Home Loan and Finance Guide Australia: Everything You Need to Know (2026)

For most Australians, a home loan is the largest financial commitment they will ever make. The difference between a well-structured loan and a poor one can amount to tens of thousands of dollars over the life of the mortgage. Yet many buyers rush through the finance process, accepting the first offer they receive without understanding the options available to them.

This guide covers everything you need to know about home loan finance in Australia — from the types of loans available and how pre-approval works, to government schemes that can help you get into the market sooner. Whether you are a first home buyer or an experienced property owner looking to refinance, understanding these fundamentals will put you in a stronger financial position.

Types of Home Loans in Australia

Australian lenders offer several types of home loans, each with different features, benefits, and risks. The right choice depends on your financial situation, risk tolerance, and how you plan to manage your mortgage. For a focused comparison of fixed, variable, and split options, see our article on mortgage types explained.

Variable rate home loans

A variable rate loan has an interest rate that moves up and down with the market. When the Reserve Bank of Australia (RBA) changes the cash rate, lenders typically adjust their variable rates in the same direction (though not always by the same amount). Variable rate loans are the most common home loan type in Australia.

• Pros: More flexible — usually allows extra repayments, redraw, and early repayment without penalties. You benefit when interest rates fall. Easier to refinance or switch lenders.
• Cons: Your repayments increase when interest rates rise, making budgeting less predictable. You bear the full risk of rate movements.

Fixed rate home loans

A fixed rate loan locks in your interest rate for a set period, typically 1 to 5 years. During the fixed period, your repayments stay the same regardless of what happens to market rates. After the fixed period expires, the loan usually reverts to the lender's standard variable rate (which is often higher than discounted variable rates).

• Pros: Repayment certainty during the fixed period. Protection against rate rises. Easier to budget.
• Cons: You miss out if rates fall during your fixed period. Break costs can be substantial (sometimes tens of thousands of dollars) if you need to exit the fixed term early, refinance, or sell. Limited or no extra repayments or redraw during the fixed period.

Split loans

A split loan divides your mortgage into two portions — one fixed and one variable. For example, you might fix 60% of your loan for 3 years and keep 40% variable. This gives you partial protection against rate rises while retaining some flexibility for extra repayments on the variable portion.

Understanding LVR and LMI

For a detailed explanation of LMI, including how it is calculated and strategies to avoid it, see our dedicated LMI explainer.

LMI cost examples

To illustrate the impact of LMI, here are approximate costs for different deposit levels on a $700,000 property (these are indicative only — actual premiums vary by lender and insurer):

• 20% deposit ($140,000) — LVR 80%: No LMI required. This is the threshold most borrowers aim for.
• 15% deposit ($105,000) — LVR 85%: LMI approximately $4,500 to $7,500.
• 10% deposit ($70,000) — LVR 90%: LMI approximately $12,000 to $18,000.
• 5% deposit ($35,000) — LVR 95%: LMI approximately $25,000 to $40,000.

As you can see, the difference in LMI between a 10% and 5% deposit is dramatic. This is why saving an additional 5% can be one of the best financial decisions you make. Government schemes like the Home Guarantee Scheme (covered below) can help you avoid LMI entirely with a smaller deposit.

Comparison Rates Explained

Australian lenders are required to display a comparison rate alongside their advertised interest rate. The comparison rate is designed to help you compare the true cost of different loans by incorporating both the interest rate and most fees and charges into a single percentage.

However, comparison rates have limitations. They are calculated on a standardised $150,000 loan over 25 years, which may not reflect your actual loan size or term. They also do not account for features like offset accounts or redraw facilities that can reduce your effective interest cost. Use the comparison rate as a starting point for comparing loans, but dig deeper into the full fee structure and features before making a decision.

Offset Accounts and Redraw Facilities

Both features help you reduce the interest you pay over the life of the loan, but they work differently and have different tax implications — particularly for investment properties. If you plan to use the property as an investment in the future, an offset account is generally preferred over a redraw facility, because redrawing funds from an investment loan can affect the tax deductibility of the interest. Consult a tax professional for advice specific to your situation.

The Pre-Approval Process

How Much Can You Borrow?

Lenders assess your borrowing capacity using a combination of factors, including your income, existing debts, living expenses, and the interest rate buffer they apply. Since the introduction of APRA's serviceability buffer (currently 3 percentage points above the loan rate), your actual borrowing capacity may be lower than you expect.

Key factors that affect your borrowing capacity

• Gross income: Your total income before tax, including salary, rental income, bonuses, and overtime. Lenders may discount variable income sources (e.g., counting only 80% of bonus income).
• Existing debts: Credit card limits (even if you pay them off monthly), personal loans, car loans, HECS-HELP debt, and buy-now-pay-later accounts all reduce your borrowing capacity. Consider cancelling unused credit cards before applying.
• Living expenses: Lenders compare your declared living expenses against the Household Expenditure Measure (HEM) benchmark and use the higher figure. Reducing discretionary spending in the 3 months before applying can improve your assessed position.
• Deposit size: A larger deposit reduces the loan amount needed and may qualify you for better interest rates. It also avoids or reduces LMI, freeing up more of your budget for the property itself.
• Number of dependants: More dependants means higher assumed living expenses, which reduces your borrowing capacity.
• Employment type: Permanent full-time employees are assessed most favourably. Casual, contract, and self-employed borrowers may need to provide additional documentation and may have income discounted.

