Best home loans for first home buyers

By Lachlan Haycock

Purchasing a house for the first time is an experience that can prove both thrilling and nerve-wracking. You want to make a confident and considered decision – but with such a wide array of home loan options for first home buyers out there, it is not always clear which to choose.

Read more: Can you afford a home as a low-income earner?

Doing your homework

When deciding on a home loan that suits your circumstances, it is important to shop around and do some research beforehand. Firstly, you will need to determine whether you are actually eligible for a home loan in the first place. Another good idea is to pay off any large debts you might have, such as credit card debt, in order to have the best chance at securing a manageable loan and not be hit with large monthly repayments.

There are also many different kinds of home loan options to choose from. The best home loan for you will vary depending on your intentions with the property. If you plan on living in the property you are securing a loan for, then an owner-occupied loan is your best bet. Meanwhile, prospective investors might prefer an investment loan, which helps borrowers purchase a residential property with the intention of making a profit on it through their investment, rather than to live in.

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The pace at which you pay off the loan can also differ. For instance, selecting a principal and interest loan means that when it is time to make a repayment, you pay a portion of the principal (the amount you originally borrowed) alongside the interest on that amount. In contrast, an interest-only loan will see you pay back only the interest for a set period – but be careful doing this, however, as your repayments will go up sharply once that period ends, and you start paying off the principal as well as interest.

Home loan rates might also be fixed or variable – or, sometimes, both. A fixed rate loan keeps your repayments at a set interest rate across the repayment period, whereas a variable rate changes depending on the current market rate, thereby affecting the value of your repayments. Another option is a partially fixed rate, which means a portion of your loan stays fixed at a set rate, with the remaining portion at a variable rate. In this case, you can typically decide what percentage at which you wish to split the loan.

The partially fixed rate means you could have access to a range of extra features, more than might be afforded to you with a completely fixed rate loan. These features include the ability to have an offset account, which reduces the amount of interest you have to pay by attaching an account for your salary to the home loan, and a redraw facility, which allows you to access extra repayments you have made to help with cash flow for other, non-home loan purchases. As always, you should weigh up your options to see whether having extra benefits suits your particular circumstances – because you might be able to save money on the loan by forgoing extra features.

Starting your homeownership journey

With all these options on the table, the most important thing to remember is that you are a first-time home buyer. Therefore, being at a comparatively early stage in your homeownership journey, you will probably be looking at an owner-occupied property with either a fixed or partially fixed rate. Generally speaking, you should try securing a low deposit and a longer term for the loan, to reduce the value of individual repayments. Keep in mind, however, that a longer term means more interest must be repaid across the length of the loan.

With that in mind, here are five of the best home loan products for those looking to buy their first home. Each employ a partially fixed rate on an owner-occupied property with monthly repayments on both principal and interest and take the principal to be $500,000. A lower principal would typically mean lower monthly repayments.

Product

Fixed period

Interest rate

Comparison rate

Repayment

UBank

3 years

1.85% p.a.

2.24% p.a.

$1811

Macquarie Bank

3 years

2.19% p.a.

2.53% p.a

$1896

UBank

5 years

2.24% p.a.

2.33% p.a.

$1909

Suncorp

3 years

1.99% p.a.

2.83% p.a.

$1846

Citibank

3 years

2.09% p.a.

2.83% p.a.

$1871

 

UBank – Fixed 3 Years

Your Mortgage lists a number of home loans options for your perusal, including this fixed three-year owner-occupied loan with an interest rate of 1.85% and a comparison rate of 2.24%.

The fixed rate on repayments for the first three years means you will exactly how much you need to repay each month. This can offer stability while you are starting out and potentially on a tight budget, followed by greater flexibility later on after settling into your property and potentially finding yourself in a more flexible financial position.

Key benefits of this loan include no ongoing fees, loyalty discounts and an unlimited number of redraws, meaning you can access extra repayments you have made on the loan at any time. The loan also charges a one-off fee of $395.

Macquarie Bank – Fixed 3 Years

This option from Macquarie Bank, also fixed for the first three years, offers a 2.19% interest rate and 2.53% comparison rate, with monthly repayments of $1896.

There is a slightly higher interest rate and comparison rate on this loan, however the trade-off is that you can access a range of extra features. With this loan, you can enjoy no application or account management fees, free redraw using the online banking facility Macquarie Online, a flexible loan structure and even the chance to earn Qantas points – which could come in handy for anyone planning domestic or international travel in the coming years!

UBank – Fixed 5 Years

Another good option is this fixed five-year loan, also from UBank. The main appeal here is how the loan offers a longer fixed rate period – five years – than the previous two options, giving you a longer period of initial stability.

Although the interest rate of 2.24% is higher than, for example, the Macquarie loan option, the comparison rate ends up slightly lower at 2.33%, which is particularly important as the comparison rate takes into consideration any extra ongoing fees you pay on top of interest.

As per the other UBank loan on this list, there are loyalty discounts, no ongoing fees, and an unlimited number of redraws, alongside a one-off administration fee of $395.

Suncorp – Fixed 3 Years

Although the comparison rate of 2.83% on this three-year fixed Suncorp loan is higher than the previous options, repayments total just $1846 a month, which could work for those looking for a comparatively lower monthly expense.

And there are more flexible features available too. You have the option to refix the interest rate at the expiry of the initial fixed term for a further fixed period, alongside an ability to lock in rate at the time of application and to make additional repayments of up to $500 per month without penalty.

On the other hand, there are certain fees to consider, such as a monthly fee of $10 and an establishment fee of up to $990.

Citibank – Fixed 3 Years

Lastly, Citibank offers a three-year fixed loan also at a 2.83% comparison rate. There is a settlement fee of $350 and an annual package also of $350 on this option. However, the trade-off is that you have access to features such as a discounted loan interest rate, a choice of Citi credit card with zero or reduced annual fees, and a Citibank Plus transaction account.

And there you have it: a breakdown of the key aspects to look out for when considering home loans, and a selection of the best loan options for you as a first home buyer entering the housing market. Your individual circumstances may dictate which extra features you deem necessary or nice to have, but this list should give an idea of the trade-offs you will typically encounter when considering a home loan.

As with any significant financial decision, it is recommended that you seek the advice of a financial expert or use our free home loan calculators to ascertain the loan that best suits your circumstances as an aspiring homeowner. Then you will be well on your way to owning your first ever home!

Your Mortgage is hosting a webinar entitled First Home Buyer 101: What You Need to Know When Buying Your First Home on 22 June 2021, 12:30 p.m. The one-hour session will cover everything you need to know when buying your first home. You can register for the webinar by clicking this link.

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