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Advertised Rate

2.59%

Variable

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2.42%

Company
Homeloans.com.au
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$648

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2.80

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2.69%

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2.52%

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Homeloans.com.au
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$673

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2.56

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2.55%

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3.21%

Company
Adelaide Bank
Repayment

$638

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Borrow up to 79.9999%
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2.59

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2.39%

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2.41%

Company
Homeloans.com.au
Repayment

$1,329

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3.62

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Advertised Rate

2.29%

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2.31%

Company
Homeloans.com.au
Repayment

$1,314

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3.86

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3.29%

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3.71%

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NAB
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$823

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1.46

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3.12%

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3.13%

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Commonwealth Bank of Australia
Repayment

$1,441

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2.09

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2.64%

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2.59%

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Athena Home Loans
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$1,367

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2.88

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2.74%

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2.74%

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UBank
Repayment

$1,382

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2.83

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4.85%

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5.28%

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Liberty Financial
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$1,728

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1.33

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2.09%

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2.60%

Company
UBank
Repayment

$1,285

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An investment property is a home that you don’t plan to live in, but hope to make a financial return from. Like investing in shares, property investors enter the market hoping their investment will grow in value and deliver yield.

Property is often considered a longer term investment than shares, allowing you to build your wealth over time. This is partly due to higher entry and exit costs, which is where an investment loan can be useful.

Learn more about home loans

What is the difference between an investment loan and an owner-occupier loan?

When you apply for a mortgage as an owner-occupier, your lender knows you will live in the property and use your personal income to manage your mortgage repayments. But if you’re an investor, tenants will live in the property and provide you with rental income. If you make improvements to the property, and/or property values in the area increase, you may also be able to benefit from capital growth on the property.

Investment home loans often offer flexible features and benefits, allowing investors to manage their payments to try and maximise their investment income. However, because investing in property is often more financially risky than simply owning your own home, investment home loans often have higher interest rates and fees than owner-occupier home loans.

Two-tier market: Why lenders charge investors higher rates

In 2014, the Australian Prudential Regulatory Authority (APRA) raised concerns about the growth of the investment housing market and the risk that this debt could destabilise Australia’s housing market and wider economy. Many lenders responded by changing the eligibility criteria for investor borrowers and by increasing investor rates. While APRA has since relaxed many of the regulations on investment lending, many lenders still charge higher rates to property investors, who they see as riskier customers to lend to than owner-occupiers.

Investors are seen as riskier borrowers because buying a property as an investment is different to buying a home to live in. There are no guarantees when investing; if you can’t find tenants for your property, or if it doesn’t increase in value, you could find yourself in financial trouble, leaving you unable to afford your loan. Plus, while an owner-occupier is less likely to risk losing the roof over their head, an investor may be more willing to risk their investment to try and maximise their returns.

How do I apply for an investment home loan?

Just like an owner-occupier, if you’re applying for a mortgage as an investor you’ll need to provide details of:

  • The value of the property you want to buy
  • How much you want to borrow
  • Your credit history (especially your history of making regular repayments on any other outstanding loans)
  • Your income and employment status

The lender will use this information to work out if you can comfortably afford the loan. The lender will only consider your current household income when making its calculations, even if you plan to supplement this with rental yields from the property. This is to help reduce the risk that you’ll default on your repayments if the property is unoccupied for some reason, such as during fallow months when you’re changing over tenants.

The lender will also consider the potential for your property to rise in value over time, as well as vacancy rates in your area and any trends in property prices.

TIP:

Keep in mind that there might be hefty expenses involved in preparing the property for occupation, which can eat into rental income. Make sure that your calculations are as accurate as possible so that you and the lender can be confident you can afford the loan.

Other types of investment loans

As well as standard mortgage loans, there are other loans available that may be useful to investors.  

You may be able to use your investment property to secure a line of credit. This works similarly to a credit card, where you can borrow and repay money as you need it, up to a pre-set limit, and only pay interest on what you’ve borrowed.  

