Home loans

Compare home loans

Mozo helps you to compare home loans, whether you're an investor looking for your next big property purchase, a home owner seeking a better deal or a first home buyer ready to take the plunge into home ownership, welcome to Mozo. We've pulled together this handy cheat sheet to help you understand your home loan and borrowing options and show you how to use our site to compare the range of home loans available in Australia.

Gone are the days when you simply went to the local branch manager of your existing bank to discuss getting a home loan. These days, the choice is yours and that's where Mozo helps you cut through the clutter to find a great value home loan that best meets your needs. You can get your home loan with a big bank, opt for a credit union or even an online only lender. But before you choose a provider you first need to figure out the best loan type for you, and to do this you'll need to know the following:

• How much you can borrow: How much you think you can borrow and how much a bank will lend you could be two completely separate things, so before you start looking at off the plan luxury apartments do some number crunching to see where you sit. We’ve made this step easy with our borrowing calculator. Simply plug in some basic details regarding your income and expenses and we’ll give you an estimate of how much you can afford to borrow and how much the monthly repayments will be.
• Deposit amount needed. Regardless of how much you can afford to borrow, all banks and lenders will require you to have a deposit saved which could be anywhere from 5% to 20% of the property price. So if you are looking at a $450,000 house you’d need a minimum of $22,500 saved. All home loans have maximum loan-to-value (LVR) requirements so you will need to know this in order to work out which loans you’d be eligible for.

Types of home loans

Now that you know how much you can borrow, the next step of getting a home loan is to review the types of loans available so that you can narrow down your options to find one that will best suit your financial needs. Your options include:

1. Variable rate home loan. This is the most common type of home loan in Australia as historically variable rates are lower than fixed. With a variable rate home loan, your repayments can be affected by your interest rate going up or down when the Reserve Bank changes the cash rate or if your bank decides to be generous (or greedy) during your loan term. These loans suit borrowers who want flexibility such as the ability to make extra repayments and who aren't concerned by the possibility of their interest rate going up or down over the course of the loan.

2. Fixed rate home loan. A fixed rate means that your repayments are locked in for a fixed term (usually 1 - 5 years). At the end of the fixed term you will get the option to refix your loan at a new market rate or switch to a variable rate. Budgeting is made easier on a fixed rate home loan as you don't have to worry about your rate or repayments changing for the fixed loan term. The main drawback of a fixed rate loan is you won't benefit from any rate drops while you're on the fixed term, but the upside is that you're also protected from rate increases. Fixed rate loans can be less flexible than variable loans with limited ability to make extra repayments and if you pay out the loan early, you could be up for high fees and penalties.

3. Split rate home loan. A split rate home loan is when your lender splits your home loan so that a portion of the borrowed amount is on a variable rate and the remainder is on a fixed rate. This is a popular loan option as borrowers have the flexibility to make extra repayments and redraw on the variable portion of the loan, but are less exposed to rate increases and budgeting uncertainty by having part of the loan fixed.

Home loan fees

When you are comparing home loans it's important not to just look at the headline interest rate. You also need to consider the cost of fees and charges as these can dramatically change the cost that you actually pay each month for your home loan. In fact, in order to stop borrowers being misled by low headline interest rates, it is compulsory for lenders to advertise the comparison rate for the home loan. This is a combination of the interest rate and fees and it is designed to help borrowers understand the true cost of a loan. You will find the comparison rate listed on all the tables on Mozo for easy comparison.

Are all home loan fees included in the comparison rate? No. Application fees and ongoing fees such as monthly service fees or an annual package fee will be included in the comparison rate, but fees that are excluded include redraw fees, government charges and break fee costs for fixed rate loans.

The comparison rate also does not take into account features like free extra repayments and offset accounts which can vary between loans and can reduce the cost of a loan significantly over the full life of a loan.

As a borrower you also need to be aware that the advertised comparison rate could be different to the rate you get for your home loan. The standard comparison rate is based off a $150,000 loan over 25 years so a different amount over a different term will result in a different comparison rate.

