Beginner's guide to your first home loan

Understanding your first home loan options

You'll choose between variable rate, fixed rate, or split rate products when applying for your first home loan. A variable rate moves with market conditions, a fixed rate locks in for a set period (usually one to five years), and a split rate combines both. Each suits different circumstances, and the decision shapes how you manage repayments and respond to rate changes over the life of your loan.

Consider a buyer purchasing an owner occupied home in Paddington who prefers certainty with monthly budgeting. They might fix 70% of their loan amount at a rate that won't change for three years, leaving 30% variable to retain flexibility for extra repayments without penalty. This split loan structure provides stability while allowing them to pay down the variable portion faster when they have surplus income.

The choice depends on your income consistency, risk tolerance, and whether you expect to make regular additional repayments. If your income fluctuates or you receive annual bonuses, keeping at least part of the loan variable gives you the option to reduce debt faster. If you value predictable repayments above all else, fixing a larger portion makes sense.

What pre-approval actually tells you

Pre-approval confirms how much a lender is willing to let you borrow based on your current financial position. It's conditional on the property meeting the lender's criteria and your circumstances not changing before settlement. The approval gives you a clear borrowing limit, which helps when you're attending inspections or making an offer.

Most first home buyers underestimate how much pre-approval strengthens their position in Brisbane's market. Sellers and agents take you more seriously when you can demonstrate a lender has already assessed your application. It also identifies any issues with your financials early, giving you time to address them before you find the right property.

Pre-approval typically lasts 90 days, though some lenders extend it to six months. If your approval expires before you purchase, you'll need to reapply, and your borrowing capacity may shift if interest rates or your income has changed in the interim.

How lenders calculate what you can borrow

Lenders assess your borrowing capacity by comparing your income against your existing debts, living expenses, and the loan repayments you're applying for. They apply a buffer (usually around 3%) on top of the current interest rate to ensure you can still afford repayments if rates rise. Your credit score, employment type, and deposit size also influence the outcome.

In our experience, many Brisbane buyers are surprised when their borrowing capacity comes back lower than expected because lenders include estimates for everyday spending based on the Household Expenditure Measure. Even if your actual spending is lower, the lender applies a benchmark figure that can reduce how much you qualify for.

If you're working with variable income, commission, or bonuses, expect the lender to average those earnings over one or two years rather than accepting your most recent payslip. Self-employed buyers usually need two years of tax returns, and lenders will often assess the lower of the two years as your stable income. Understanding these rules before you apply for a home loan helps set realistic expectations.

Offset accounts and how they reduce interest

An offset account is a transaction account linked to your home loan. The balance in the offset reduces the loan amount on which you pay interest. If you have a loan of $500,000 and $20,000 sitting in a linked offset, you only pay interest on $480,000.

This feature works well for buyers who maintain a buffer for irregular expenses or who accumulate savings between larger purchases. Instead of earning minimal interest in a standard savings account, your money works harder by reducing the interest charged on your loan. You still have full access to the funds, which makes it more flexible than directing every spare dollar into extra repayments you can't easily retrieve.

Not every loan product includes an offset account, and some charge a higher interest rate or annual fee to access the feature. Compare the cost of the offset against the interest you'll save based on the balance you realistically expect to hold. For buyers who won't maintain a meaningful balance, a loan without an offset but with a lower rate may deliver better value.

Fixed versus variable for Brisbane buyers

A fixed interest rate home loan protects you from rate rises for the fixed term but usually restricts extra repayments and charges penalties if you refinance or sell early. A variable rate gives you flexibility to make unlimited additional repayments and adjust your loan structure, but your repayments will increase if rates rise.

Brisbane's market has seen steady price growth in suburbs like Wynnum, Coorparoo, and The Gap, and many first home buyers in these areas are balancing affordability with long-term plans. If you expect to outgrow the property within a few years or plan to renovate and refinance, locking in a fixed rate for too long can create expensive exit costs. On the other hand, if you're stretching your budget to secure a property and rate rises would pressure your cashflow, fixing part or all of your loan adds security.

We regularly see buyers who fix their rate immediately after purchase, then realise 18 months later they want to access equity for renovations or refinance to a better product. The break costs can run into thousands of dollars, especially if rates have dropped since they fixed. A split loan lets you fix the portion you need for budget certainty while keeping part of the loan variable for flexibility.

Lenders Mortgage Insurance and your deposit

Lenders Mortgage Insurance is a one-off premium you pay if your deposit is less than 20% of the property value. The insurance protects the lender if you default, but you bear the cost. LMI can add several thousand dollars to your upfront expenses, and the amount increases as your deposit shrinks.