If you have a self-managed super fund (SMSF), you may be able to buy an investment property to support the fund with its yield. This may require a special SMSF home loan with a higher interest rate. There are also a range of regulations to consider when investing in property with an SMSF, as any investments must benefit the fund, and not individual members. Contact the ATO and/or an SMSF specialist for more information.

Fixed vs variable rates: what is the difference?

Investment property buyers can choose between fixed or variable interest rates.

  • A fixed interest rate allows you to lock in a set repayment amount for a set period of time – usually between 1 and 5 years.
  • A variable interest rate can be changed by the lender to better suit the current economy, meaning your mortgage repayments could increase or decrease.

So which is the best option? It depends on your circumstances and preferences.

  • A fixed interest rate can keep your repayments stable for simpler budgeting, though you may miss out on interest savings if the lender lowers its variable rates, such as if the RBA cuts the cash rate.
  • A variable rate home loan could save you money if rates fall, though your minimum repayments could end up increasing if rates rise. Also, variable rate loans more often offer flexible home loan features, which could help you better manage your repayments and potentially save money on interest charges.

Interest-only investment home loans

Some lenders offer mortgages where you only need to pay the interest charges on the loan for a limited time, without reducing the principal amount you owe. This can help make your mortgage payments more affordable, which can make a big difference to your budget. However, because it also means your loan will take longer to pay off, you may end up paying more interest in total over the long term.

Some investors look for interest-only mortgages to help them minimise the cost of payments on their properties. This can allow an investor to maximise their rental yield and/or their capital gains relative to their spending on the loan.

Interest-only loans can be risky, both for investors and lenders. When the loan reverts to principal and interest payments, investors may struggle to afford these payments. There are also no guarantees that a property’s value will rise enough for you to enjoy capital gains from a sale.

Also, APRA previously placed caps on how many interest-only investment loans lenders could provide, as well as how much money could be loaned in these mortgages. While these limits have since been lifted, many lenders still charge higher rates and have stricter eligibility criteria for interest-only loans, as there’s a higher risk that the borrower could default when the loan reverts to principal and interest repayments.

What deposit do I need for an investment property?

Just like when you apply for a home loan as an owner-occupier, you’ll need to pay for a percentage of the property’s value upfront as a deposit to secure your mortgage. If you can afford a higher deposit, it may be easier to qualify for a loan with a lower interest rate or more flexible features.

The size of the deposit you’ll need may depend on the loan’s Loan to Value Ratio (LVR). For example, if a loan requires an LVR of 80 per cent, you’ll need to pay a deposit of at least 20 per cent of the property’s value.

Because investment home loans are often considered riskier than owner-occupier home loans, they often require higher deposits. Some have LVR requirements of 70 per cent or lower, meaning you’ll need to offer a deposit of 30 per cent or more of the property’s value to secure the investment mortgage.

Just like with owner-occupier home loans, if your deposit on an investment property is less than 20 per cent of the property’s value, the lender will take out Lender’s Mortgage Insurance (LMI) to cover the risk that you’ll default on your payments. LMI protects the lender, not you, and most lenders pass the cost of LMI on to borrowers – the lower your deposit, the more the LMI may cost, sometimes reaching tens of thousands of dollars.

What are the potential rewards of property investment?

Return on investment

The ultimate goal of investing in property is enjoying a return above the original investment. There are two main ways to achieve this:

  1. Rental income: The money your tenant pays you, usually on a monthly basis, to live in your property.
  2. Capital growth: The increase in value of your property over time. If your property sells for more than what you bought it for, you have achieved capital growth.

For example, if you bought a unit for $600,000 and later sold it for $750,000, your capital growth would be $150,000.

Less volatility

While no investment is ever 100 per cent safe, the property market is generally less volatile than other investment options, such as the share market, which can rapidly lose value due to circumstances beyond the investor’s control. Property transactions are also generally slower than share market transactions, so they can be more carefully considered.

Intergenerational wealth transfer

Some families make property investments in order to bestow wealth to their beneficiaries through these bricks and mortar assets.

