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2.88%

Variable

2.90%

loans.com.au

$1.4k

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

4.35

/ 5
More details

2.89%

Variable

2.93%

Mortgage House

$1.4k

Redraw facility
Offset Account
Borrow up to 70%
Extra Repayments
Interest Only
Owner Occupied

4.26

/ 5
More details

2.97%

Variable

2.99%

Well Home Loans

$1.4k

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

4.54

/ 5
More details

3.09%

Variable

3.05%

Athena Home Loans

$1.4k

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

4.15

/ 5
More details

3.09%

Variable

3.09%

UBank

$1.4k

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

4.27

/ 5
More details

2.96%

Fixed - 3 years

3.16%

Mortgage House

$1.4k

Redraw facility
Offset Account
Borrow up to 70%
Extra Repayments
Interest Only
Owner Occupied

3.78

/ 5
More details

3.15%

Variable

3.17%

State Custodians

$1.4k

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

4.45

/ 5
More details

3.19%

Variable

3.22%

Mortgage House

$1.5k

Redraw facility
Offset Account
Borrow up to 90%
Extra Repayments
Interest Only
Owner Occupied

4.31

/ 5
More details

3.18%

Variable

3.23%

CUA

$1.5k

Redraw facility
Offset Account
Borrow up to 90%
Extra Repayments
Interest Only
Owner Occupied

4.09

/ 5
More details

3.59%

Variable

3.24%

Athena Home Loans

$898

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

3.10

/ 5
More details

3.27%

Variable

3.28%

HSBC

$1.5k

Redraw facility
Offset Account
Borrow up to 90%
Extra Repayments
Interest Only
Owner Occupied

4.00

/ 5
More details

2.89%

Fixed - 3 years

3.29%

Virgin Money

$1.4k

Redraw facility
Offset Account
Borrow up to 90%
Extra Repayments
Interest Only
Owner Occupied

4.04

/ 5
More details

2.89%

Fixed - 2 years

3.31%

Virgin Money

$1.4k

Redraw facility
Offset Account
Borrow up to 90%
Extra Repayments
Interest Only
Owner Occupied

3.88

/ 5
More details

3.32%

Variable

3.37%

Heritage Bank

$1.5k

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

3.88

/ 5
More details

3.33%

Variable

3.38%

CUA

$1.5k

Redraw facility
Offset Account
Borrow up to 90%
Extra Repayments
Interest Only
Owner Occupied

3.86

/ 5
More details

3.36%

Variable

3.39%

IMB Bank

$1.5k

Redraw facility
Offset Account
Borrow up to 90%
Extra Repayments
Interest Only
Owner Occupied

3.87

/ 5
More details

3.39%

Variable

3.39%

Hume Bank

$1.5k

Redraw facility
Offset Account
Borrow up to 95%
Extra Repayments
Interest Only
Owner Occupied

3.95

/ 5
More details

3.39%

Variable

3.39%

Hume Bank

$1.5k

Redraw facility
Offset Account
Borrow up to 95%
Extra Repayments
Interest Only
Owner Occupied

3.89

/ 5
More details

3.37%

Variable

3.42%

SCU

$1.5k

Redraw facility
Offset Account
Borrow up to 95%
Extra Repayments
Interest Only
Owner Occupied

3.79

/ 5
More details

3.40%

Variable

3.42%

State Custodians

$1.5k

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

4.07

/ 5
More details

Learn more about home loans

What are bad credit home loans?

Bad credit home loans are mortgages for people who have struggled to manage credit products in the past. Those credit products may include:

  • Previous home loans
  • Credit cards
  • Car loans
  • Personal loans
  • Phone plans
  • Internet plans

Bad credit home loans are harder to qualify for than ‘prime’ mortgages. They tend to have higher interest rates and may have higher fees as well.

Why? It’s because mortgage lenders regard people with bad credit histories as risky borrowers.

