Complete Mortgage Guide — Australia

How Mortgages Work in Australia

A mortgage in Australia is a loan secured against property. You borrow from a bank or lender, and the property acts as security until you repay the loan in full. Most Australian mortgages run for 25 to 30 years, though you can pay them off faster with extra repayments.

The Australian mortgage market is competitive, with over 100 lenders offering products ranging from basic variable loans to complex split and offset arrangements. This competition works in your favour — but it also means choosing the right loan requires some homework.

Before diving into the details, use our mortgage calculator to get a quick estimate of your repayments based on current rates.

Getting Pre-Approved

Pre-approval (also called conditional approval) is the first practical step. It tells you how much a lender is willing to lend based on your financial situation, giving you a clear budget before you start property hunting.

What You Need for Pre-Approval

Lenders will typically ask for proof of income (payslips, tax returns for self-employed), identification (driver licence, passport), details of your assets and savings, a list of existing debts and liabilities, and your employment history for the past two years.

How Long Pre-Approval Lasts

Most pre-approvals are valid for 3 to 6 months. If you have not found a property in that time, you can usually reapply, though the lender will reassess your situation. Keep in mind that pre-approval is not a guarantee — final approval depends on the specific property and a formal valuation.

For a complete overview of the buying process, see our property buying guide.

Types of Home Loans in Australia

Variable Rate Loans

The most popular choice in Australia. Your interest rate moves with the market, typically influenced by the Reserve Bank of Australia’s cash rate decisions. When the RBA cuts rates, your repayments usually go down. When rates rise, they go up.

Variable loans offer the most flexibility — you can usually make unlimited extra repayments, access redraw facilities, and switch or refinance without break fees.

Fixed Rate Loans

A fixed rate loan locks in your interest rate for a set period, usually 1 to 5 years. Your repayments stay the same regardless of what happens with the RBA cash rate, which makes budgeting easier.

The trade-off is less flexibility. Most fixed loans limit extra repayments and charge significant break fees if you want to refinance or sell before the fixed period ends.

Split Loans

A split loan divides your mortgage into a fixed portion and a variable portion. This gives you some payment certainty from the fixed component while keeping the flexibility and potential savings of the variable portion. Many Australian borrowers find this a practical middle ground.

For a detailed comparison, read our guide on types of mortgages compared.

Interest-Only Loans

With an interest-only loan, you only pay the interest for a set period (usually 1 to 5 years). Your repayments are lower during this period, but you are not paying down the principal. These are more common with property investors who want to maximise tax deductions.

Understanding Interest Rates

The RBA Cash Rate

The Reserve Bank of Australia sets the cash rate at its monthly board meetings. This rate influences what banks charge for mortgages. When the RBA moves the cash rate, most lenders adjust their variable rates within days.

However, lenders do not always pass on the full change. Some pass on more, some less, and some use rate changes as an opportunity to adjust their margins. This is why comparing lenders matters more than just watching the RBA.

Comparison Rates

In Australia, lenders must display a comparison rate alongside their advertised rate. The comparison rate includes most fees and charges, giving you a truer picture of the loan’s cost. Always look at the comparison rate, not just the headline rate — a low advertised rate with high fees can cost more than a slightly higher rate with no fees.

Offset Accounts and Redraw

Offset Accounts

An offset account is a transaction account linked to your mortgage. The balance in your offset account is deducted from your loan balance when calculating interest. For example, if you owe $400,000 and have $50,000 in your offset account, you only pay interest on $350,000.

This can save you tens of thousands in interest over the life of your loan. Offset accounts work best with variable rate loans.

Redraw Facilities

A redraw facility lets you access extra repayments you have made on your loan. If you have paid ahead of schedule, you can withdraw those extra funds when needed. Unlike an offset account, the money reduces your actual loan balance — you are literally redrawing funds you have already repaid.

Our mortgage calculator lets you model the impact of offset accounts and extra repayments on your loan.

Lenders Mortgage Insurance (LMI)

If your deposit is less than 20% of the property price, most lenders require you to pay Lenders Mortgage Insurance. LMI protects the lender (not you) if you default on the loan.

LMI can cost anywhere from a few thousand dollars to over $30,000 depending on the loan size and your deposit percentage. It can be paid upfront or added to your loan balance.

Avoiding LMI

You can avoid LMI by saving a 20% deposit, using a family guarantee (where a family member offers their property as additional security), or qualifying for a government scheme like the Home Guarantee Scheme, which allows eligible first home buyers to purchase with as little as 5% deposit without paying LMI.

Check our government grants and schemes guide for current eligibility criteria.

Choosing a Lender

Australia has four major banks (Commonwealth Bank, Westpac, ANZ, NAB), several regional banks, credit unions, and a growing number of non-bank lenders and online-only lenders.

Major Banks vs Non-Bank Lenders

Major banks offer convenience, branch networks, and a wide range of products. Non-bank lenders and online lenders often offer lower rates because they have lower overheads. The right choice depends on whether you value service and branch access or are happy managing everything online for a better rate.

Using a Mortgage Broker

About 70% of Australian home loans are arranged through mortgage brokers. A broker compares loans across multiple lenders on your behalf, handles the paperwork, and is usually paid by the lender (so there is no direct cost to you).

A good broker can save you time and potentially find you a better deal than going directly to one bank. However, make sure your broker compares a wide panel of lenders, not just a select few.

Government Support for Home Buyers

The Australian government offers several schemes to help buyers enter the market.

The First Home Owner Grant (FHOG) provides a one-off payment to first home buyers purchasing or building a new home. The amount varies by state, typically ranging from $10,000 to $30,000.

The Home Guarantee Scheme allows eligible first home buyers and single parents to purchase with a deposit as low as 2-5% without paying LMI, with the government guaranteeing the difference.

Stamp duty concessions are available for first home buyers in most states, with thresholds and concession amounts varying by location. See our first home buyer guide for state-by-state details.

Refinancing Your Mortgage

Refinancing means switching your existing loan to a new one, either with the same lender or a different one. Australians refinance to get a lower interest rate, access equity, consolidate debts, or change loan features.

The process involves applying for a new loan, getting your property revalued, and settling the old loan. There may be discharge fees on your old loan and application fees on the new one, but the savings from a lower rate often outweigh these costs within months.

For a complete walkthrough, read our refinancing guide.

Common Mistakes to Avoid

Not comparing enough lenders is the most common mistake. Many buyers go straight to their existing bank without checking what else is available. Even a 0.25% difference in rate can save tens of thousands over the life of a 30-year loan.

Other common mistakes include not factoring in all the costs beyond the purchase price, choosing the wrong loan structure for your situation, and not reading the fine print on features like offset accounts and redraw limits.

See our detailed guide on common buying mistakes for more pitfalls to watch out for.

Next Steps

Ready to see what your repayments would look like? Use our mortgage calculator to model different scenarios — adjust the loan amount, rate, and term to find what works for your budget. You can also compare lenders and see the impact of extra repayments and offset accounts.

Still have questions? Browse our Australia mortgage FAQs for quick answers to the most common questions.