Tax benefits

Property investors may be eligible for a number of tax benefits, including capital gains discounts, capital gains offsets, deductions for repairs and maintenance if and when the property is tenanted, and negative gearing. Contact the ATO and/or a tax accountant to learn more.

What is negative gearing?

If the annual costs of your investment property are higher than the annual returns you make from it, the property is said to be negatively geared. Likewise, if you make more in annual returns on a property than you pay in costs, your property is said to be positively geared.

Negative gearing can effectively lower your taxable income, which can offer tax benefits under the right circumstances. However, there are also risks involved, so it’s important to consult a financial adviser and/or a tax accountant before you look seriously at negative gearing.

What are the risks of property investment?

Negative capital growth

Not all property markets rise and there is a risk that your investment may not yield the results you expect. This risk may be more pronounced in areas that are exposed to boom and bust sectors, such as mining.

Costs outweigh return

Sometimes property investors have to spend a lot to prepare their investment property for tenants, or to help improve the property’s value for sale. These costs could outweigh the return you receive on your investment if they do not improve the property’s capital growth or rentability.

Unable to sell or lease

If your investment property doesn’t appeal to buyers or renters, you may not receive a return on your investment.

Where should I invest?

Unlike when you buy a property as an owner-occupier, an investment property does not have to match your taste or even be located in an area where you’d like to live. However, there are other factors to consider, including:

  • Growth factors: Have property values in the local area increased or decreased in recent years? While past performance does not guarantee future performance, this can give you a better idea of what you could expect from your investment.
  • Economic factors: Is the property located in an area exposed to one industry? If so, is that industry growing or declining?
  • Social factors: Is the area appealing to potential renters? Does it have good public transport infrastructure? Is it close to schools and medical facilities?

Frequently asked questions

What is an investment loan?

An investment loan is a home loan that is taken out to purchase a property purely for investment purposes. This means that the purchaser will not be living in the property but will instead rent it out or simply retain it for purposes of capital growth.

Can I get a NAB first home loan?

The First Home Loan Deposit Scheme of NAB helps first home buyers purchase a property sooner by reducing the upfront costs required. This scheme is offered based on a Government-backed initiative, with10,000 available places announced in October 2020.

Suppose your application for the NAB first home buyer loan is successful. In that case, you’ll only need to pay a low deposit, between 5 and 20 per cent of the property value and won’t be asked to pay lender's mortgage insurance (LMI). You’ll also receive a limited guarantee from the Australian government to purchase the property.

If you’re applying for the NAB first home buyer home loan as an individual, you need to have earned less than $125,000 in the last financial year. Couples applying for the NAB first home loan need to have earned less than $200,000 to be eligible. To be considered a couple, you need to be married or in a de facto relationship. A parent and child, siblings or friends are not considered a couple when applying for a NAB first home loan.

The NAB First Home Loan Deposit Scheme is currently offered only to purchase a brand new property, rather than an established property.

How do I get a Suncorp home loan pre-approval?

Getting home loan pre-approval helps you work out a budget to help you search for a suitable property and make an offer with confidence. Once you put in an application, you should get your pre-approval outcome within two business days. To help get a fast turnaround time of your pre-approval application, ensure all the information and documentation that Suncorp requires. This includes proof of identification, recent payslips, bank account and credit card statements.

You can submit the home loan pre-approval application online. You’ll be asked for information about your income, expenses, assets, and debts. It should take you about 10 minutes to fill out the application, and you can do it free of charge. A Suncorp lending specialist will review your application and contact you within 24 hours or the next working day. Suncorp will not run a credit check until you have heard from this lending specialist.

Once you get Suncorp home loan pre-approval, it’s valid for 90 days. If you don’t find a property you wish to buy in this time you may be able to apply for an extension, speak to your Suncorp lending specialist about this.

Can I apply for an ANZ non-resident home loan? 

You may be eligible to apply for an ANZ non-resident home loan only if you meet the following two conditions:

  1. You hold a Temporary Skill Shortage (TSS) visa or its predecessor, the Temporary Skilled Work (subclass 457) visa.
  2. Your job is included in the Australian government’s Medium and Long Term Strategic Skills List. 