Of course, just because someone may have missed repayments or defaulted on loans in the past, it doesn’t automatically mean they will have credit problems in the future. Also, credit problems may have been caused not by excessive spending, but by sudden illness, job loss or divorce.

Bad credit home loans are designed to help people with bad credit to get the money they need to buy a new property or renovate an existing home.

Who offers bad credit home loans?

As a general rule, bad credit home loans are offered not by the bigger, better-known banks but by smaller, niche providers. These tend to be non-bank lenders (also known as ‘specialist lenders’).

There are more than 150 home loan lenders in Australia - and while all of them are happy to offer ‘prime’ mortgages, only a small minority are willing to provide bad credit mortgages.

Bigger lenders prefer ‘vanilla’ borrowers who conform to standard profiles. Why? It’s because they’re easier to manage.

Specialist lenders, by contrast, are more willing to treat borrowers on a case-by-case basis and to be more flexible in their lending decisions.

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How do you take out bad credit home loans?

If you want to take out a bad credit home loan, you’ll need to visit a specialist lender to present your case, or get a mortgage broker to do it on your behalf.

To succeed, you’ll need to convince the lender that even though you’ve had credit problems in the past, you would be able to repay a mortgage in the future. That will involve explaining what caused those old credit problems and how those problems have been overcome.

Lenders will want to get an understanding of your financial position, so you should expect to be asked for documents like bank statements, credit card statements, employment agreements, payslips, tax returns and rental agreements.

As with all loan applications, you’ll find it easier to qualify for a bad credit home loan if you can present yourself as someone who has a steady job and good savings habits. With that in mind, here are seven possible obstacles you might face during the application process - and how you might be able to overcome these obstacles before you apply in the first place.

Possible obstacles Possible solutions
You’re carrying debt Can you reduce or even pay off a loan?
You have credit cards Can you cut up your credit cards? (If you have a credit card with a $5,000 limit, lenders will probably assume it’s carrying $5,000 of debt, even if you owe only $1,000.)
You’ve held your job for less than one year Can you delay a job move you were thinking of making?
Your job is part-time or casual Can you ask your company to change your status to full-time?
Your income is low Can you ask for a raise or more hours or get a second job?
Your savings are low Can you boost your bank balance by selling non-essential possessions?
You save a small percentage of your income Can you boost your savings rate by eating out less, walking more and giving up booze?

How can bad credit borrowers become prime borrowers?

Although you might need to take out a bad credit home loan today, there’s a chance you could eventually refinance to a prime mortgage if you improve your credit score in the meantime.

The key is to make sure that positive credit events are being added to your credit file - and that negative credit events aren’t. Here are some examples of both:

Positive credit events Negative credit events
Successfully applying for credit products Unsuccessfully applying for credit products
Making scheduled loan repayments Missing scheduled loan repayments
Paying off loans Defaulting on loans

By accumulating a catalogue of positive credit events, while simultaneously eliminating negative credit events from your life, you can improve your credit score.

Once you’ve achieved this, you might be able to move out of the ‘bad credit’ category. And once that happens, you might be able to refinance away from specialist lenders (with higher-rate home loans) to mainstream lenders (with lower-rate home loans).

This isn’t a quick or easy thing to do. Rather, building a good credit history requires a long-term focus on paying all your debts on time, every time.

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How do you compare bad credit home loans?

Borrowers should look at four main factors when comparing bad credit home loans:

  1. Flexibility
  2. Interest rates
  3. Fees
  4. Features

1. Flexibility

Most lenders have rigid credit policies and reject borrowers who don’t fit. Flexible lenders, though, are more likely to treat people as individuals and to assess them on a case-by-case basis. These flexible lenders tend to be smaller non-bank lenders rather than bigger banks.

2. Interest rates

When comparing interest rates, take the time to look beyond the numbers. For example, some lenders might try to tempt you with what are known as ‘introductory’ or ‘honeymoon’ rates. These are interest rates that start at a relatively low level but then revert after a set period (say, 12 months) to a higher level. So what you see and what you get can turn out to be two different things.

