How to Choose the Right Home Loan When Buying a House

Choosing a home loan isn't about finding the lowest advertised rate.

The product that works depends on how much deposit you have, whether your income is straightforward or variable, and what you need the loan to do over the next few years. A loan structure that suits someone with 20% deposit and stable employment won't necessarily work for someone rebuilding after separation with a smaller deposit and self-employed income.

Owner Occupied vs Investment: Why the Distinction Matters

Owner occupied loans carry lower rates than investment loans because lenders view them as lower risk. If you're buying a property to live in, you'll access a different rate and potentially different product features compared to an investment purchase. The difference in rate can sit anywhere from 0.30% to 0.60% depending on the lender and your deposit size.

This distinction also affects how borrowing capacity is calculated. Lenders assess owner occupied applications with slightly different serviceability buffers, which can influence how much you're able to borrow.

Variable Rate, Fixed Rate, or Split: How to Decide

A variable rate moves with the market and gives you full access to offset accounts and the ability to make extra repayments without penalty. A fixed rate locks your repayments for a set period, typically one to five years, but limits flexibility during that time.

In our experience, buyers who want certainty over repayments for the first few years often fix part of the loan and leave the rest variable. Consider someone buying with a 10% deposit who knows their income will increase in two years. They might fix 50% of the loan for three years to manage repayments now, while keeping 50% variable with an offset account to park savings and reduce interest as they build equity.

Fixed rates don't always mean lower repayments. If variable rates drop during your fixed period, you're locked in at the higher rate. The trade-off is predictability, not always cost.

Offset Accounts and Redraw: What Actually Makes a Difference

An offset account is a transaction account linked to your home loan. The balance in the offset reduces the amount of interest you pay without locking the funds away. If you have a loan amount of $500,000 and $30,000 sitting in a linked offset, you only pay interest on $470,000.

Redraw works differently. You make extra repayments into the loan itself, then withdraw them later if needed. Some lenders restrict redraw access or charge fees, and it's not always available on fixed rate portions. If you're likely to need access to savings, an offset account is the more reliable option.

Not all variable rate products include offset accounts. Some lower-rate packages exclude them to keep the advertised rate down. If you're comparing rates, check whether the product includes offset functionality before assuming you'll have access.

Loan to Value Ratio and How It Shapes Your Options

Loan to value ratio measures your deposit against the purchase price. A 10% deposit gives you a 90% LVR. A 20% deposit drops you to 80% LVR. This figure determines whether you'll pay Lenders Mortgage Insurance, and it also affects the interest rate you're offered.

Lenders price their products differently depending on LVR. A borrower at 80% LVR will generally access lower rates and more product options than someone at 90% LVR, even with the same income and credit profile. If you're close to a threshold, it's worth understanding whether contributing slightly more deposit will unlock a different rate tier or remove LMI entirely.

Some lenders also offer low deposit loans with features designed for buyers who can service a loan but don't have 20% saved. These products may include higher rates or require genuine savings rather than gifted funds, depending on the lender's policy.

Interest Only vs Principal and Interest: When Each Structure Applies

Principal and interest repayments reduce your loan balance over time. Interest only repayments cover only the interest charged, leaving the loan balance unchanged. Most owner occupied buyers use principal and interest because it builds equity and aligns with how lenders assess affordability.

Interest only is more common for investment purchases, where the buyer wants to maximise tax deductions and may plan to sell or refinance before the interest only period ends. For owner occupied purchases, interest only can be useful in specific scenarios where cash flow is tight for a defined period, but it's not standard.

If you're considering interest only loans, lenders will want to see a clear reason and evidence that you can service the loan when it reverts to principal and interest. It's not a way to borrow more than you can afford long-term.

Portable Loans and Why Flexibility Can Matter

A portable loan allows you to transfer the loan to a new property without breaking the existing loan contract. If you're buying a property now but expect to move within a few years, portability can save you from paying discharge fees and re-application costs.

Not all lenders offer portability, and those that do may apply conditions around timing and loan structure. If this feature matters to you, confirm it's included and understand the process before you settle on the current property.

Home Loan Pre-Approval and What It Actually Tells You

Home loan pre-approval confirms how much a lender is willing to lend based on your current financial position. It's conditional, meaning final approval depends on the property valuation and any changes to your circumstances between pre-approval and settlement.

Pre-approval gives you certainty when making an offer, but it's not a guarantee. If the property you're buying values below the purchase price, the lender may reduce the approved loan amount. If your employment or income changes, the pre-approval may no longer hold.

Pre-approval is valid for three to six months depending on the lender. If you're buying in a market where it takes time to find the right property, factor in the possibility of needing to refresh the application.

Rate Discounts and How They're Applied

Most lenders publish a standard variable rate, then apply discounts based on loan size, LVR, and whether you're a new or existing customer. The advertised rate you see is usually the standard rate minus the maximum discount, which may not apply to your situation.

Discounts can change. A lender might offer a larger discount to attract new customers, then reduce that discount after 12 months. Some products include ongoing discounts, while others revert to a higher rate after an introductory period. Read the fine print on how long the discount applies and what the rate becomes afterward.

If you're comparing rates, focus on the comparison rate rather than the advertised rate. The comparison rate includes most fees and gives a clearer picture of the total cost over the loan term.

Loan Features That Sound Useful But May Not Be

Some loan packages include features like free valuations, rate locks, or fee waivers that add value if you use them but don't affect the cost if you don't. Others include features like redraw with restrictions or offset accounts that earn limited interest, which reduce the actual benefit.

Before choosing a loan based on features, consider whether you'll genuinely use them. A package with a slightly higher rate but a fully functional offset account may cost less over time than a lower-rate package without one, depending on how much you keep in savings.

Rate locks allow you to secure a rate while your application is processed, which can be useful in a rising rate environment but costs money and may not be refundable if you don't proceed.

Application Process and What Lenders Actually Assess

When you apply for a home loan, lenders assess your income, expenses, existing debts, credit history, and the property you're buying. They calculate serviceability using a buffer above the actual interest rate to ensure you can still afford repayments if rates rise.

Lenders treat different income types differently. PAYG income is straightforward. Self-employed income requires tax returns and often ABN registration history. Rental income is assessed at a percentage, not the full amount. If your income includes bonuses, overtime, or rental income, understand how your lender will treat it before assuming it will be counted in full.

The property also matters. Lenders apply stricter criteria to apartments in high-density areas, regional properties, or properties on large acreage. If you're buying something outside the typical suburban house, confirm your lender will accept it before making an offer.

Call one of our team or book an appointment at a time that works for you. We'll walk through your deposit, income, and what you're buying, then show you which loan structures and products actually fit your situation.

Frequently Asked Questions