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Helpful Home Loan Information - Types of home loans, fees, and features

Owning a house is part of the “Great Australian Dream” for many and over the past decades ownership rates in Australia have fluctuated by only a few percentage points. Currently, home ownership rates are just under 70%.

Whether a unit or house though, buying a home takes a great deal of planning. It is likely to be one of the largest financial commitments you will ever make – and your home loan is likely to be one of the largest debts you ever commit to. So it’s worth spending the time upfront to get it right! CANSTAR assess approximately 1,300 home loans from more than 100 providers across Australia, to help you compare home loans find an outstanding-value loan to suit your needs.

What is a home loan?

CANSTAR - Outstanding Value - Home LoanA “home loan” or “mortgage” is a loan from a bank or financial institution. A home loan will typically be a 25 or 30 year term, with regular payments fortnightly and monthly to pay it off. There are many variations on home loans and interest rates to suit your requirements.

The loan is secured against your property so if you are unable to continue paying the loan, the lender may ultimately require you to sell the property to settle the debt.

Given property prices in Australia, a home loan is realistically the way by which the majority of people will afford to buy a house.

Compare home loan interest rates

CANSTAR currently compares and rates approximately 1,300 home loans, to provide home buyers with certainty and confidence when they compare mortgages and their interest rates. And despite our currently-low official cash rate, home loan interest rates can vary significantly between home loan providers.

Because home loans are a long-term debt, even small differences in interest rates can make a big difference to the total amount you will pay on your loan over its lifetime.

Ensure that you use our mortgage calculator to help you work out just what that home loan might cost you, both month by month and over the life of the loan.

Types of home loans


Here’s what you need to know before you apply for a home loan.

Property and property ownership is always a hot topic in Australia. Buying a property, though, usually means taking out a home loan. In this article, we explain what a home loan is, and the different types of home loans available to Aussie home buyers.

Compare Home Loans

What is a home loan?

A “home loan” or “mortgage” is a loan advanced to you by a financial institution in return for security over the property you are using the loan to buy. Typically a home loan will be a 25 or 30 year term, with regular repayment amounts fortnightly or monthly that are designed to pay off the loan over the contracted term.

The loan is secured against your property so if you are unable to continue paying the loan, the lender may ultimately require you to sell the property to settle the debt.

Given property prices in Australia, a home loan is realistically the way by which the majority of people will afford to buy a house.

Types of home loan

There are a number of different types of home loans in Australia. Home loans are commonly classified either by interest rate type, or by purpose. We discuss both of these options below in more detail.

Types of home loan by interest type

The most common types of home loans that people would know about are variable rate home loans or fixed rate home loans – but there are many more options than that. Check out the following options when considering what would best suit your home purchase:

Variable rate home loan

A variable rate loan means that the interest rate will rise and fall (vary) over the period of your home loan. This may be in response to movements in the official cash rate or may simply be a business decision by your financial institution.

The main advantage of a variable rate loan is flexibility. While you must meet your minimum monthly repayment, you can usually pay more if you want to. There is also no break fee because there is no fixed term for you to break, so you can sell your property and move without the extra fees and charges that would apply to a fixed rate home loan.

The main disadvantage of a variable rate loan is that your minimum repayment amount may rise or fall at any time. If you are on a tight budget, this could be a real problem for you. Find out more about variable rate home loans here, or compare variable rate home loans on our website:

Compare Variable Home Loans

Fixed rate home loan

The fixed rates on home loans are reasonably low at present. A fixed rate loan simply means that the interest rate is “fixed” for a certain amount of time – commonly 1, 2,3, 4 or 5 years.

The main advantage of a fixed rate loan is that it gives you certainty of repayments over the fixed term; because the interest rate is guaranteed not to go up (or down) over the fixed period, it can be a way to budget your costs.

The main disadvantage of a fixed rate loan is the inflexibility: generally large additional payments cannot be made and you may face a “break fee” if you decide to sell before the end of the fixed term. Read about potential cost penalties here.

