Home loan guide
Compare total interest, fees and repayment terms, then check whether the loan and deposit source fit your purchase.
A home loan often has a lower rate than a personal loan, but the repayment term can outweigh that advantage. Compare the total interest, fees and security risk over the time you actually intend to repay the debt.
For a first home buyer, there is another question: will the mortgage lender accept borrowed deposit funds? A new personal loan also adds a repayment commitment, which can reduce the mortgage you qualify for.
Both home loans and personal loans are regulated under Australia's National Consumer Credit Protection Act, meaning lenders must comply with ASIC's responsible lending rules. However, they function very differently.
A home loan uses property as security. The lender assesses your income, expenses, deposit or equity, debts, credit history and the property.
Deposit requirements and LMI depend on the lender and any eligible exemption or guarantee scheme. A longer mortgage term lowers the monthly repayment but usually increases total interest if you pay only the minimum.
Personal loans usually fund smaller expenses such as cars, renovations or debt consolidation. Many are unsecured; some use an asset such as a vehicle as security. Compare the rate, fees and term, often 1 to 7 years, and check affordability rather than assuming a quick approval.
| Aspect | Home Loan (Mortgage) | Personal Loan |
|---|---|---|
| Security | Secured against a property through a mortgage | Usually unsecured, although some may be secured against another asset such as a vehicle |
| Purpose | Buying, refinancing, or accessing equity in a home or investment property | Personal expenses such as cars, renovations, holidays, or debt consolidation |
| Loan Amount | Larger amounts, often based on property value, deposit, income, and lender criteria | Smaller amounts, usually designed for short-term borrowing needs |
| Interest Rates | Generally lower because the loan is secured against property | Generally higher because there is no property security backing the loan |
| Term | Long-term borrowing, commonly 15 to 30 years | Shorter repayment periods, often 1 to 7 years |
| Repayments | Usually principal and interest (P&I) or interest-only depending on the loan type | Usually fixed repayments over the agreed loan term |
| Fees & Costs | May include application costs, valuation fees, and Lenders Mortgage Insurance (LMI) if applicable | May include application or establishment fees depending on the lender and product |
| Approval | Requires assessment of income, expenses, deposit/equity, credit history, and property valuation | Based on income, expenses, credit history, and ability to repay |
| Government Schemes | May be eligible for first-home buyer incentives, government guarantees, and stamp-duty concessions (if criteria are met) | Not eligible for home buyer incentives or property-related government schemes |
| Security Risk | If repayments are not maintained, the lender may take possession of the property | If unsecured, missed repayments can damage your credit score; if secured, the linked asset may be at risk |
A personal loan may suit a smaller expense you plan to repay over a short period. Compare actual offers and your repayment budget.
A mortgage is the usual finance for buying a home. For other expenses, compare the amount, repayment term and risk to your property before using home equity.
When comparing financing options, most borrowers naturally look at the interest rate first. It seems logical: a home loan rate looks much cheaper than a personal loan.
Compare the repayment term as well as the rate.
A long mortgage schedule can cost more overall than a shorter personal loan, even at a lower rate. The example below holds the amount constant and excludes fees.
For illustration, both options fund a $30,000 kitchen renovation, with monthly principal-and-interest repayments and unchanged rates.
In option B, choosing the "cheaper" interest rate actually costs you more in the long run. Repayments are only about $180 a month, but you pay about $34,800 in interest, so the $30,000 kitchen costs you more than twice its price.
A shorter repayment schedule can reduce the cost of equity borrowing. Check that the payment is affordable and the loan allows it.
If you choose to top up your mortgage, you should treat that specific portion of debt as if it were a short-term loan:
Some lenders may accept borrowed purchase funds in particular circumstances, but a personal loan is not genuine savings and its repayments affect affordability. Check lender policy before taking it out.
Genuine-savings requirements vary. Some low-deposit loans require a savings history, often 3 months, while others accept different evidence or have exceptions. Ask what your proposed lender needs.
Crucially, a personal loan does not count toward this 5%.
A lender checks the source of your deposit. Having borrowed cash in a bank account does not turn it into genuine savings.
Lenders assess your overall financial risk when you apply for a mortgage. If your deposit is funded by another loan:
If you are struggling to save that final 5% genuine deposit, a personal loan is rarely the answer. Instead, consider:
Check to see if you are eligible for a home loan
A personal loan adds a repayment commitment. Check the effect on the proposed mortgage before using one for buying costs or a deposit.
An eligible buyer purchasing a $500,000 home could use $50,000 of savings as a 10% deposit, leaving a $450,000 mortgage before costs. If they qualify for a government guarantee or another exemption, LMI may be avoided. Keep separate cash for buying costs.
At an illustrative 6% over 30 years, monthly principal-and-interest repayments on $450,000 are about $2,698. If the rate never changed, total repayments would be about $971,272, including about $521,272 interest. Fees are excluded.
Now assume the same $50,000 deposit is a personal loan at 12% over 5 years. Its repayment is about $1,112 a month. This does not establish that a mortgage lender would accept it; the lender could:
If a lender accepted the borrowed deposit and approved the same $450,000 mortgage at 6% over 30 years, the combined repayment would be about $3,810 a month. That is about $1,112 more than the saved-deposit example for the first 5 years, before fees or LMI.
The personal loan would add about $16,733 interest over 5 years, on top of the mortgage interest. The example holds mortgage amount and rate constant and assumes both rates stay unchanged. Loan approval, genuine-savings rules and scheme eligibility must be checked separately; a borrowed deposit may be unacceptable.
First-home buyers may qualify for several incentives. Grants and duty concessions have their own eligibility rules; a government loan guarantee requires a participating lender.
Stamp Duty Concessions/Exemptions: Many states offer lower or zero stamp duty for first homes under certain values. These tax savings depend on state eligibility rules.
Would you like to learn about your situation?
If you already own a home and want to borrow more money (for renovations, other investments, or debt consolidation), you generally have two broad paths: access the equity in your property, or take out a separate personal loan.
Redraw accesses eligible extra repayments already made. A top-up is new borrowing that requires approval. Either has conditions; home equity is not immediately available cash.
Check access, fees and approval time for the particular product before relying on it.
If you have been making extra repayments on your home loan over the years, you likely have "available redraw." This is the pool of extra money you've paid above your minimum scheduled repayments.
A top-up asks the lender to increase the loan limit using property as security. Approval depends on your income, expenses, equity, credit and the lender's policy.
An unsecured personal loan avoids giving the lender a mortgage over your home for that loan. It still creates a legal repayment obligation, fees and credit risk; compare its full cost with the equity option.
Confirm the expected access and approval timing for the particular product. The table is a guide, not a funding guarantee.
Table 3. Accessing Cash: Personal Loan vs Home Equity
Feature | Personal Loan | Mortgage Redraw | Mortgage Top-Up |
Speed | Confirm assessment and funding time | Subject to lender access rules | New assessment; confirm timing |
Paperwork | Income, expenses, debts and ID | Subject to redraw terms | Full Application (Income/Expenses) |
Valuation | Not required | Not required | Often required |
Best For… | Smaller borrowing, subject to approval | Borrowers who are "ahead" on repayments | Planned renovations with a long lead time |
For an urgent bill, check accessible savings and available redraw before assuming new lending can fund it in time. Compare costs and affordability, including any payment arrangements available from the supplier.
We can compare loan costs and check whether your deposit source and repayment commitments meet a mortgage lender's requirements before you apply.
If you want to get started, please give us a call on 1300 088 065 or book a free assessment online to see how we can help.