Also, a fixed-rate mortgage with a higher interest rate might be more suitable than a variable-rate mortgage with a lower interest rate. Why? The reason is that the lender can change a variable interest rate whenever it likes - even the day after you sign up for the mortgage. If you’re lucky, the rate would go down; but if you’re unlucky, it would go up, and your repayments would increase.

But with a fixed-rate mortgage, the interest rate will stay the same throughout the fixed-rate period. That means your repayments will stay the same and your budget won’t receive any nasty surprises.

3. Fees

Pay close attention to fees, because a home loan with a lower interest rate and higher fees can prove more costly over the life of the mortgage than a home loan with a higher interest rate and lower fees.

The main fees to be aware of are upfront application fees and ongoing monthly/annual fees. You should also look out for the discharge fee, because if you plan to eventually switch from a bad credit loan to a prime loan, you will have to pay a discharge fee when you refinance.

4. Features

You might find it easier to manage your bad credit home loan if they come with an offset account or redraw facility, because those features will allow you to get ahead on your repayments.

Another feature to consider - if it’s available - is a split rate option. This allows you to divide your mortgage in two: one half with a variable interest rate and one half with a fixed interest rate.

Final word

It’s important for all Australians to carefully research home loans - but it’s particularly important for bad credit borrowers, who are charged higher interest rates and have fewer options to choose from.

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What are the pros and cons of bad credit home loans?

You should think carefully before applying for bad credit home loans, because although they can offer benefits, they can also have serious consequences.

Here are some potential negatives:

  1. If you’ve struggled to manage smaller loans in the past, taking out a big loan might be asking for trouble. If you fall behind on your repayments or even default on the loan, your credit score will get even worse.
  2. Your bad credit home loan application might be rejected. This would be likely to cause two problems: you’d forfeit your application fee and your credit score would further deteriorate (as a failed application is regarded as a negative credit event).
  3. If your application does get accepted, you’d probably be charged a higher interest rate and higher fees than prime borrowers. Also, you might be forced to pay lender’s mortgage insurance (LMI).

That said, bad credit home loans do have pros:

  1. You get to enjoy the thrill and pride that comes with owning your own home.
  2. You would no longer have to spend ‘dead money’ on rent.
  3. While you’d have to settle for a more expensive home loan, if you waited until your credit score was good enough for a prime mortgage, you might that property prices had increased by tens of thousands of dollars in the meantime.
Pros
  • Pride of becoming a home owner
  • No longer spend ‘dead money’ on rent
  • Get in early, before prices rise
Cons
  • Loans are inherently risky
  • Your application might get rejected
  • Higher rates, higher fees, LMI

What are some alternatives to bad credit home loans?

One alternative to bad credit home loans is guarantor loans.

A guarantor home loan is one in which a third party (usually a relative) makes a legal commitment to meet the mortgage repayments if, for whatever reason, the borrower fails to do so.

The catch is that the guarantor needs to have a good credit rating and the capacity to pay off the home loan. The guarantor also needs to provide security (such as the family home), so that if the guarantor also fails to meet the mortgage repayments, the bank can seize the security and get its money back.

With a legally binding guarantee in place, a bad credit borrower becomes less of a risk. As a result, banks are more willing to lend to that borrower, and at lower interest rates.

Another alternative to bad credit home loans is for the borrower to take steps to improve their credit score - although that could take several years. If/when that happened, the borrower could then qualify for a prime mortgage. Of course, this process is easier said than done.

Frequently asked questions

What is a bad credit home loan?

A bad credit home loan is a mortgage for people with a low credit score. Lenders regard bad credit borrowers as riskier than ‘vanilla’ borrowers, so they tend to charge higher interest rates for bad credit home loans.

If you want a bad credit home loan, you’re more likely to get approved by a small non-bank lender than by a big four bank or another mainstream lender.

How can I get a home loan with bad credit?

If you want to get a home loan with bad credit, you need to convince a lender that your problems are behind you and that you will, indeed, be able to repay a mortgage.

