home loan?

Determining who has the ‘best’ home loan really does depend on your own personal circumstances and requirements. It may be tempting to judge a loan merely on the interest rate but there can be added value in the extras on offer, such as offset and redraw facilities, that aren’t available with all low rate loans.

To determine which loan is the best for you, think about whether you would prefer the consistency of a fixed loan or the flexibility and potential benefits of a variable loan. Then determine which features will be necessary throughout the life of your loan. Thirdly, consider how much you are willing to pay in fees for the loan you want. Once you find the perfect combination of these three elements you are on your way to determining the best loan for you.