Find out more about fixed rate home loans here, or compare fixed rate home loans on our website:

Compare Fixed Rate Home Loans

Fixed rate home loans are on the rise…https://t.co/wSZapDEsAi pic.twitter.com/mR9oCbi1vW

Split home loan

A split loan is simply a combination mortgage whereby part of your home loan is on a fixed rate and part is on a variable rate.

When choosing the type of loan that would suit, first home-buyers should consider how long they intend to stay in the home. If the intention is only for a short while, a variable loan is more flexible and doesn’t entail “break fees”. On the other hand, if the intention is to live in the home long term, a fixed rate may offer the certainty of repayments the borrower is looking for. Of course, a split loan can be a good option, providing both flexibility and security.

Find out more about split loans here, or compare split loans on our website:

Compare Split Home Loans

Interest-only home loan

An interest-only home loan is one where only the interest is paid, rather than both the interest and the principal. Generally, an interest-only home loan will have a short time frame (between 1 – 5 years) before it reverts to a principal and interest loan.

This type of loan can be useful for investors who can claim the interest as a tax deduction, or buyers who only plan on holding onto the property for a few years before selling it. Interest-only home loans may not be a good idea for standard home-buyers simply looking to pay less on their weekly repayments, because the smaller the amount of loan principal that is paid off, the more overall interest you may end up paying on your loan over the years.

Find out more about interest only home loans here, or compare interest only home loans on our website:

Compare Interest Only Home Loans

Line of credit home loan

A line of credit is a loan borrowed against the equity in your home. It gives you the ability and flexibility to access the loan at any time, up to the agreed limit, and to pay money into the loan at any time. It is not generally a loan set up to purchase a property, but rather set up against the equity in an existing property.

You can compare line of credit loans here:

Compare Line of Credit Home Loans

Types of home loan by purpose

There are many different reasons why someone would take out a home loan, and many different types of loans designed to meet those needs. We’ve outlined the different types of home loan by purpose below.

First home buyer home loan

First home buyer home loans are designed for those who are buying their first home. A first home buyer loan can fit into many different home loan category types – it could be variable or fixed rate, principal and interest or interest only, construction home loan, etc.

Find out more about first home buyer home loans here, or compare first home buyer loans on our website:

Compare First Home Buyer Home Loans

Construction home loan

A construction home loan is a home loan designed for those who are building a home from scratch. Once a construction loan has been approved and the construction of the property is underway, lenders will make progress payments throughout the stages of construction. A construction loan will usually be interest-only over the first 12 months and then revert to a standard principal and interest loan. As the loan is being progressively “drawn down”, interest and repayments will only be charged or calculated on the funds used so far. The total loan amount is partly based on how much the property will be worth once it is fully built.

Find out more about construction home loans here, or compare your construction loan options on our website:

Compare Construction Home Loans

Owner occupier home loan

Owner occupier home loans are designed for those who either own their own home already, or have an existing mortgage on their current home, but want to get a home loan to buy their next home or to renovate their existing home. Find out more or compare owner occupier home loans on our website:

Compare Owner Occupier Home Loans

Investment home loan

Property investment is very common in Australia. An investment loan is a type of home loan that someone takes out to buy an investment property. It is a mortgage solution for those who want to buy a property and rent it out to receive income from it, but can’t afford to buy the property without a loan. Be sure to consider the pros and cons of investing in property before making any investment decisions.

Find out more about investment home loans here, or compare investment loan options on our website:

Compare Property Investment Home Loans

Refinancing home loan

Refinancing home loans are designed for those who have an existing mortgage and want to switch to a different mortgage. There are many reasons why someone might do this, such as to get a lower interest rate with a different loan or a different lender, to sell one home and buy a different home, to enlarge their loan so that they can renovate, to downsize to a smaller home, for debt consolidation, or other reasons.

Find out more about refinancing your home loan here, or compare refinancing home loans using our website:

Compare Refinancing Home Loans

Irrespective of what type of loan you choose, make sure it’s good value! We can help you compare more than 1,000 home loans using our database of home loans star ratings:

Compare Home Loans


Home loan fees

There are a number of fees that may apply to your home loan. Some of the common home loan fees are:

Account keeping fee: An account-keeping fee is a fee charged by lenders (often monthly) to help cover the administration cost of maintaining the loan. It may be called a “service fee”.

