What is a home loan?

A variable rate moves with lender pricing and the wider market, and typically comes with extra repayments, redraw and offset. A fixed rate locks the rate for a set term, giving certainty at the cost of flexibility: extra repayments may be capped, and break costs apply if you exit early. A split loan divides the balance between the two.

On repayment type, principal and interest reduces the principal as you go, while interest only keeps repayments low for a period without touching the balance, which raises the long-term cost and slows the equity you build. Lenders apply serviceability limits to interest only terms.

Interest is the main cost, but it is not the only one. Expect establishment or application fees, ongoing account keeping, valuation fees, and break costs if you leave a fixed term early. Government charges such as title registration and state stamp duty sit on top.

Your deposit sets the loan to value ratio, which is the loan divided by the property value. A larger deposit lowers that ratio and can remove the need for lenders mortgage insurance, which you pay for but which covers the lender's loss, not yours.

Lenders run a serviceability test across your income, living expenses and existing debts, then apply a buffer so the loan is tested at a rate above the current one. Credit history counts as well: defaults, late payments and bankruptcy all narrow the field, and your credit rating forms part of the assessment.

Documents usually include photo ID, payslips or tax returns if you are self-employed, bank statements, evidence of the deposit and its source, details of other debts, and the contract of sale if you are under offer. Pre-approval gives a conditional estimate of what you can borrow, which helps when negotiating, but it is not final approval: valuation and full documentation still have to clear.

Refinancing can cut costs or bring in features you do not currently have, such as an offset account, and it is also the route to releasing equity for renovations or an investment. Rolling other debts into the mortgage is sometimes appropriate, though it stretches that repayment over a much longer period.

Weigh the savings against the switching costs. Get the payout figure and disclosure statement from your current lender, add the new loan's establishment fees and any break costs, then compare that against what you would actually save. The process runs through application, valuation, settlement and discharge of the old mortgage.