However, non-resident home loan applications may need Foreign Investment Review Board (FIRB) approval in addition to meeting ANZ’s Mortgage Credit Requirements. Also, they may not be eligible for loans that require paying for Lender’s Mortgage Insurance (LMI). As a result, you may not be able to borrow more than 80 per cent of your home’s value. However, you can apply as a co-borrower with your spouse if they are a citizen of either Australia or New Zealand, or are a permanent resident.

Does Westpac offer loan maternity leave options?

Having a baby or planning for one can bring about a lot of changes in your life, including to the hip pocket. You may need to re-do the budget to make sure you can afford the upcoming expenses, especially if one partner is taking parental leave to look after the little one. 

Some families find it difficult to meet their home loan repayment obligations during this period. Flexible options, such as the Westpac home loan maternity leave offerings, have been put together to help reduce the pressure of repayments during parental leave.

Westpac offers a couple of choices, depending on your circumstances:

  • Parental Leave Mortgage Repayment Reduction: You could get your home loan repayments reduced for up to 12 months for home loans with a term longer than a year. 
  • Mortgage Repayment Pause: You can pause repayments while on maternity leave, provided you’ve made additional repayments earlier.

When applying for a home loan while pregnant, Westpac has said it will recognise paid maternity leave and back-to-work salaries. All you need is a letter from your employer verifying your return-to-work date and the nature of your employment. Your partner’s income, government entitlements, savings and investments will may help your application.

Does UBank offer home loan pre-approvals?

If you’re applying for a home loan with UBank, you can first get an approval in principle. You’ll need to provide information about your job and earnings, your household expenses, the assets you own and the debts you owe. 

UBank will assign a home loan specialist to discuss these details over a phone call, which can take about 30 minutes. 

The bank will then confirm if you’ve received in-principle approval for your home loan. Depending on how you submit your documents, this could take a few days or a few weeks. If successful, the approval will be valid for 60 days. 

How long does Bankwest take to approve home loans?

Full approval for a home loan usually involves a property valuation, which, Bankwest suggests, can take “a week or two”. As a result, getting your home loan approved may take longer. However, you may get full approval within this time if you applied for and received conditional approval, sometimes called a pre-approval, from Bankwest before finalising the home you want to buy.  

Another way of speeding up approvals can be by completing, signing, and submitting your home loan application digitally. Essentially, you give the bank or your mortgage broker a copy of your home’s sale contract and then complete the rest of the steps online. Bankwest has claimed this cuts the approval time to less than four days, although this may only happen if your income and credit history can be verified easily, or if your home’s valuation doesn’t take time.

Can I get a NAB home loan on casual employment?

While many lenders consider casual employees as high-risk borrowers because of their fluctuating incomes, there are a few specialist lenders, such as NAB, which may provide home loans to individuals employed on a casual basis. A NAB home loan for casual employment is essentially a low doc home loan specifically designed to help casually employed individuals who may be unable to provide standard financial documents. However, since such loans are deemed high risk compared to regular home loans, you could be charged higher rates and receive lower maximum LVRs (Loan to Value Ratio, which is the loan amount you can borrow against the value of the property).

While applying for a home loan as a casual employee, you will likely be asked to demonstrate that you've been working steadily and might need to provide group certificates for the last two years. It is at the lender’s discretion to pick either of the two group certificates and consider that to be your income. If you’ve not had the same job for several years, providing proof of income could be a bit of a challenge for you. In this scenario, some lenders may rely on your year to date (YTD) income, and instead calculate your yearly income from that.

How can I get ANZ home loan pre-approval?

Shopping for a new home is an exciting experience and getting a pre-approval on the loan may give you the peace of mind that you are looking at properties within your budget. 

At the time of applying for the ANZ Bank home loan pre-approval, you will be required to provide proof of employment and income, along with records of your savings and debts.

An ANZ home loan pre-approval time frame is usually up to three months. However, being pre-approved doesn’t necessarily mean you will get your home loan. Other factors could lead to your home loan application being rejected, even with a prior pre-approval. Some factors include the property evaluation not meeting the bank’s criteria or a change in your financial circumstances.