What features should you look for in a home loan?

Home loans are no different to any other product in the market. There are basic home loans that are cheap because they have the basics and nothing more, and there are full feature home loans that come with added extras which you may pay a premium for.

A home purchase is a long term investment so it's very important to weigh up your options with each loan. You could end up paying a lot of extra money in interest and fees for extras you don't need to use.

Which features are worth getting then, you ask? Features that will help you to pay off your loan faster and save you money if you can take advantage of them. Here are Mozo's home loan experts top picks:

• Offset account. An offset account is basically a bank account attached to your home loan that can help you reduce the amount of interest you pay on your loan. The balance you keep in the offset account is offset against the balance owing on your home loan. For instance, if you have a home loan for $300,000 and you have $10,000 sitting in your offset account, you will only pay interest on $290,000 of your home loan. The best way to get the most out of an offset account is to get your salary deposited into the account.
• Free extra repayments. Who doesn’t want to reduce the time it takes to pay off their home loan? Variable rate loans generally don’t have limits on the amount of extra or lump sum repayments you can make over the loan term, but if you opt for a fixed rate loan there may be annual or loan term limits on extra repayments.
• Repayment flexibility. Most home loans where you are making interest and principal repayments will allow you to choose weekly, fortnightly or monthly repayments. Interest only loans work off monthly repayments. By taking your monthly repayment amount and splitting it to pay it fortnightly or weekly you’ll pay more off the loan each year. For instance if you have a $2,000 monthly repayment and instead you pay $500 a week, over the year you’d pay back $26,000 rather than $24,000 if you were making monthly repayments. Over the life of a home loan this will mean significant savings for you in interest.

Finding the right home loan for you

Mozo is here to help. We have a number of straightforward tools to help you cut through the clutter, and we even have in-house home loans experts you can speak with to help you negotiate a better deal on your home loan. Here are some quick links to guide you on your way.

• Mozo comparison engine. Compare home loans with some of the market’s top mortgage deals at the top of this page or if you’d like a customised comparison, which takes into account your exact needs (borrowing amount, property value etc) to provide you with a list of results based on your criteria, try our comparison engine. It contains hundreds of home loans from banks, credit unions and online lenders so you can get a great market overview with one quick search.
• Talk with a home loan expert. Mozo can help you to find a better deal on your home loan with our free home loan help service. Our experts (also known as home loan negotiators) deal with the banks day in day out and know the best rates and tactics that can land a competitive home loan deal. It’s a free service so even if you’re confident in your haggling skills, why not get them to see how much they could save you?
• First home buyers. As a first home buyer you might want a bit of help understanding the home loan process or bank jargon. We’ve developed a first home buyers hub that contains all the information you will need to get your first home loan. You can then search our database to find a loan and connect directly with a lender.
• Refinancing? You’ve been through the home loan process before and now you’re in the market for a better deal. Our Switch & Save Home Loan Calculator is designed for you. Just plug in a few details about your existing loan and in minutes we’ll give you a listing of loans in the marketplace that will save you the most in interest and fees.
• Home loan reviews. Another great element of our website is that you can also read home loan reviews from real customers, reviews are often the best way to compare home loans. So if you are tossing up between an ANZ home loan and one from Bankwest you can see how their customers rate them on everything from pricing to customer service. See here to search reviews by provider.

Crunching the numbers - home loan calculators

There is no way getting around crunching some numbers when you are considering getting a home loan but the good news is that thanks to Mozo's range of home loan calculators you don't even have to open an excel spreadsheet. Here are some of the most popular calculators on our site, or check out all our home loan calculators here.

• Stamp duty calculator. Find out how much stamp duty you will need to pay or whether you’ll qualify for any of the grants. Our calculator covers all Australian states and territories.
• Borrowing calculator. You’ve seen the house of your dream but can you really afford it? Our borrowing calculator will help you to work out the upper limits of your borrowing power.
• Home Loan repayments calculator. Mozo’s powerful home loan search tool will match your requirements with loans in the market to show you how much your repayments will be.