One step you might want to take is to visit a mortgage broker who specialises in bad credit home loans (also known as ‘non-conforming home loans’ or ‘sub-prime home loans’). An experienced broker will know which lenders to approach, and how to plead your case with each of them.

Two points to bear in mind are:

  • Many home loan lenders don’t provide bad credit mortgages
  • Each lender has its own policies, and therefore favours different things

If you’d prefer to directly approach the lender yourself, you’re more likely to find success with smaller non-bank lenders that specialise in bad credit home loans (as opposed to bigger banks that prefer ‘vanilla’ mortgages). That’s because these smaller lenders are more likely to treat you as a unique individual rather than judge you according to a one-size-fits-all policy.

Lenders try to minimise their risk, so if you want to get a home loan with bad credit, you need to do everything you can to convince lenders that you’re safer than your credit history might suggest. If possible, provide paperwork that shows:

  • You have a secure job
  • You have a steady income
  • You’ve been reducing your debts
  • You’ve been increasing your savings

Are bad credit home loans dangerous?

Bad credit home loans can be dangerous if the borrower signs up for a loan they’ll struggle to repay. This might occur if the borrower takes out a mortgage at the limit of their financial capacity, especially if they have some combination of a low income, an insecure job and poor savings habits.

Bad credit home loans can also be dangerous if the borrower buys a home in a stagnant or falling market – because if the home has to be sold, they might be left with ‘negative equity’ (where the home is worth less than the mortgage).

That said, bad credit home loans can work out well if the borrower is able to repay the mortgage – for example, if they borrow conservatively, have a decent income, a secure job and good savings habits. Another good sign is if the borrower buys a property in a market that is likely to rise over the long term.

What is principal and interest'?

‘Principal and interest’ loans are the most common type of home loans on the market. The principal part of the loan is the initial sum lent to the customer and the interest is the money paid on top of this, at the agreed interest rate, until the end of the loan.

By reducing the principal amount, the total of interest charged will also become smaller until eventually the debt is paid off in full.

What is a low-deposit home loan?

A low-deposit home loan is a mortgage where you need to borrow more than 80 per cent of the purchase price – in other words, your deposit is less than 20 per cent of the purchase price.

For example, if you want to buy a $500,000 property, you’ll need a low-deposit home loan if your deposit is less than $100,000 and therefore you need to borrow more than $400,000.

As a general rule, you’ll need to pay LMI (lender’s mortgage insurance) if you take out a low-deposit home loan. You can use this LMI calculator to estimate your LMI payment.

What is a guarantor?

A guarantor is someone who provides a legally binding promise that they will pay off a mortgage if the principal borrower fails to do so.

Often, guarantors are parents in a solid financial position, while the principal borrower is a child in a weaker financial position who is struggling to enter the property market.

Lenders usually regard borrowers as less risky when they have a guarantor – and therefore may charge lower interest rates or even approve mortgages they would have otherwise rejected.

However, if the borrower falls behind on their repayments, the lender might chase the guarantor for payment. In some circumstances, the lender might even seize and sell the guarantor’s property to recoup their money.

Why do people use no credit check loans?

How do I know if I have to pay LMI?

Each lender has its own policies, but as a general rule you will have to pay lender’s mortgage insurance (LMI) if your loan-to-value ratio (LVR) exceeds 80 per cent. This applies whether you’re taking out a new home loan or you’re refinancing.

If you’re looking to buy a property, you can use this LMI calculator to work out how much you’re likely to be charged in LMI.

How common are low-deposit home loans?

Low-deposit home loans aren’t as common as they once were, because they’re regarded as relatively risky and the banking regulator (APRA) is trying to reduce risk from the mortgage market.

However, if you do your research, you’ll find there is still a fairly wide selection of banks, credit unions and non-bank lenders that offers low-deposit home loans.

How do I take out a low-deposit home loan?

If you want to take out a low-deposit home loan, it might be a good idea to consult a mortgage broker who can give you professional financial advice and organise the mortgage for you.

