How to Choose the Right Home Loan as a First Home Buyer

Choosing a home loan feels overwhelming — dozens of lenders, hundreds of products, and terms like "comparison rate," "offset account," and "split loan" thrown at you all at once. But for most first home buyers, the core decision comes down to five key questions.

Question 1: Variable or Fixed Rate?

This is the most asked question — and the most misunderstood.

	Variable Rate	Fixed Rate
Rate changes	Yes — moves with RBA cash rate	Locked for 1–5 years
Repayment certainty	No	Yes
Extra repayments	Unlimited	Limited (typically $10K/yr extra)
Offset account	Available	Usually not available
Break costs	None	Can be very high
Refinancing flexibility	High	Low during fixed period

Question 2: Principal & Interest or Interest-Only?

For owner-occupiers (first home buyers), Principal & Interest (P&I) is almost always the right choice. You pay down both the interest and the principal each repayment — meaning your debt reduces over time.

Interest-only (IO) means you only pay the interest — your debt doesn't shrink. IO is used by investors for tax reasons. For a first home buyer living in the property, IO just means higher long-term interest costs and no equity growth from repayments.

Question 3: Do I Need an Offset Account?

An offset account is a savings account linked to your loan. Every dollar sitting in the offset reduces the balance your interest is calculated on.

Most variable rate loans offer offset accounts. Look for a 100% offset — some lenders offer partial offset which is less effective. Offset accounts typically cost $10–$20/month as a package fee, but pay for themselves quickly if you maintain a reasonable balance.

Question 4: Redraw Facility — Is It Enough Instead of Offset?

A redraw facility lets you make extra repayments and withdraw them later if needed. It's free on most variable loans, but there are key differences from an offset:

• Offset: Savings in a separate account, offset daily, full access, no minimum
• Redraw: Extra repayments in the loan, accessed by withdrawing — some lenders set minimum redraw amounts or charge fees
• Tax difference: For investors, offset preserves deductibility better; for owner-occupiers this doesn't matter

For first home buyers with predictable income and good savings habits, an offset is worth it. If you're just starting out and won't maintain a large savings balance, redraw is fine and free.

Question 5: Which Lender?

Don't assume the big four banks are best. Australia has 40+ home loan lenders. Non-bank lenders and smaller banks often offer:

• Lower rates (they have lower overheads)
• More flexible income assessment (good for self-employed)
• Fewer or no monthly fees
• Faster approval times

Compare the comparison rate — not just the headline rate. The comparison rate includes most fees and gives a truer cost picture.

What Features Are Actually Worth Paying For?

Feature	Worth It?	Why
100% offset account	Yes	Saves significant interest if you maintain savings
Free extra repayments	Yes	Reduces loan term and total interest
Fee-free redraw	Yes	Backup access to extra repayments
Split loan option	Maybe	Part fixed / part variable — hedge your bets
Packaged annual fee	Depends	Only worthwhile if offset/rate savings exceed fee
Credit card in package	Often not	Watch for credit limit impact on borrowing capacity

A Broker's Job Is to Find the Best Match

A mortgage broker compares 40+ lenders against your specific situation — income type, deposit, credit profile, property intent. They should present 2–3 options with clear reasons why each suits your needs, not just the lender that pays the highest commission.

Ask your broker: "What's the comparison rate? What fees are included? And why this lender over the others?"

Frequently Asked Questions