Annual fee: Some lenders may charge an annual fee rather than an ongoing account-keeping fee on certain mortgages. These may be a “package loan” where a number of deposit and credit accounts as well as your home loan are “packaged” up under one administrative cost.

Redraw fees: If your home loan has a redraw facility (an agreement whereby you are able to redraw some or all of any home loan payments in advance) there may be a fee associated with doing so.

Other ad-hoc fees may include a loan application fee and a valuation fee at the time of property purchase, a late payment fee if you miss a loan repayment and a discharge fee if you pay your home loan off early.

You should ask your lender to detail all fees that may apply to your home loan.


What does a home loan cost?

This is a question that we are often asked at CANSTAR, however it is a question that is impossible to answer definitively as it will depend on the size of your home loan, the term of your loan, the interest rate, the fees, whether you make any additional home loan repayments and how your interest rate fluctuates over time.

For purely illustrative purposes though, here is a basic example of indicative costs of a 25 year home loan at an interest rate of 5.5%.

Home Loan size at commencement Monthly repayment at 5.5% Total cost over 25 years at 5.5%
$200,000 $1,228 $368,452
$300,000 $1,842 $552,679
$400,000 $2,456 $736,905
$500,000 $3,070 $921,131
$600,000 $3,685 $1,105,357

Try our mortgage calculator to input your own personal loan amount and loan interest rate, to gain a general idea of the likely cost of your home loan.


Other home loan features

There are many different features that may be attached to your home loan. These can include:

  • An offset account
  • A redraw facility
  • The ability to make extra repayments
  • The ability to split the loan between fixed and variable
  • The ability to switch to a different type of loan
  • Ability to pre-pay interest
  • Online functionality
  • Lending terms, including the LVR (loan to value ratio) allowable
  • Guarantor security availability

A summary of features that we look for in an outstanding value home loan are contained in the Methodology attached to the Home Loan Star Ratings report.


Written by: TJ Ryan

Home Loan Glossary of Terms

Please note that these are a general explanation of the meaning of terms used in relation to home loans/mortgages.

Policy wording may use different terms and you should read the terms and conditions of the relevant policy to understand the inclusions and exclusions of that policy. You cannot rely on these terms to the part of any policy you may purchase.

Refer to the product disclosure statement and Canstar’s FSG.

Annual Percentage Rate – This is the total charge for the loan including fees and interest expressed as a percentage, which allows you to compare across the market.

Application fee – A fee paid to the lender for setting up a home loan.

Appraisal fee – A fee charged for a professional opinion about how much a property is worth.

Arrangement Fee – A fee some lenders charge for arranging your loan.

Asset – An asset is a resource controlled by the entity as a result of past events or transactions and from which future economic benefits are expected to flow to the entity.

Automatic transfer – a system that is set up to automatically transfer money from a one bank account into another account at a certain point in time to coincide with bills or payments.

Balloon loan (balloon mortgage) – A loan that has regular payments that do not cover the full loan by the end of the term, meaning a larger lump sum is due at maturity.

Bankruptcy – This is when someone’s debt problems get so serious, they are unable to pay their existing debts and bills.  When this happens, it’s possible to apply to a court to be made bankrupt – which means that any assets you have such as savings will be used to pay off your debts. Normally after one year a person will be discharged from bankruptcy, but it will still have a negative impact on their credit rating and may stop them getting credit in the future.

Basis points – A basis point is equal to 0.01% interest. For example: 50 basis points is an interest rate of 0.50%

Bill of sale  – A written agreement whereby ownership is transferred but the original owner is allowed to retain possession.

Biweekly mortgage – A home loan in which the payments are scheduled for every other week, rather than each month.

Break costs – The penalty fees charged when a borrow ends a fixed-rate loan contract before the fixed-rate period expires.

Bridging finance – A loan that can be used when buying a new home before selling an existing home, usually short-term.

