Compare First Home Buyer Loans in Australia

What is a first home buyer loan?

Looking to break into the property market? It can be assumed that most first-time property buyers turn to a home loan to purchase their pad.

While the term ‘first home buyer loan’ is popular, there’s really no such thing. A first home buyer mortgage is, for the most part, a regular home loan.

Though, there are certain features that first home buyers commonly look for in a home loan that the rest of the market doesn’t typically value so highly.

Additionally, some lenders might offer first home buyers a discounted interest rate, lower or waived fees, and particular home loan features to help them manage their finances as they take the leap onto the homeownership ladder.

And you don’t need to have locked in a property before applying for a home loan. In fact, real estate agents and sellers tend to prefer dealing with buyers who are pre-approved for a mortgage over others who aren’t.

How to choose your first home loan

The home loan market can seem daunting, particularly if it’s your first time navigating it. But deciding which lender or product to go with doesn’t have to be complicated.

There are really only three things to consider:

1. What’s the lowest rate you can secure?

2. How much security do you want in that interest rate?

3. Do you want any extra home loan features?

Find our guide on how to find the answers to those questions below. Once you have a concrete understanding of each, you can start to peruse home loans from lenders.

We’ve conveniently corralled home loans from dozens of lenders into the table above. Simply use the filters provided to compare mortgage products that meet your specific wants and needs.

1. What’s the lowest rate you can secure?

First things first, you should narrow in on the home loan products you’re actually able to secure. From there, it’s probably wisest to sign on to the lowest-rate home loan that meets your needs.

Your deposit and your borrowing power will largely determine what lenders you can go through and what type of home loan you can secure.

What is borrowing power?

Your borrowing power is assessed by considering your income and expenses. A lender will weigh both of those factors to determine how much you can afford to repay.

Your deposit – less purchasing costs – plus your borrowing power is probably going to add up to the maximum amount you can spend on your first home.

You can use Your Mortgage's borrowing power calculator to estimate your borrowing power.

Why does your deposit matter when assessing home loans?

On top of that, the size of your deposit compared to the amount of money you’re planning to spend in buying your first pad can also influence your home loan choice – it’s called your loan-to-value ratio (LVR).

For the most part, a home loan borrower needs a deposit of at least 5% of their property’s value – meaning their LVR needs to be 95% or less. 

Though, some lenders might demand you have a 20% deposit. Others will allow you to put down a deposit of just 5%, but ask you to pay Lenders Mortgage Insurance (LMI) if you do so.

Meanwhile, more than 30 Australian lenders offer access to the Home Guarantee Scheme (HGS), wherein the federal government essentially guarantors a portion of your home loan, thereby allowing you to dodge LMI with a deposit as small as 2%.

What’s a good interest rate?

So, once you’ve worked out your potential LVR, you can plug it into the filters above to find some of the most competitive mortgage products out there for you. No doubt you’ll quickly notice how much interest rates on offer can vary.

The interest rate determines how much interest you’ll pay. In other words, it determines how much your lender will charge you to borrow money. It’s a good idea to minimise that cost.

Interest rates change all the time, so what’s a good rate today might not be so attractive tomorrow. A good interest rate is one that compares favourably to others on the market at any given time.

Comparison rate

Next to the interest rate, you’ll see what’s called a comparison rate.

The comparison rate factors in both the interest rate and any fees a borrower would face if they were to borrow $150,000 and pay it back over 25 years.

So, if a home loan has a low interest rate and a high comparison rate, chances are it demands notable fees.

2. How much security do you want in that interest rate?

Once you’ve assessed your financial situation and understand what home loans you’re eligible for, now’s the time to look into the future.

You have two main choices when it comes to home loan interest rates: Fixed and variable, and the option you choose could have a huge impact on your finances going forward.

Fixed rate home loans

The interest rate on a fixed mortgage is locked for a specified period, usually between one and five years.

That means your monthly repayments will remain the same until the fixed term ends.

The biggest advantage of a fixed-rate home loan is certainty. First-time borrowers can easily plan their budgets knowing their mortgage repayments will stay the same for a certain period.

Conversely, a limited ability to make extra repayments is often a major downside of fixed rate home loans.

Variable rate home loans

The interest rate on a variable home loan, on the other hand, can rise and fall over time.

Variable rates usually track alongside movements in the RBA cash rate.

When the RBA cuts the cash rate, lenders normally respond by dropping their variable rates. Thus, this type of loan could be ideal for borrowers who want to take advantage of a downtrend in the cash rate.

However, the opposite is also true, and cash rate hikes can increase the cost of servicing a variable rate mortgage.

3. Do you want any extra home loan features?

The final piece of the home loan puzzle is whether you want, or need, particular home loan features.

If utilised strategically, some home loan features could save you thousands, if not tens of thousands, in interest over the life of your home loan.

Though, lenders might charge extra fees or a higher interest rate to those accessing certain mortgage features, so it’s important to weight up the potential costs and benefits.

Here are a few of the often-useful loan features first-time buyers might want to make the most of:

• Offset account
  Funds deposited in an offset account ‘offsets’ the balance of a home loan, reducing the amount of interest charged to a borrower. For instance, if you have a $500,000 home loan and $50,000 in an offset account, you’ll only be charged interest on $450,000 of your principal balance.

• Redraw facility
  A redraw facility allows a borrower access to any extra repayments they’ve made. That means paying more off your home loan than you need to, and thereby saving interest, doesn’t have to come at the expense of your rainy-day fund or savings goals.

• Split interest rate
  Want the the certainty of a fixed rate and the flexibility of a variable rate? It might be worth considering taking a mortgage that allows for both. If you have a split home loan, a portion of your principal balance incurs a fixed rate of interest while the rest incurs a variable rate.

How to apply for your first home loan

By this stage you've likely narrowed down your home loan options to find your perfect mortgage solution. Congratulations! Now it’s time to apply.

It’s important to note that applying for multiple home loan products simultaneously could negatively impact your credit rating. So, make sure you meet the eligibility requirements of your preferred lender and wait for its answer before applying elsewhere.

Lenders ultimately want to lend money, and they tend to make applying for a home loan relatively easy. For a step-to-step breakdown of the process, check out our guide on creating the home loan perfect application.

Extra assistance and grants for first home buyers

In an effort to support the aspirations of many Australians to achieve homeownership, federal and state governments have rolled out several supports to help ease the financial burden of buying a home.

Home Guarantee Scheme

One of the biggest supports offered for first time buyers is the Home Guarantee Scheme, which encompasses the First Home Guarantee, the Regional First Home Buyer Guarantee, and the Family Home Guarantee.

The Home Guarantee Scheme allows first home buyers to take out a mortgage with a deposit as small as 5%, or 2% for families, without paying LMI.

First Home Owner Grants

All states and territories in Australia, with the exception of the ACT, offer a First Home Owner Grant (FHOG).

These grants can provide eligible first home buyers with between $10,000 and $30,000. Those funds could go towards the purchase of their property.

Stamp duty concessions & exemptions

Depending on where and what they’re buying, first home buyers could also be offered an exemption or concession on stamp duty.

Stamp duty is a state government tax charged when a property's ownership is transferred. It commonly adds up to tens of thousands of dollars.

Help to Buy scheme

The Help to Buy scheme, expected to be up and running in 2024, aims to allow the federal government to chip in on as much as 40% of a first home buyer’s property purchase.

The government will then hold an equivalent equity stake in the property. The buyer can pay back the government’s contribution over time, or the government will take a proportionate share of the eventual sale price.