Compare first home loans for January

What is a first home buyer loan? 

First-home buyer loans technically aren’t a real thing – it’s a bit of a misnomer. But certain lenders and banks can offer discounted interest rates and fees, or sign-up incentives tailored to first-time buyers. 

However, in most cases, you’ll be offered the same home loans as those who already own property. 

Thankfully, there’s plenty you can do to help reduce the cost of getting your first home loan. 

According to Mozo’s analysis, the average variable rate among the award-winners comes to 6.03% p.a. Compared to the average variable rate in the Mozo database for a borrower with <90% LVR, which is 7.08% p.a. (OO, P&I, $400k) at the time of writing, the best First Home Buyer Loans typically beat the average by around 1%.

What to look for in your first home loan

When you compare home loans for the first time, it can be hard to know exactly what to look out for. Here’s a brief overview of some of the main criteria to consider when narrowing down your shortlist.

1. A low interest rate 

You can think of the interest rate on your loan as the cost of borrowing money from a bank or lender. Interest is calculated daily and included in your mortgage repayment, whether it's weekly, fortnightly, or monthly. 

Aside from fees, interest is one of the main home loan costs you’ll have to deal with. The lower your rate is, the less interest you’re charged.

There are two main types of interest rates to compare:

• Variable interest rates, which change at the lender's discretion based on the market.
• Fixed interest rates, which stay the same for a period of time (called a fixed term).

2. Low fees 

Fees typically fall into one of two categories: upfront and ongoing.

Upfront fees

• Application fees: Payable to the lender to process your home loan application.
• Property valuation fees: Payable to the lender to value your property. Some lenders will waive this fee if you proceed through to settlement.
• Settlement fee: This covers the cost of establishing your loan during home loan settlement.

Ongoing fees 

• Package fees: Payable annually if you opt for a home loan package (which includes things like an offset account, credit card or discounted insurance).
• Service fees: Administrative fees payable to your lender, which can be charged monthly or annually.
• Offset account fees: Some lenders will charge a monthly fee for the use of an offset account.

3. Features 

As a first home buyer, you might be tempted to take out a ‘no frills’ home loan – i.e. one that does away with many of the cost-saving features available on other loans – in favour of a typically lower interest rate. 

While that might make sense for your situation, it’s also important to consider the cost-saving features that might be available to you. 

Offset accounts

A transaction or savings account linked to your home loan, that can help reduce the amount of interest you pay. 

Some home loans offer offset accounts for free. But for others, you’ll pay an extra fee or additional interest will be added to your rate. 

Make sure you compare offset account home loans to see if this home loan feature is a good fit for you.

Extra repayments 

Having the option to make extra repayments will help you not only to pay off your loan faster but can reduce the amount of interest you end up paying over the life of your home loan. 

It's worth checking how much extra repayments could save you by using an extra repayment calculator.

Flexible repayment frequencies 

Some home loans let you choose how often you make repayments, either weekly, fortnightly, or monthly. This can come with cost savings. 

Repayment holidays 

Some home loans let you hit ‘pause’ on your repayments, which can come in handy if you’re experiencing a temporary setback or have to cover a surprise expense. 

Generally, you will need to be ahead on your repayments to make use of this feature.

4. Loan term 

The standard term for a home loan is 25 years but most lenders have a maximum loan term of 30 years.

As a first-home buyer, it can be tempting to opt for the longest possible term as this reduces your loan repayments, but the catch is you'll pay more in interest over the life of the loan. 

For example, if you borrowed $600,000 at 6.50% p.a. interest over a 25-year term, your monthly repayments would be $4,051 per month, and you’d end up paying $615,373 in interest. 

If you spread out your home loan over 30 years instead, your repayments would come down to $3,792, but you’d pay $765,267 in interest – that’s an extra $149,894 over just five years.

How much deposit do I need for my first home loan? 

Most lenders require you to save up a 20% deposit. But, as a first home buyer, you may only need to save 2 to 5% thanks to home loan grants and schemes designed to help people like you attain homeownership faster. 

Government schemes like the First Home Guarantee, Regional First Home Buyer Guarantee, and the Help to Buy scheme allow eligible borrowers to buy their first place without having to save up a full 20% deposit, and without needing to pay Lenders Mortgage Insurance (LMI).

Given the average home deposit in Australia is almost $192,000, as of March 2024, a 5% deposit looks much more achievable to save for. 

Speaking of saving, that’s exactly what most lenders want to see from your deposit. 

Genuine savings, as opposed to being gifted a deposit from family, should make up the bulk of your first home deposit, as lenders want proof that you’re financially stable enough to save it yourself. By extension, they want proof that you can service a home loan. 

But the larger your deposit is, the lower your home loan interest rate could be. This is because lenders often tailor the rates they offer to borrowers with different LVR tiers. 

As it’s your first home loan, these are the sort of rates you could expect to find, based on your deposit size and corresponding LVR tier: 

Average variable interest rates by home loan LVR tier

Average variable rates by LVR tier in the Mozo database for owner-occupiers, borrowing $400,000, making principal and interest repayments over 25 years. Correct as at 19 July 2024.  

First home loan costs to be aware of 

Aside from your deposit, there are a few other big costs to getting your first home loan.

What happens if I don’t like my first home loan?

Your first home loan doesn’t have to be your only home loan, thanks to a process called refinancing. 

If you feel you’re paying too much interest, you’d like access to new features, you want to refinance to a fixed rate home loan from a variable rate, or you’d like to extend your loan term, you can compare refinance home loans to see if you can switch and save. 

Just be aware that your LVR will play a part in the interest rates new lenders will offer, and that there are costs involved with refinancing.