Buydown – When the home buyer “buys down” the interest rate by paying an initial fee upfront, thereby reducing the size of future payments.

Caveat emptor – Latin for ‘let the buyer beware’.

Comparison rate – This includes the interest rate, payments, and most ongoing and upfront fees and charges in one rate reflecting the total annual cost of the loan, reduced to a single figure. On the Canstar website all comparison rates for home loans are based on a $150,000 loan over 25 years.

Consumer Credit Code – An act of Parliament governing the relationship between borrowers and lenders.

Countersigned – Additional signature or signatures to guarantee the validity of a document.

Credit Rating – An assessment of the credit-worthiness of individuals and corporations, based on their borrowing and repayment history.

Credit report – A report from an authorised agency that shows the potential borrower’s credit history.  Lenders access the information in your file to help them decide whether to lend to you. They can also record a default on your file if you make loan repayments late, or don’t pay a utility bill. Every time you make an application for finance an entry is recorded on your file showing the lender you applied to, the type of finance, the amount and the date.

Credit/facility limit – The maximum loan amount that a borrower can borrow under their home loan contract.

Current Rate – The rate advertised by institutions not including fees, discounts and special offers.

Debt consolidation (consolidation loan) – A loan that replaces multiple loans with a single one, often with a lower monthly payment but a longer period of repayment.

Default – When a consumer fails to fulfil obligations to  make the necessary payments on a loan.

Deposit guarantee – A substitute for a cash deposit to assist with the purchase of a property. Useful when the buyer has cash tied up in term deposits or shares, but the buyer is still required to pay the full purchase price at settlement.

Disbursements – The various costs your solicitor or conveyancer has to pay to other organisations and bodies on your behalf, for example, search fees and stamp duty/ land tax. Your solicitor or conveyancer will itemise the disbursements on the invoice they send you.

Down payment – The initial payment of the home loan, usually a small proportion of the total price.

Drawdown Rate – The date on which the borrower first uses the loaned money.

Empty nester – Someone whose children have moved out of their house, typically on the market for a smaller house.

Encumbrance – An outstanding liability or charge on a property.

Equity – The residual claim to ownership which the purchaser holds. For example if a house is valued at $200,000 and the owner has a loan of $120,000 against the property, the equity in the property is $80,000.

Exit Fee – A fee imposed by some lenders when the borrower decides to refinance with another lender within the first years of the loan. The good news is that in 2011 the Federal Government outlawed home loan exit fees.

Extra repayments – Some home loans allow you to make extra payments earlier/greater than the required amount.

FHOG – “First Home Owner Grant,” A federal government grant given to some first home buyers. Read more about the FHOG here.

Fixed Rate Home Loan – These home loans allow a borrower to lock in an interest rate for a particular period of time, typically 1 – 5 years.  The interest rate that the borrow pays will remain the same for that amount of time, regardless of changes in the RBA official cash rate.

Foreclosure – When the homeowner defaults on the mortgage and has their interest in the property cut off. Usually leads to a forced sale of the home, with the proceeds going towards the mortgage debt.

Guarantee – Any undertaking which promises to pay an amount of funds upon the presentation of a claim or some other defined event (usually a financial default on the part of the entity for which guarantee was issued).

Guarantor – A person or company that endorses an agreement to guarantee that promises made by the first party (the borrower) to the second party (lender) will be fulfilled, and assumes liability if the borrower fails to fulfil them (defaults). In case of a default, the guarantor must compensate the lender, and usually acquires an immediate right of action against the borrower for payments made under the guarantee.

First Home Buyers

Whether it’s a house, a unit, a duplex or a penthouse, getting into your first home is exciting – and downloading CANSTAR’s Home Buying Guide is a great place to start learning about many of the financial things you’ll need to think about.

First Home Buyer Grants

As a first home buyer, you need to be aware of what’s on offer with regards to government incentives and how they can benefit your cause. Also be aware though that these schemes are subject to change; you’ll need to keep abreast of what’s happening in your state.

You can find out what’s on the table from state and territory governments around the country.

