Facts around home loans and mortgages and where you can go for help if you need it.
Buying property is one of the most important financial decisions that a person is likely to make, and yet a lot of us don’t understand how the process works. It can be complex and costly, but it can bring long-term financial and physical stability to a person’s life.
So whether you’re considering taking out a home loan or you already have one, on this page learn about home loans and find out where you can go for help if you need it.
Home loans and mortgages
When buying a house or apartment, people usually take out a loan to cover the cost of the property. This is referred to as a ‘home loan’.
You may have also heard of a ‘mortgage’. A ‘mortgage’ is an agreement between parties, usually, the person taking out the loan to buy a home and the lender. This agreement states that the borrower only owns the house ‘outright’ when the home loan is paid off.
If the loan can’t be paid off for any reason, the lender can repossess the property. However, repossession is an action of absolute last resort and is strictly regulated by law.
Rather than owing money on a bill, a fine, or many other types of debt, mortgages are often viewed positively, or at least as a necessity, by many people. This is because the debt has been taken out to secure an asset that could give long-term security – a place to live and a property that could increase in value.
Owning a home has been central to what some call the ‘Australian Dream’. Unfortunately, in recent decades, increasing property prices occurring at the same time as slow wage growth has pushed that dream out of the reach of many people.
This page is specifically about home loans, but for more general information on buying a home, visit Moneysmart’s steps to buy a home.
Where to get a home loan
Home loan providers include banks, building societies and credit unions. You can choose to apply for a loan directly with a lender of your choice, or you can work with a mortgage broker.
Mortgage brokers
Mortgage brokers find and fill in applications for home loans on behalf of their clients. They typically negotiate with multiple lenders. It’s important to remember that mortgage brokers may work on commission, and might take money to offer a specific range of loan products and lenders.
Visit Moneysmart’s page on using a mortgage broker for more.
Home loan deposits
Home loans usually require a deposit of a portion of the whole value of the property, including expenses to buy the property. So, if your deposit is 20% of the cost, the bank would cover the other 80% through the loan.
- larger deposits – you pay out more upfront but have less to pay off. You might also be able to pay off your mortgage sooner, with less interest.
- smaller deposits – you pay out less upfront but take on more debt, which might take longer to pay off and result in higher interest.
Once the deposit has been paid, the mortgage is then set for a repayment period, for example 30 years.
Lenders Mortgage Insurance (LMI)
With deposits of less than 20%, you may need to pay Lenders Mortgage Insurance. This is insurance that covers the lender should the borrower default on the loan. The borrower pays the LMI, usually by having it added to the borrowed amount.
Budgeting for deposits and repayments
Once you’re serious about buying property, one of your key priorities is to save for a deposit. Your deposit must take into consideration not only the down payment on the property, but the other buyer costs such as:
- building inspection
- legal fees
- stamp duty
- insurance (building insurance, Lenders Mortgage Insurance).
Read about grants, concessions, services and costs like stamp duty in your state or territory at the Australian Government’s First Home Owner website.
Read about saving for a deposit at the Moneysmart website.
How much to borrow
The lender decides how much they are willing to lend to you by looking at things like your income and financial commitments, as well as your current savings and credit history.
Take the bigger picture into account when considering a loan offer; like your regular living expenses and whether you can afford to repay the loan while still living comfortably. Remember, you don’t have to say yes to the amount you’re offered. You may be able to discuss more workable options with your lender.
Types of home loan
There are a few different types of home loan products on the market, and each has advantages and disadvantages, depending on your individual needs. These include:
- fixed-rate – a loan with a fixed interest rate for a fixed period
- variable rate – a loan that varies based on interest rates
- partially fixed rate or split rate – part of the loan has a fixed rate and the rest has a variable rate
See the Moneysmart website for help with choosing a home loan and to learn more about the advantages and disadvantages of some home loan features.
Using comparison sites
You may have seen comparison websites for things like home loans, credit cards, insurance or superannuation funds. These sites offer explanations of products, customer reviews and ratings, and price comparisons. They can also help you to decide what’s best for you. Though before you act on any recommendation, it’s important to know how comparison websites work.
- they are there to make a profit – comparison sites often take money from lenders and other service providers to advertise specific products at the top of lists
- they might not be comprehensive – the sites might not have a list of everything that’s available
Getting upfront financial advice
Before committing to anything, it helps to stop and understand what it means to enter into a home loan. Many people do this by seeking financial advice from a variety of sources, including speaking with a financial adviser.
Financial advisers
Financial advisers must have an Australian Financial Services Licence. They are also regulated by the Australian Government.
Resources from Moneysmart
What to expect from financial advice
How to check if a financial adviser is accredited
Considerations when choosing a financial adviser
If you have problems with a financial advice
Advice from lenders and mortgage brokers
Lenders and mortgage brokers might also offer financial advice. Remember that lenders are selling a product and mortgage brokers work on commission. So, before making a decision, you might want to go to a variety of sources.
📌 See our loans and debt page.
Related resources for managing your home loan
Use Moneysmart’s mortgage calculator to see how much repayments could be, read about the six ways to pay off a mortgage early, and see how to switch a mortgage from one lender to another.
Know your rights
There are laws and regulations that protect people who enter financial arrangements with banks, other organisations, and other people. It’s important to know your rights and where to get help if you need it. You can visit the National Debt Helpline for details.
Help with mortgage stress
Mortgage stress has a few different definitions. To put it simply – if you’re struggling to pay your mortgage while keeping up with other life expenses, you might say you’re experiencing mortgage stress. Even if this isn’t an issue for you right now, an unexpected expense could be all it takes for you to experience mortgage stress.
What you can do about mortgage stress
While it may not feel like it, there are options available that may ease the pressure. Long before your lender sends a repossession notice or you decide to sell your property, possible options might include:
- applying for a mortgage hardship variation from your lender
- extending the length of the loan
- reducing your payments to the minimum
- consolidating your debts
- considering an offset account to help reduce the interest you pay
- learning about accessing your super to pay your debt obligations.
📌 See our understanding superannuation page.
Learn more about managing mortgage stress
| Resource | Organisation |
| Apply for early release of superannuation | National Debt Helpline |
| Mortgage stress handbook | NSW Legal Aid |
| Steps for taking care of mortgage debt | National Debt Helpline |
| Steps to avoid repossession | Financial Rights Legal Centre |
| Requesting a hardship variation | Financial Rights Legal Centre |
| Keeping your mortgage on track | Moneysmart |
| Problems paying your mortgage | Moneysmart |
📌 See our handling housing stress page.
If you get a notice of repossession
Repossession is the last resort of a lender when you’re not able to make payments on your mortgage. By law, a series of steps must be followed first and you have options to prevent repossession at every step.
Get legal advice early
The earlier you seek legal advice, the more options you could have. Importantly, there’s no need to wait until you’ve received a repossession notice to get help, you can reach out at any time. Learn more about free legal advice.
The Financial Rights Legal Centre has prepared a comprehensive fact sheet on the repossession process, including details of your options at each step.
Making a complaint
If you feel you haven’t been treated fairly by a lender, you can make a complaint to the Australian Financial Complaints Authority (AFCA).
AFCA is an independent agency that helps resolve disputes between people and financial institutions, companies or government agencies. It’s a free and independent service. And while the process can be lengthy, it will lead to a resolution.
This information was last updated on 5 June 2023.
The links and resources in this article have been compiled and reviewed by the Brotherhood of St. Laurence. We aren’t responsible for what you’ll find at the links, though we do hope you find the information useful. See our disclaimer if you’d like to know more.
Want to save this article as a PDF? See how to here.
📌 See more: