What Is A Mortgage?

What Is A Mortgage?

A mortgage is a legal agreement in which a lender provides funds to a borrower to purchase real estate. It is also called a home loan. The borrower agrees to repay the loan over time, typically with interest, while the property acts as collateral.

ABS Census data for 2021 revealed that there are almost 9.8 million households in Australia, 35% of which have a mortgage. The other cohorts own their property outright (32%) or rent (31%).

How Does A Mortgage Work In Australia?

When you take out a mortgage, a bank or lender finances most of the property’s purchase price. Until the loan is fully repaid, the property acts as security, meaning the lender holds ownership rights. Once you’ve repaid the principal and interest in full, the home becomes entirely yours.

You can apply for a home loan directly with a lender or work with a mortgage broker to help you find the right lender and loan for your situation. Brokers often simplify the process and may provide access to lenders with competitive rates or flexible deposit requirements.

For example, say you want to buy a home that costs $800,000. To secure the purchase, you decide to save a 20% deposit of $160,000, which means you need to get approved for a loan of $640,000. You apply for a home loan through a mortgage broker or directly with the lender. You get approved for a 30-year mortgage with an annual interest rate of 5%. Now, you start making repayments that cover the principal (the amount you borrowed) and interest (the cost of borrowing). At the end of the 30-year term, you would have fully repaid the loan, with interest.

Average Mortgage Size And Interest Rates In Australia

The average loan size for owner-occupied properties (which includes construction and the purchase of new and existing property) in September 2024 was $642,121, Australian Bureau of Statistics data shows.

The average mortgage rate for owner-occupier properties in Australia in September 2024 was 6.26%, the latest data from the RBA shows.

The Home Loan Process In Australia

The home loan process in Australia involves several key steps to secure financing for purchasing or refinancing a property. Here’s an overview:

• Initial Consultation: Consult a mortgage broker to assess your eligibility. They will gather financial information, including income, expenses and credit history, necessary to understand your borrowing capacity.
• Application Submission: Once a suitable loan product is identified, you’ll submit a formal application and supporting documents, such as proof of income, identification, and details of assets and liabilities.
• Lender Assessment: The lender reviews your application, assessing your financial situation and the property’s value. This may involve a valuation of the property to ensure it meets lending criteria.
• Conditional Approval: If the initial assessment is favourable, the lender issues a conditional approval, outlining any additional requirements needed before final approval.
• Unconditional Approval: After satisfying all conditions, the lender grants unconditional approval, confirming the loan’s terms and conditions.
• Settlement: The final step involves signing the loan documents and settling the property purchase; funds are transferred, and you can move into your new home.

You can read more on what happens during each step on our Home Loan Application Process page.

Types of Mortgages

Various mortgage options cater to different financial needs and goals. Here’s an overview of the primary types:

• Variable-Rate Home Loans: The interest rate fluctuates with market conditions, affecting repayment amounts. These loans often offer features like offset accounts and allow additional repayments without penalties.
• Fixed-Rate Home Loans: The interest rate remains constant for a set period, typically between one and five years, providing repayment stability. However, these loans may limit extra repayments or early loan payoffs.
• Principal-and-Interest Loans: Regular repayments for both the amount left on the loan (principal) and the interest, gradually reducing the debt over time.
• Interest-Only Loans: For a specified period, repayments cover only the interest, resulting in lower payments. After this period, repayments increase to cover both principal and interest.
• Construction Home Loans: Designed for building or renovating, funds are released in stages as construction progresses.
• Bridging Loans: Short-term loans that assist in purchasing a new property before selling an existing one.

The type of mortgage can also be categorised according to the type of borrower or lending situation. For example, there are Bad Credit Home Loans to help borrowers with less-than-perfect credit scores and low-doc loans to help self-employed borrowers.

Read our page on Home Loan Types for more information.

Eligibility Criteria For A Mortgage

Before granting loan approval, lenders will assess various factors to determine your ability to service and repay the loan.

• Must be at least 18 years and older

• Residency Status:
  • Australian citizens or Permanent Residents
  • Non-residents and temporary visa holders have additional requirements, such as (Foreign Investor Review Board) approval.
• Stable employment with sufficient income
• A good credit score and history
• Bad-credit home loans are available if the borrower’s credit situation is not ideal.
• A deposit of at least 5% to 10% of the property value
• Evidence of genuine savings
• Assets and liabilities like cars, credit-card debts and personal loans.
• Assessment of your regular living expenses
• Ability to make repayments even after applying a serviceability buffer

You can read our page on Bank Lending Criteria for more information.

Government Support and Schemes for First-Home Buyers

To help first-home buyers, the government introduces grants and schemes. Some of the ones available are:

• The First Home Owner Grant
• The Home Guarantee to help those with low deposits buy sooner
• The First Home Super Saver Scheme (FHSSS) to help people use their superannuation to buy a home

You can read our page on Government Grants and Schemes For First-Home Buyers for more information.

Mortgage Tools and Calculators

To help you with your home-buying decisions, you can use our mortgage calculators.

• LVR Calculator
• Home Loan Deposit Calculator
• How Much Can I Borrow
• FHOG Calculator

Get a full list of mortgage calculators here.

Key Mortgage Terms You Must Know

A few terms you must know when you’re getting a home loan:

• LVR (Loan-to-Value Ratio): The percentage of the property’s value that is borrowed (for example, 80% LVR means you are borrowing 80% of the property’s price).
• Comparison Rate: A rate that includes the loan’s interest and most fees, helping you compare true costs across lenders.
• Break Costs: Fees charged for exiting a fixed loan early.
• LMI (Lenders Mortgage Insurance): A fee for borrowers with less than a 20% deposit, protecting the lender if the borrower defaults.
• Pre-Approval: Conditional approval from a lender, giving you a borrowing limit before buying a property.

We’ve listed a glossary of mortgage terminologies.

How a Mortgage Broker Can Help You Secure a Home Loan

A mortgage broker acts as a bridge between you and potential lenders, simplifying the often-complex process of obtaining a home loan. The expertise of a mortgage broker will help you become better prepared and improve your chances of home loan approval.

At Home Loan Experts, we make securing the right home loan simple, no matter your situation. Whether you’re self-employed, have a low deposit, or have a complex scenario, we specialise in finding the right solutions. With access to 50-plus lenders, we compare thousands of loan options to suit your goals. Our team handles the entire process, from application to settlement. Even after settlement, we’re here to ensure your mortgage stays competitive.

Let us work hard while you focus on finding your dream home.

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