New South Waleshttp://www.osr.nsw.gov.au/grants

Australian Capital Territory http://www.revenue.act.gov.au/home-buyer-assistance/first-home-owner-grant



Western Australiahttp://www.finance.wa.gov.au/cms/content.aspx?id=344

South Australiahttp://www.revenuesa.sa.gov.au/


Northern Territory – http://www.treasury.nt.gov.au/TaxesRoyaltiesAndGrants/Pages/default.aspx

First Home Buyer Articles

Some useful articles for first home buyers are below.

10 ways to save for a home deposit

How much can you borrow to buy a house?

How to prepare a loan application

Choosing a home loan

What is Lender’s Mortgage Insurance? (LMI)

What is mortgage stress?

What to look for in a home loan

Is a duplex right for you?

What can count towards a deposit?

Pros and cons of apartment living

Tips for first home buyers

Improve your chances of being approved for a home loan

What are the real costs of buying a house?

Going guarantor on a home loan

Things for first home buyers to think about

Five steps to buying your first home

Rent or buy?

How the RBA cash rate affects your home loan

Compare Home & Contents Insurance

How to check your credit rating


As the size of your household expands, the size of your house may need to expand as well. Should you renovate the place you’re in, or sell and start again? Perhaps you could even keep the place you currently  have, as an investment property, and buy somewhere else to live. There are plenty of things to think about, and some useful articles for upsizers are below.

How to avoid auction mistakes

What suburbs do parents like?

Better rates if you  borrow more

Package up products to save

Four questions to ask a Buyer’s Agent

Offset or redraw: what’s the difference?

What are break costs?

Financing your renovation

Fixed or variable home loan

How much will your mortgage cost?

Compare Home & Contents Insurance


Whether it’s to renovate, to free up equity for investment or simply to move to a better-value home loan, there are many reasons for refinancing. Some useful articles for those looking to refinance their home loan are below.

How to negotiate a better home loan rate

Many borrowers can do better

The 10-year increase in house prices

What is a redraw facility?

What is a reverse mortgage?

Why do people refinance their loan?

What’s the cost of refinancing?

What does it cost to refinance a loan?

Should you use a mortgage broker?

Refinancing: Check your Credit Rating

Home loan hints and tips


Property is a tax-favoured form of investment in Australia, and it’s popular! Some useful articles for property investors are below.

Property investment is always popular

Interest-only mortgages: pros and cons

Investment properties: Common buyer mistakes

Is a holiday home a good idea?

What is negative gearing?

The property game

What to look for in a Buyer’s Agent

Stamp duty on your investment property?

Simple ways to add value

Property Investment: The attraction

Hire a property manager or DIY?

Property through an SMSF

Compare Landlord Insurance


Sometimes it’s nice to start with a clean palate and create the home of your breams from scratch. Some useful articles for those building a home are below.

5 hidden costs of building

Ways to keep your house cool

What is a construction loan?

Traps to avoid when designing your own home

Construction Loans: What to be aware of

Building a home: Check for these inclusions

Home & Contents Insurance

Home Loan Providers

Our Ratings & Guides

CANSTAR’s 2016 Home Loan Star Ratings

CANSTAR’s Home Loan Calculators:


Getting Ready to Buy Checklist

Buying a Unit Checklist

Buying a House Checklist

Choosing a Home Loan Checklist

Applying for a Home Loan Checklist

Moving House Checklist

Home Loan Articles & Guides

Global Financial Crisis – What caused it and how the world responded

What is a mortgage offset account?

The Pros and Cons Of An Interest Only Home Loan

The hidden costs of building your own home

How much will your mortgage really cost?

What is a redraw facility?

Lenders Mortgage Insurance

How to negotiate a better home loan rate

Pros & Cons of Apartment Living

What are break costs?

What Is Mortgage Stress?

What can count towards a deposit?

Offset or redraw: what’s the difference?

What effect does a rate change have on a home loan?

Is a holiday home a good idea?

What does it cost to refinance a home loan?

What is a Construction Loan?

RBA interest rate – Deciding factors

Financing a Renovation

Improve your chances of being approved for a home loan

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