Home Loans Frequently Asked Questions

A home loan is a finance product that allows a home buyer to borrow a large sum of money from a lender for the purchase of a residential property. The home is then put up as "security" or "collateral" on the loan, giving the lender the right to repossess the property in the case that the borrower fails to repay their loan.

Once you take out a home loan, you'll need to repay the amount borrowed, plus interest, in regular instalments over a predetermined period of time.

The interest you're charged on each mortgage repayment is based on your remaining loan amount, also known as your loan principal. The rate at which interest is charged on your home loan principal is expressed as a percentage.

Different home loan products charge different interest rates and fees, and offer a range of different features to suit a variety of buyers’ needs.

Mortgage rates are influenced by the official cash rate, which is determined by the Reserve Bank of Australia (RBA) at its monthly board meeting on the first Tuesday of every month, except for January.

The official cash rate is the interest rate that banks charge other banks to borrow money. If the RBA cuts the cash rate, the interest rate banks are charged when they borrow from other banks is reduced. Likewise, if the cash rate is hiked, the interest rate banks are charged will go up.

If banks can save money from reduced interest rates, they will often pass on some or all of these savings to their variable rate home loan customers – although they are not required to. They can also choose to pass on a cash rate rise by increasing mortgage interest rates.

Credit inquiries are records on your credit file that appear when you apply for a loan. If you have multiple credit inquiries on your file, lenders may see you as a high-risk borrower.

• Hard inquiries appear on your credit file when the lender reviews your credit report before approving.
• Soft inquiries do not appear on your credit file.

When you have multiple credit checks for mortgage or other loans, reflecting on your file can negatively impact your credit score. These remain on your credit report for two years; however, their impact reduces over time.

Generally, lenders prefer if you've had one or two hard inquiries over the previous six months. More than this may result in the lender declining your mortgage application. However, your overall credit history is important, and if you have a consistent history of timely payments and low revolving credit balances, the impact of multiple inquiries may be lower.

The amount of money you can borrow through a mortgage depends not only on your salary but also on your creditworthiness, your savings, and other debts you are paying off.

For instance, you could be earning $5,000 a month, but if you are making repayments of $2,000 and are only able to put away $500 towards savings, you may not have much borrowing power.

Consider using an online calculator to figure out how much you can afford to borrow, based on your salary and expenses.

When changing or refinancing your home loan, you may focus on paying less interest, but you should also account for other fees charged by your existing lender as well as the new lender. Your current lender will likely charge a loan discharge fee and possibly also a settlement fee, which can together cost you a few hundred dollars. Applying for a new loan will similarly involve an administration fee as well as a property valuation fee if the new lender insists on verifying the value of your home. Further, depending on the state or territory you live in, you may need to pay duties and fees to register the change in your mortgage. 

You may want to think about why you are changing home loans, and then use a refinancing calculator to see how you can get the most out of the switch. For instance, if you are refinancing your mortgage to pay it off faster, you could check if another lender will offer a shorter loan period, involving larger repayments. You should check whether your current mortgage lender is willing to renegotiate your loan terms before you approach a new lender and thus save on some of the fees. 

An appraisal is the process by which a qualified real estate agent conducts an inspection and assessment of a property in order to make an educated estimate of its value, typically in preparation of it being listed for sale. It is not to be confused with a valuation, which is conducted by a Certified Practising Valuer on behalf of a mortgage lender to determine the Loan to Value Ratio in relation to the borrow amount.

To begin the appraisal, the agent will start by visiting the property and assessing features such as the size, layout, number of bedrooms and bathrooms, quality of fixtures and fittings, and how well it has been maintained.

Next, the agent will use the findings to compare the property the with other similar properties in the area that have recently sold. In doing so, they are able to determine a more accurate appraisal that is representative of the current market demand.

A house appraisal, in which a qualified real estate agent assesses a property to make an estimate of its value, is a service that is generally offered to homeowners free of charge.

Local real estate agents tend to offer free property appraisals to homeowners as a way to build a relationship with them, and potentially secure the listing if the homeowner has plans to sell.

It can also be a good opportunity for the homeowner to gauge the agent’s level of expertise and determine whether or not they would be an ideal listing agent for the sale of their home.

You may also like to consider using an online service like RateCity to get a free property value report. Similar to an appraisal, the report is a computer generated valuation based on a significant amount of data and insights, and can provide details including the estimated property price and information about similar properties for sale or recently sold in the area.

Your property’s value is how much your property is worth to a bank or mortgage lender, when it comes to securing a mortgage over a property and calculating the loan to value ratio (LVR).

A professional valuer assesses a property’s value based on data about the property, its sale history, and other recent sales in the area. The valuer may also visit the property to assess its condition in person.

A property’s value may be different to a real estate agent’s appraisal, which indicates how much a property may sell for. It’s also often different to a property’s sale price at auction or private sale, which shows how much a buyer thinks it’s worth in the current market. 

Your house’s worth may depend on its age, size, location, and overall condition. This may be affected by its number of bedrooms, bathrooms and car spaces, as well as its previous sale history, plus recent sales of similar properties in the local area. A property report provides a summary of this information to help you make an estimate.

You may get a different estimate of how much your house is worth if you ask a real estate agent, a professional valuer, or a property purchaser at an auction or private sale. This is because an appraisal from a real estate agent is an estimate of how much your house could sell for; a valuation is a professional assessment of whether your home’s value is enough to secure a mortgage; and a sale price is how much a buyer thinks your house is worth on the current market. 

A property report estimate is an approximate calculation of a property’s value, found in an online property report. These estimates are typically based on the property’s age, size, location, and number of bedrooms, bathrooms and car spaces. The property’s history of previous sales, plus recent sales of similar properties in the local area, may also help to calculate the property’s current value.