First Home Buyer Home Loans: Rates & Deals

One of the lowest variable interest rates for first home buyers is 5.69% p.a. (6.11% p.a. comparison rate*).

One of the lowest fixed interest rates for first home buyers is 5.53% p.a. (6.30% p.a. comparison rate*).

First home buyers have the option to purchase a house with a deposit as low as 5-10%. However, Lenders Mortgage Insurance may apply, unless you utilise the Home Guarantee Scheme (HGS) or apply with the support of a guarantor.

The average first home buyer in Australia has a deposit of $159,000.

What is a first home buyer home loan?

A first home buyer (FHB) home loan is suited for borrowers purchasing their first property, with some FHB loans requiring only a 5-10% deposit, commonly referred to as a ‘low deposit home loan’. These loans are designed to make it easier for new borrowers to enter the housing market.

This contrasts with loans aimed at other kinds of borrowers (e.g people refinancing an existing loan) where you may not be able to borrow such a high percentage of the property’s value.

For example, a first-time buyer might qualify for a $600,000 home with a deposit of just $30,000 (5%), rather than the $120,000 they’d need if 20% were required. A deposit under 20%, however, may mean that Lenders Mortgage Insurance applies.

What is Lender’s Mortgage Insurance (LMI)?

Lenders Mortgage Insurance (LMI) provides protection to the lender, such as a bank or credit union, safeguarding them from the potential loss incurred if the borrower fails to repay the outstanding loan balance. LMI is an insurance premium some borrowers need to pay if their home deposit is less than 20% of their property’s value.

LMI is typically applied when the loan-to-value ratio (LVR) exceeds 80%, a threshold most lenders view as higher risk. LMI is designed to mitigate this risk, and is often accompanied by a higher interest rate for the borrower.

You can avoid paying LMI on a first home buyer loan by either:

Enrolling in the government’s Home Guarantee Scheme (HGS) through a participating lender (the income threshold is $125,000 for individuals and $200,000 for joint applicants).
Applying with a guarantor who can secure your loan using a portion of their home equity alongside your cash deposit (typically, a guarantor is a parent or family member).
Saving for a 20% deposit - although this can be challenging for first home buyers as nationwide real estate prices continue to skyrocket.

How your deposit determines your LVR

Your home deposit will dictate what your loan-to-value ratio is, which may be one of the factors that determines the interest rate on offer to you. LVR is your loan amount as a percentage of your home’s value. For example, if you have a $60,000 deposit to buy a $600,000 property, you’d need to borrow $540,000 from a lender.

Your LVR is calculated by dividing your loan amount by the property’s value:

($540,000 loan ÷ $600,000 property value) x 100 = your LVR is 90% - i.e. you’re borrowing 90% of the property’s value

Here’s an example from NAB of how your LVR impacts the interest rate available to you.

Tip: Your LVR could make all the difference between securing a good rate and an exceptional one. A skilled mortgage broker can review multiple lenders on your behalf, identifying the one offering the most favourable valuation, ultimately securing a better deal on your home loan.

Low variable rate home loan for first home buyers

One of the lowest variable rate home loans for first home buyers in Australia is offered by LCU on its ‘Savvy First Home Buyer Loan’. As of 2 May 2024, this home loan has an interest rate of 5.69% p.a. (6.11% comparison rate*).

According to LCU’s website, here are some of the product’s features:

0.50% discount for the first 3 years of the loan

100% offset account

Redraw facility with no fees attached

Minimum loan amount is $50,000

LVR <80%

Low fixed rate home loan for first home buyers

Australian Mutual Bank’s ‘First Home Buyers 2 Year Fixed Rate’ has an interest rate of 5.53% p.a. (6.30% comparison rate*), as of 2 May 2024. This loan locks rates in for two years and then the rate reverts to the ‘Owner Occupied Standard Variable’ rate.

According to the Australian Mutual Bank website, borrowers can expect:

A redraw facility - you must be at least one month’s repayment in advance to obtain a redraw

Family support option available for first home buyers with no deposit (guarantor)

No annual or monthly fee

Minimum loan amount is $100,000

LVR <80% or <95% with LMI

ANZ - Simplicity Plus

Variable interest rates:

6.64% p.a. (6.64% p.a. comparison rate & LVR 80% or below)

7.24% p.a. (7.25% p.a. comparison rate & LVR 90% or below)

7.64% p.a. (7.64% p.a. comparison rate & LVR 95% or above)

Notable features:

$3,000 bonus cashback for eligible first home buyers

No ongoing fees

Extra repayments allowed

Redraw facility

Commonwealth - Extra

Variable interest rates:

7.14% p.a. (7.15% p.a. comparison rate & LVR 80.01% to 90%)

7.84% p.a. (7.86% p.a. comparison rate & LVR 90.01% to 95%)

Notable features:

No establishment or monthly loan service fees

Split loan option

Redraw facility without a fee

NAB - Tailored Home Loan

Variable interest rates:

6.99% p.a. (7.07% p.a. comparison rate & LVR 80.01% or above)

Notable features:

No application fee

Split loan available

Offset account

Extra repayments allowed

Westpac - Flexi First Option Home Loan

Variable interest rates:

6.84% p.a. (7.16% p.a. comparison rate & LVR 80% or above)

Notable features:

Special offer rate includes a 1.64% p.a. discount for 2 years

No monthly or annual fees

Extra repayments allowed

*Rates from the big four banks are current as of 2 May 2024. Disclaimer: Comparison rates are calculated based on a loan amount of $150,000 repaid over a 25-year term with monthly repayments (<80% LVR). Different loan amounts and terms will result in different comparison rates. Check with the provider for full loan details, including rates, fees, eligibility and terms and conditions to make sure the product is right for you. This is not an exhaustive list of the first home buyer home loans from the big four banks in Australia, therefore we can’t guarantee that all the lowest-rate loans available in the market are shown.

