Home Loans and Property

What Is Home Loan (Mortgage)?

A loan secured against residential property used to finance the purchase of a home in Australia, commonly referred to as a home loan or mortgage.

Definition

A home loan (also called a mortgage) is a loan secured by a registered charge over real property. In Australia, home loans are offered by banks, credit unions, and non-bank lenders at either fixed or variable interest rates. The standard loan term is 25 to 30 years, and repayments are typically made monthly, fortnightly, or weekly. Most Australian home loans are principal-and-interest (P&I) loans, meaning each repayment reduces the outstanding balance and pays interest. Interest-only (IO) loans are available but more common for investment properties. The Reserve Bank of Australia (RBA) sets the official cash rate, which directly influences variable home loan rates.

Formula

Monthly P&I repayment: M = P x r(1+r)^n / ((1+r)^n - 1), where P = loan amount, r = monthly rate (annual / 12), n = total months

Example

A $600,000 home loan at 6.2% per annum over 30 years has a monthly P&I repayment of approximately A$3,675. Total interest paid over the term is about A$723,000.

Use It

Try the Australian Mortgage Calculator

Related Terms

LVR (Loan-to-Value Ratio)Australian shorthand for Loan-to-Value Ratio: the proportion of a property's value you are borrowing. LMI is typically required above 80% LVR.Offset AccountA transaction account linked to a home loan where the account balance offsets the loan principal, reducing the interest charged each day.
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