Government Schemes to Help You Buy

The Australian government offers several schemes to help buyers — particularly first home buyers — enter the property market. These schemes can save you thousands of dollars in LMI and boost your deposit savings.

Home Guarantee Scheme (HGS)

Administered by Housing Australia, the Home Guarantee Scheme includes three guarantees:

• First Home Guarantee (FHBG): Allows eligible first home buyers to purchase with as little as 5% deposit without paying LMI. The government guarantees the difference between your deposit and 20%. Limited to 35,000 places per financial year. Property price caps apply by location.
• Regional First Home Buyer Guarantee (RFHBG): Similar to the FHBG but specifically for buyers purchasing in regional areas. Requires a 5% minimum deposit. Limited to 10,000 places per financial year.
• Family Home Guarantee (FHG): Helps eligible single parents and single legal guardians of at least one dependent to purchase a home with as little as 2% deposit without LMI. Limited to 5,000 places per financial year.

First Home Super Saver Scheme (FHSSS)

The FHSSS allows you to save for your first home deposit inside your superannuation fund, where contributions are taxed at 15% rather than your marginal tax rate. You can make voluntary contributions of up to $15,000 per financial year (up to a total of $50,000), then withdraw these contributions plus deemed earnings through the ATO. For someone on a marginal tax rate of 32.5%, saving through super can result in an additional $6,000 to $8,000 compared to saving in a regular bank account on the same contributions.

First Home Owner Grant (FHOG)

Each state and territory offers a First Home Owner Grant for eligible buyers purchasing or building a new home. Grant amounts range from $10,000 to $30,000 depending on the state, with property price caps applying. The FHOG generally applies only to new homes, not established properties. See our first home buyer guide for a complete breakdown by state.

Broker vs Bank: How to Choose

One of the first decisions you will face is whether to work with a mortgage broker or go directly to a bank. Both options have merit, and the best choice depends on your situation.

Mortgage broker

• Compares loans from 20 to 40+ lenders (banks, credit unions, non-bank lenders).
• Can often negotiate better rates or fee waivers on your behalf.
• Handles the paperwork and application process for you.
• Provides ongoing service — can help with refinancing, rate reviews, and restructuring.
• No direct cost to you — brokers are paid a commission by the lender (typically 0.5-0.7% of the loan amount upfront plus an ongoing trail commission).
• Must hold an Australian Credit Licence and act in your best interest under the Best Interests Duty.

Going directly to a bank

• Access to that specific bank's full product range, including some products not available through brokers.
• May offer loyalty discounts or package deals if you bundle other products (transaction accounts, credit cards, insurance).
• Relationship managers at some banks can expedite applications.
• Limited to one lender's products — you miss out on the broader market comparison.

Around 70% of Australian home loans are now arranged through mortgage brokers. For most buyers, a broker provides better access to competitive rates and a wider range of products. However, if you have a strong existing relationship with a bank or your situation is straightforward, going direct can also work well. There is nothing stopping you from getting a broker quote and a direct bank quote and comparing the two.

Refinancing: When and Why

Refinancing means replacing your existing home loan with a new loan — either with the same lender or a different one. Australians refinance for several reasons:

• Lower interest rate: The most common reason. If market rates have dropped or a competitor is offering a significantly better rate, refinancing can save thousands per year.
• Better features: Switching to a loan with an offset account, better redraw terms, or more flexible repayment options.
• Accessing equity: If your property has increased in value, refinancing can release equity for renovations, investing, or other purposes.
• Debt consolidation: Rolling higher-interest debts (credit cards, personal loans) into your home loan at a lower rate. Be cautious — while the rate is lower, you are spreading the repayment over a longer term, which may cost more in total interest.
• Changing loan structure: Switching from variable to fixed (or vice versa), or restructuring for investment property tax purposes.

Refinancing costs to consider

• Discharge fee from your current lender: $150 to $400.
• Break costs if exiting a fixed rate loan early: can be $0 to $20,000+ depending on the remaining fixed term and rate movements.
• Application or establishment fees with the new lender: $0 to $600 (many lenders waive this to attract refinancers).
• Valuation fee: $0 to $500 (often waived by the new lender).
• Government registration fees: $100 to $400 depending on state.

Calculate the total cost of refinancing and compare it against your annual savings from the lower rate. As a rule of thumb, if the savings recover the refinancing costs within 12 to 18 months, it is usually worth switching.

Related Guides

• First Home Buyer Guide — The complete guide to buying your first home in Australia, including grants and stamp duty concessions.
• Stamp Duty Calculator — Calculate your stamp duty liability including first home buyer concessions for every state.
• What Is LMI? — Detailed explainer of Lenders Mortgage Insurance, how it is calculated, and strategies to avoid it.
• Property Due Diligence Checklist — Everything you need to investigate before making an offer on a property.
• Mortgage Calculator — Estimate your monthly repayments for different loan amounts, interest rates, and terms.
• Borrowing Capacity Calculator — Find out how much you may be able to borrow based on your income and expenses.