For a purchase in Camp Hill at the current median, a buyer with a 10% deposit would pay significantly more in LMI than a buyer with a 15% deposit, even though both are borrowing similar amounts. Some lenders offer lower LMI premiums than others, and certain professions (such as medical practitioners or accountants) may access LMI waivers or reduced premiums even with a smaller deposit.

If you're deciding whether to wait and save a larger deposit or enter the market sooner with LMI, consider the trade-off between premium cost and potential price growth. Waiting another year to avoid LMI might save you $8,000 in upfront costs, but if property values in your target suburb rise by 6%, the purchase price increases by more than the LMI you would have paid. There's no universal answer, but understanding the numbers for your specific scenario helps you make an informed choice.

Choosing between principal and interest or interest only

Principal and interest repayments reduce your loan balance over time by paying both the interest charged and a portion of the amount you borrowed. Interest only repayments cover just the interest, leaving the loan balance unchanged. Most owner occupied home loan products default to principal and interest, and lenders generally expect first home buyers to structure their loan this way.

Interest only can lower your monthly repayments in the short term, which might appeal if you're managing other large expenses or renovating after purchase. However, you're not building equity through repayments, and when the interest only period ends (typically after five years), your repayments jump as you start paying down the principal over the remaining loan term.

For first home buyers, building equity early creates a buffer that improves your borrowing capacity if you want to refinance, access funds for improvements, or purchase an investment property down the track. Unless there's a specific financial reason to delay reducing your loan balance, principal and interest repayments usually make more sense.

Rate discounts and how to access them

Most advertised home loan rates are not the lowest rates lenders offer. Rate discounts apply based on your loan size, deposit, whether you take an offset account or package, and sometimes your profession or employer. A lender might advertise a variable interest rate of 6.50% but offer a 0.80% discount to borrowers with a loan above $500,000 and a deposit over 20%.

Accessing the lowest rates often involves comparing home loan packages that bundle your loan with an offset, credit card, or transaction account in exchange for an annual fee. The package fee might be $395, but if it unlocks a rate discount that saves you $1,200 per year in interest, the trade-off is worthwhile.

Working with a broker gives you visibility across lenders and their discount structures without needing to approach each bank individually. We regularly see situations where a buyer has been quoted one rate directly by a lender, then qualifies for a better rate through a different loan product or by restructuring their application to meet a discount threshold.

What happens after you submit your application

Once you submit your home loan application, the lender will verify your income, review your credit history, and assess the property through a valuation. This process usually takes between five and ten business days, though it can stretch longer if the lender requests additional documents or the valuer is backlogged.

The valuation determines whether the property is worth what you've agreed to pay. If the valuation comes back lower than the purchase price, the lender will only approve a loan based on the lower figure, which means you'll need to find the shortfall in cash or renegotiate with the seller. This happens occasionally in Brisbane's inner suburbs where buyers compete for tightly held properties and prices can run ahead of recent comparable sales.

Staying responsive during the assessment period speeds things up. Lenders often request payslips, bank statements, or proof of savings, and delays in providing those documents push out your settlement timeline. If you're purchasing in a competitive timeframe, having your paperwork organised before you apply keeps the process moving.

When to lock in your rate

Most lenders let you lock in your interest rate once your loan is formally approved, and the rate lock lasts for 90 days. If rates drop during that period, some lenders allow you to relock at the lower rate, though not all do. If rates rise, you're protected by the lock.

Timing your rate lock depends on how far out settlement is and where you think rates are heading. Locking too early uses up your 90 days before you've even exchanged contracts, which can leave you exposed if settlement is delayed. Waiting too long means you risk a rate rise between approval and settlement.

For buyers purchasing off-the-plan or building, the timeline stretches beyond 90 days, and rate locks usually aren't available. Your loan will settle at whatever the lender's rate is on the day, which introduces uncertainty. If that concerns you, consider whether locking in a fixed rate at settlement (even if it's higher than the current variable rate) provides the certainty you need.

Portable loans and what they actually offer

A portable loan lets you transfer your existing home loan to a new property without refinancing or paying discharge fees. If you're planning to upgrade within a few years, portability can save you the cost and time involved in applying for a new loan.

In practice, portability is less useful than it sounds for most first home buyers. When you sell and purchase a new property, your loan amount usually changes, which means the lender reassesses your application anyway. You're not avoiding the approval process, just the discharge and application fees. Some lenders also restrict portability to specific loan products, and you may lose rate discounts or features when you transfer.

If you expect to move within two or three years, focus on choosing a loan with low or no exit fees rather than prioritising portability. The flexibility to refinance without penalty often delivers more value than the ability to port a loan that may no longer suit your needs.

Call one of our team or book an appointment at a time that works for you. We'll help you compare home loan options from lenders across Australia and find a structure that fits your situation and goals in Brisbane's property market.

Frequently Asked Questions