What to look for in a home loan

29 January 2018
If you thought choosing a property was difficult, just wait until you have to choose the home loan that will pay for it.

Here’s a checklist of features to look for before you choose a home loan:

Do I need Lenders Mortgage Insurance (LMI)?

If you have less than a 20% deposit, you may need to pay for lenders mortgage insurance. Lenders Mortgage Insurance is a premium payable by you the borrower that protects the lender (financial institution) against potential losses if you are unable to repay your loan. Learn more about Lenders Mortgage Insurance.

How much of a deposit do I have?

Different lenders offer loans with different Loan to Value ratios (LVRs). The LVR is the percentage of the loan amount that you are able to borrow from the lender.


What fees apply to the loan?

There may be a number of fees charged on different features of a home loan, including:

  • Application fees (also called establishment fee)
  • Property valuation fees
  • Ongoing fees such as annual fees
  • Late payment fee (also called default fee) (if you make a required repayment later than the due date)
  • Early exit fee (if you repay your home loan in full and close the loan before the end of the loan term)
  • Discharge fee (also called termination fees or settlement fees) (charged when you pay out your mortgage in full)
  • Break fees (also called break costs) (if you switch loans during a fixed rate term)
  • Redraw fees (if you use a redraw facility)
  • Account-keeping fee for offset account (if you have an offset account attached to your loan)
  • Lender’s Mortgage Insurance (LMI) (if you only have a small deposit on your loan)

Make sure you understand what fees are charged on the loan.

What is the interest rate on the loan?

Lenders will typically display a current/advertised interest rate and a comparison rate.

The advertised rate generally is just the interest rate, and it does not include the cost of any fees or charges.

Meanwhile, the comparison rate calculates what the cost on that home loan product would be for a certain loan amount over a certain loan period, taking into account most fees and charges (Canstar’s comparison rates are based on $150,000 loan over 25 years). Confused? Learn more about comparison rates here.

In addition, some lenders will have a honeymoon rate or introductory offer interest rate. The honeymoon rate and introductory rates are generally lower rates offered only for a short time at the start of your loan. So always remember to check the comparison rate to get an idea of what the real cost of a loan would be when your introductory period came to an end.

If you’re currently considering a home loan, the comparison table below displays some of the variable rate home loans on our database with links to lenders’ websites that are available for first home buyers. This table is sorted by Star Rating (highest to lowest), followed by comparison rate (lowest-highest). Products shown are principal and interest home loans available for a loan amount of $350K in NSW with an LVR of 80% of the property value.

Before committing to a particular home loan product, check upfront with your lender and read the applicable loan documentation to confirm whether the terms of the loan meet your needs and repayment capacity. Use Canstar’s home loan selector to view a wider range of home loan products.

*Comparison rate based on loan amount of $150,000 and a term of 25 years. Read the Comparison Rate Warning

What’s the best type of loan for me?

Another home loan feature to look for is the decision between fixed or variable. You will need to weigh up the pros and cons for your individual circumstances to get the low-down on the benefits of both types of loan.  Plus check out our fixed vs variable article.

Remember some loans have the ability to split your loan so that a proportion of the loan amount is variable and the remaining portion is fixed.

Does the loan have features important to me?

While interest rate, fees, deposit and repayment amount are important things to consider when taking out a mortgage, you should also check out what features are on offer in a home loan that you might be considering. Some home loan features to look for include:

The factor that will have by far the biggest impact on the overall cost of your loan is the interest rate – so ensure that you are not paying an uncompetitive rate. View our most recent Home Loans Star Ratings report to get a run down on the outstanding value home loans on offer in Australia. Also, check out our mortgage repayment calculator.

Compare Home Loans

Learn more about Home Loans

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