You can make an application for ANZ home loan pre-approval online or call on 1800100641 Mon-Fri 8.00 am to 8.00 pm (AEST).

How much deposit do I need for a home loan from NAB?

The right deposit size to get a home loan with an Australian lender will depend on the lender’s eligibility criteria and the value of your property.

Generally, lenders look favourably on applicants who save up a 20 per cent deposit for their property This also means applicants do not have to pay Lenders Mortgage Insurance (LMI). However, you may still be able to obtain a mortgage with a 10 - 15 per cent deposit.  

Keep in mind that NAB is one of the participating lenders for the First Home Loan Deposit Scheme, which allows eligible borrowers to buy a property with as low as a 5 per cent deposit without paying the LMI. The Federal Government guarantees up to 15 per cent of the deposit to help first-timers to become homeowners.

What is a loan-to-value ratio (LVR)?

A loan-to-value ratio (otherwise known as a Loan to Valuation Ratio or LVR), is a calculation lenders make to work out the value of your loan versus the value of your property, expressed as a percentage.   Lenders use this calculation to help assess your suitability for a home loan, and whether you need to pay lender’s mortgage insurance (LMI). As a general rule, most banks will require you to pay LMI if your loan-to-value ratio is 80 per cent or more.   LVR is worked out by dividing the loan amount by the value of the property. If you are looking for a quick ball-park estimate of LVR, the size of your deposit is a good indicator as it is directly proportionate to your LVR. For instance, a loan with an LVR of 80 per cent requires a deposit of 20 per cent, while a 90 per cent LVR requires 10 per cent down payment. 

LOAN AMOUNT / PROPERTY VALUE = LVR%

While this all sounds simple enough, it is worth doing a more accurate calculation of LVR before you commit to buying a place as there are some traps to be aware of. Firstly, the ‘loan amount’ is the price you paid for the property plus additional costs such as stamp duty and legal fees, minus your deposit amount. Secondly, the ‘property value’ is determined by your lender’s valuation of the property, not the price you paid for it, and sometimes these can differ so where possible, try and get your bank to evaluate the property before you put in an offer.

What is a line of credit?

A line of credit, also known as a home equity loan, is a type of mortgage that allows you to borrow money using the equity in your property.

Equity is the value of your property, less any outstanding debt against it. For example, if you have a $500,000 property and a $300,000 mortgage against the property, then you have $200,000 equity. This is the portion of the property that you actually own.

This type of loan is a flexible mortgage that allows you to draw on funds when you need them, similar to a credit card.

How much deposit do I need for a home loan from ANZ?

Like other mortgage lenders, ANZ often prefers a home loan deposit of 20 per cent or more of the property value when you’re applying for a home loan. It may be possible to get a home loan with a smaller deposit of 10 per cent or even 5 per cent, but there are a few reasons to consider saving a larger deposit if possible:

  • A larger deposit tells a lender that you’re a great saver, which could help increase the chances of your home loan application getting approved.
  • The more money you pay as a deposit, the less you’ll have to borrow in your home loan. This could mean paying off your loan sooner, and being charged less total interest.
  • If your deposit is less than 20 per cent of the property value, you might incur additional costs, such as Lenders Mortgage Insurance (LMI).

What is an interest-only loan? How do I work out interest-only loan repayments?

An ‘interest-only’ loan is a loan where the borrower is only required to pay back the interest on the loan. Typically, banks will only let lenders do this for a fixed period of time – often five years – however some lenders will be happy to extend this.

Interest-only loans are popular with investors who aren’t keen on putting a lot of capital into their investment property. It is also a handy feature for people who need to reduce their mortgage repayments for a short period of time while they are travelling overseas, or taking time off to look after a new family member, for example.

While moving on to interest-only will make your monthly repayments cheaper, ultimately, you will end up paying your bank thousands of dollars extra in interest to make up for the time where you weren’t paying off the principal.

What is equity? How can I use equity in my home loan?

Equity refers to the difference between what your property is worth and how much you owe on it. Essentially, it is the amount you have repaid on your home loan to date, although if your property has gone up in value it can sometimes be a lot more.

