What is a Home Loan?

A home loan or mortgage is an agreement between a lender – usually a bank, credit union or building society – and a property owner. The loan is repaid within an agreed period, with the property held as security.

Put simply, a home loan is:

-A loan (often called a mortgage) taken out to purchase a home.
-Uses the value of the property as collateral for the loan.
-Is usually repaid over a period of 25–30 years.
-Comes with a fixed or variable interest rate.

Applying for a home loan

The process of comparing home loans and applying for a home loan may seem like a complicated process, but it can be broken into a few easy steps:

1. Save for a deposit: Most lenders require you to save a deposit before applying for a loan. The Australian Securities and Investments Commission recommends saving atleast 20% of the value of the property to avoid paying lenders' mortgage insurance. Having a deposit less than 20% might also impact your interest rate.
2. Complete your application: When applying for your home loan you'll be asked to provide proof of ID and income. But once your loan is pre-approved, you can start searching for the perfect property within your budget.
3. Finding the right property: After you've found a property you're satisfied with, return to the lender to finalise the agreement and decide which loan features you want to include. To keep interest rates low, a borrower will generally offer the property as security. This means that if you cannot repay your loan within its terms, the lender may repossess your property.
A typical loan will then see fortnightly or monthly repayments over the agreed period (generally 25-30 years). But terms can vary greatly between lenders. It's worth doing some research into different types of loans and brushing up on common home loan terminology before finalising your application to ensure your loan best suits your circumstances.
4. Get your timing right : When it comes to buying a house, it can be useful to apply for a home loan before you start looking at properties. That way you'll have a good idea of your budget. And when it's time to put an offer on a house, you'll be able to move quickly with the bank.

Another reason to look at home loans is when you're considering refinancing your current mortgage. It’s a good idea to re-evaluate your home loan periodically, especially as you enter different life stages. A pay rise or a new job, for example, could prompt you to pay off your mortgage sooner by using the additional money to make higher repayments. If you’re considering starting a family, favourable interest rates could provide incentive to sell your current property and trade up.

Although some banks will cover refinancing charges, there may be fees involved in moving to a new loan. In such cases, make sure to include these costs when calculating the savings yielded by refinancing.

Whether you're ready to buy your first home or looking to refinance to take advantage of a better interest rate, start by comparing home loans today.

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