How much of a deposit do you need to buy a house?

It’s generally recommended to have at least 20% of the property’s value saved for a deposit. In fact, the average first home buyer in Australia has a deposit of $159,000, according to the National Housing Finance and Investment Corporation. While this may seem like a stretch for some, there are other ways for first home buyers to crack the housing market.

One option is to use a guarantor, where first-time buyers can secure their home with a deposit as low as 5%. A guarantor is someone, usually a family member, who agrees to use their own property as security for the buyer’s loan. Keep in mind that using a guarantor means that if you default on your home loan, your guarantor’s property could be at risk.

That’s why it’s important to carefully consider your options and seek advice from a financial advisor or mortgage broker to see if this option is right for you.

Here are some government incentives currently available to eligible first home buyers in Australia:

1

First Home Owner Grant (FHOG): Depending on the state or territory, there are grants available when you purchase or build your first home. Grants are a one-off payment and generally vary from $10,000 to $30,000.

2

First Home Guarantee (FHBG): Eligible first home buyers can purchase a property with just a 5% deposit, with Housing Australia securing the remaining 15%. For the 2023-24 financial year, there are 35,000 spots up for grabs.

3

Regional First Home Buyer Guarantee (RFHBG): Assists eligible first home buyers in buying a home in a regional area with a deposit as low as 5%. For FY 2023-24, there are 10,000 places available.

4

First Home Super Saver Scheme (FHSS): Allows eligible first home buyers to save for a house by making voluntary contributions into their super fund.

Variable rate home loan

A variable rate home loan is a type of mortgage where the interest rate can change over time. Essentially, the interest rate you pay on your loan can go up or down depending on changes in the economy or decisions made by your lender. While this means your repayments can fluctuate, it can also offer flexibility and potentially lower repayments if interest rates drop. Variable rate mortgages also offer more flexibility to pay off home loans sooner and are usually more likely to offer features like an offset account or redraw facility.

Fixed rate home loan

With a fixed rate home loan, the interest rate stays the same for a set period, usually between one to five years. You’re basically setting your interest rate in stone, meaning it won’t change during that time, which can make budgeting easier because you know exactly what your repayments will be. However, if interest rates drop, you won’t benefit from lower repayments, but if rates rise, you’re protected from paying more.

Split home loan

A split home loan means you can divide your borrowing amount into two parts: one part with a fixed interest rate and the other part with a variable interest rate. With a split loan, you get the stability of knowing exactly what you’ll pay on one portion, while also having the flexibility to benefit from any changes in interest rates on the other portion. You can also choose your split based on your preference or financial situation, whether it’s 50/50, 60/40 or 70/30.

Principal and interest or interest-only home loan repayments?

Next up is determining how you structure your home loan, either paying the principal and interest or interest only. Here’s how the two repayment options work:

Principal and interest (P&I)

Each repayment covers both the principal (the amount you borrowed) and the interest (the fees charged by the bank for borrowing). While this results in higher repayments, it means you’ll pay less interest over the life of the loan, which typically spans 25 to 30 years. This repayment structure is common for owner-occupiers as it immediately builds equity in your home.

Interest only (IO)

An interest-only home loan involves paying only the interest portion of your loan for a specified period, usually up to five years. While this lowers your mortgage repayments during that time, it results in paying more interest over the loan’s term (25-30 years). Investors often favour interest-only home loans as they free up more cash, and the interest repayments are tax-deductible.

While it's natural for many first-time home buyers to focus on the interest rate, it's important to also consider other fees and charges that might apply. Depending on the lender and the specific mortgage, additional fees to be aware of may include:

Application fee

An upfront fee to set up your home loan, otherwise known as an establishment fee.

Monthly service fee

An account keeping fee that covers the cost of keeping your home loan account open and accessible.

Annual package fee

A yearly fee charged on a package home loan to bundle your mortgage with other financial products like a credit card or savings account.

Legal, valuation and settlement fees

These fees cover the lender’s costs for legal paperwork, property valuation and settlement.

Exit fee

You may incur an exit fee (also known as a discharge fee) when you settle your mortgage entirely, which accounts for the processing and closure of the loan. Early exit fees or break costs are applicable when you repay your home loan ahead of schedule.

Feature fees

Some loan products charge a fee to use certain features like a redraw facility or extra repayment option.

Here’s an example from CBA of some common home loan fees:

Mortgage brokers can simplify the process of buying property, providing expert advice and guidance to first home buyers. With their in-depth knowledge of the home loan market, brokers can recommend products and lenders suitable to a first-time buyer's financial situation and needs.

Beyond negotiating favourable interest rates and terms, mortgage brokers can usually give you a full breakdown of all associated costs. This includes not only the mortgage itself, but also other expenses such as stamp duty and government fees, conveyancing fees, land transfer fees, and if applicable, Lenders Mortgage Insurance.

If you're about to buy your first home, it's worth weighing up the pros and cons os using a mortgage broker.