You can use the equity in your home loan to finance renovations on your existing property or as a deposit on an investment property. It can also be accessed for other investment opportunities or smaller purchases, such as a car or holiday, using a redraw facility.

Once you are over 65 you can even use the equity in your home loan as a source of income by taking out a reverse mortgage. This will let you access the equity in your loan in the form of regular payments which will be paid back to the bank following your death by selling your property. But like all financial products, it’s best to seek professional advice before you sign on the dotted line.

What are the pros and cons of no-deposit home loans?

It’s no longer possible to get a no-deposit home loan in Australia. In some circumstances, you might be able to take out a mortgage with a 5 per cent deposit – but before you do so, it’s important to weigh up the pros and cons.

The big advantage of borrowing 95 per cent (also known as a 95 per cent home loan) is that you get to buy your property sooner. That may be particularly important if you plan to purchase in a rising market, where prices are increasing faster than you can accumulate savings.

But 95 per cent home loans also have disadvantages. First, the 95 per cent home loan market is relatively small, so you’ll have fewer options to choose from. Second, you’ll probably have to pay LMI (lender’s mortgage insurance). Third, you’ll probably be charged a higher interest rate. Fourth, the more you borrow, the more you’ll ultimately have to pay in interest. Fifth, if your property declines in value, your mortgage might end up being worth more than your home.

Will I have to pay lenders' mortgage insurance twice if I refinance?

If your deposit was less than 20 per cent of your property’s value when you took out your original loan, you may have paid lenders’ mortgage insurance (LMI) to cover the lender against the risk that you may default on your repayments. 

If you refinance to a new home loan, but still don’t have enough deposit and/or equity to provide 20 per cent security, you’ll need to pay for the lender’s LMI a second time. This could potentially add thousands or tens of thousands of dollars in upfront costs to your mortgage, so it’s important to consider whether the financial benefits of refinancing may be worth these costs.

What is bridging finance?

A loan of shorter duration taken to buy a new property before a borrower sells an existing property, usually taken to cover the financial gap that occurs while buying a new property without first selling an older one.

Usually, these loans have higher interest rates and a shorter repayment duration.

Is a home equity loan secured or unsecured?

Home equity is the difference between its current market price and the outstanding balance on the mortgage loan. The amount you can borrow against the equity in your property is known as a home equity loan.

A home equity loan is secured against your property. It means the lender can recoup your property if you default on the repayments. A secured home equity loan is available at a competitive rate of interest and may be repaid over the long-term. Although a home equity loan is secured, lenders will assess your income, expenses, and other liabilities before approving your application. You’ll also want  a good credit score to qualify for a home equity loan. 

How long does ANZ take to approve a home loan?

The process of applying for a home loan usually stays the same across all lenders. On the other hand, the time it takes for a lender to approve the home loan differs from lender to lender. When it comes to ANZ, it takes anywhere between 15 to 18 business days to approve a home loan from the day of the application to approval. This timeframe is highly dependent on the credibility and availability of your documentation. You can apply for an ANZ home loan in two ways; a Quick Start home loan application or a full online application.

If you opt for the Quick Start home loan option, you’ll need to fill out a form with basic details. During this stage, you don’t need to add any supporting information. An ANZ representative will then call you within 48 hours. The representative will help take your application forward, including assessing all relevant information, documentation and conducting a credit check.

You can also submit your entire home loan application with ANZ online by filling out a comprehensive form with all the information and documentation needed.

Once ANZ has conducted the preliminary checks, you’ll be informed of the pre-approved amount they’re willing to offer. Based on this amount, you can set a budget for your property search and make sure you stay inside your budget. Pre-approval will last for three months but can be extended by applying with ANZ if you don’t find a property. But it’s best to find a property as soon as possible as ANZ may decide to change the amount if your financial situation changes.

After you find a property and have your offer accepted, ANZ may send an assessor to the property to verify it’s value. If everything is per their terms and conditions, ANZ will finalise your home loan’s approval and release the funds.