Home loan basics
Whether you are buying your first home or your next one, understanding the core concepts of a home loan can help you approach the process with more confidence.
What is a home loan?
A home loan (also called a mortgage) is money borrowed from a lender to purchase a property. You repay the amount borrowed — plus interest — over an agreed loan term, typically 25 to 30 years. The property is used as security, which means the lender can take possession of it if repayments are not maintained.
The amount you can borrow depends on your income, expenses, existing debts, credit history, deposit size and the lender's own assessment criteria.
Key terms to understand
LVR (Loan to Value Ratio)
The loan amount divided by the property value, expressed as a percentage. A 20% deposit means an 80% LVR. Higher LVRs may require Lenders Mortgage Insurance (LMI).
LMI (Lenders Mortgage Insurance)
Insurance that protects the lender (not you) if you default. Typically applies when LVR is above 80%. The cost is usually added to your loan.
Serviceability
A lender's assessment of your ability to repay the loan based on your income, expenses and a buffer rate above the actual interest rate.
Offset account
A transaction account linked to your loan. The balance in the offset reduces the interest you pay on your loan.
Redraw facility
The ability to withdraw extra repayments you have made above your minimum. Not all loans include this feature.
Fixed vs variable rate
Variable rates move with the market. Fixed rates are locked for a set period. Split loans combine both.
Before you apply — checklist
Know your approximate borrowing capacity (use the borrowing power calculator)
Have at least 5–10% saved as a deposit — 20% avoids LMI
Check your credit file for any errors or defaults
Understand your regular income and monthly expenses
Have 3–6 months of bank statements ready
Factor in stamp duty, legal fees and other purchase costs
Consider whether you may be eligible for first home buyer schemes
Common mistakes to avoid
Applying to multiple lenders at once — each credit check can lower your credit score
Changing jobs or going self-employed shortly before applying — lenders want employment stability
Taking on new debt (car loan, credit card) in the months before applying
Not accounting for ongoing costs — rates, strata, insurance, maintenance
Assuming pre-approval guarantees the full loan — it is conditional and subject to valuation and final assessment
Ready to explore your options?
No obligation. Takes 60 seconds. Secure & private.
Related articles
Official resources
General information only
This article is for general information purposes only and has been prepared without taking into account your objectives, financial situation or needs. It does not constitute credit advice, financial advice or a recommendation. You should consider whether this information is appropriate for your circumstances and obtain independent advice where necessary. K&M Solutions and Services Pty Ltd (ACN 649 305 126) does not hold an Australian Credit Licence.
This article is for general information purposes only and has been prepared without taking into account your objectives, financial situation or needs. It does not constitute credit advice, financial advice or a recommendation. You should consider whether this information is appropriate for your circumstances and obtain independent advice where necessary. K&M Solutions and Services Pty Ltd (ACN 649 305 126) does not hold an Australian Credit Licence.