Another way to take out a low-deposit home loan is to do your own research with a comparison website like RateCity. Once you’ve identified your preferred mortgage, you can apply through RateCity or go direct to the lender.

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What happens to my home loan when interest rates rise?

If you are on a variable rate home loan, every so often your rate will be subject to increases and decreases. Rate changes are determined by your lender, not the Reserve Bank of Australia, however often when the RBA changes the cash rate, a number of banks will follow suit, at least to some extent. You can use RateCity cash rate to check how the latest interest rate change affected your mortgage interest rate.

When your rate rises, you will be required to pay your bank more each month in mortgage repayments. Similarly, if your interest rate is cut, then your monthly repayments will decrease. Your lender will notify you of what your new repayments will be, although you can do the calculations yourself, and compare other home loan rates using our mortgage calculator.

There is no way of conclusively predicting when interest rates will go up or down on home loans so if you prefer a more stable approach consider opting for a fixed rate loan.

What is a variable home loan?

A variable rate home loan is one where the interest rate can and will change over the course of your loan. The rate is determined by your lender, not the Reserve Bank of Australia, so while the cash rate might go down, your bank may decide not to follow suit, although they do broadly follow market conditions. One of the upsides of variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts.

How can I negotiate a better home loan rate?

Negotiating with your bank can seem like a daunting task but if you have been a loyal customer with plenty of equity built up then you hold more power than you think. It’s highly likely your current lender won’t want to let your business go without a fight so if you do your research and find out what other banks are offering new customers you might be able to negotiate a reduction in interest rate, or a reduction in fees with your existing lender.

What is an ombudsman?

An complaints officer – previously referred to as an ombudsman -looks at formal complaints from customers about their credit providers, and helps to find a fair and independent solution to these problems.

These services are handled by the Australian Financial Complaints Authority, a non-profit government organisation that addresses and resolves financial disputes between customers and financial service providers.

How much of the RBA rate cut do lenders pass on to borrowers?

When the Reserve Bank of Australia cuts its official cash rate, there is no guarantee lenders will then pass that cut on to lenders by way of lower interest rates. 

Sometimes lenders pass on the cut in full, sometimes they partially pass on the cut, sometimes they don’t at all. When they don’t, they often defend the decision by saying they need to balance the needs of their shareholders with the needs of their borrowers. 

As the attached graph shows, more recent cuts have seen less lenders passing on the full RBA interest rate cut; the average lender was more likely to pass on about two-thirds of the 25 basis points cut to its borrowers.  image002

Why was Real Time Ratings developed?

Real Time RatingsTM was developed to save people time and money. A home loan is one of the biggest financial decisions you will ever make – and one of the most complicated. Real Time RatingsTM is designed to help you find the right loan. Until now, there has been no place borrowers can benchmark the latest rates and offers when they hit the market. Rates change all the time now and new offers hit the market almost daily, we saw the need for a way to compare these new deals against the rest of the market and make a more informed decision.

What is a debt service ratio?

A method of gauging a borrower’s home loan serviceability (ability to afford home loan repayments), the debt service ratio (DSR) is the fraction of an applicant’s income that will need to go towards paying back a loan. The DSR is typically expressed as a percentage, and lenders may decline loans to borrowers with too high a DSR (often over 30 per cent).

Why is it important to get the most up-to-date information?

The mortgage market changes constantly. Every week, new products get launched and existing products get tweaked. Yet many ratings and awards systems rank products annually or biannually.

We update our product data as soon as possible when lenders make changes, so if a bank hikes its interest rates or changes its product, the system will quickly re-evaluate it.

Nobody wants to read a weather forecast that is six months old, and the same is true for home loan comparisons.

What is a construction loan?

A construction loan is loan taken out for the purpose of building or substantially renovating a residential property. Under this type of loan, the funds are released in stages when certain milestones in the construction process are reached. Once the building is complete, the loan will revert to a standard principal and interest mortgage.