What to Know About Home Loans Before You Buy in Kew

How Pre-Approval Shapes Your Property Search

Pre-approval establishes your borrowing limit before you begin viewing properties. A lender assesses your income, expenses, and deposit to confirm how much they will lend, and provides written confirmation valid for 90 to 120 days depending on the institution. This allows you to approach vendors and agents with certainty about your financial position.

In Kew, where property values typically exceed Victoria's median, knowing your limit is particularly relevant. Consider a buyer with $150,000 in savings. Without pre-approval, they might assume they can borrow enough to bid on properties near the upper end of their search range. After formal assessment, their approved amount may support a lower price point due to serviceability restrictions. Starting with conditional approval avoids overcommitting at auction or during private treaty negotiation.

The assessment also identifies any issues with your application early. If your employment structure is complex or your deposit includes gifted funds, the lender flags these during pre-approval rather than at settlement stage. You then have time to provide additional documentation or adjust your approach.

Fixed Rate or Variable Rate: Which Structure Suits Your Situation

Variable rates move with market conditions, while fixed rates lock your repayment amount for a set term, usually between one and five years. The choice depends on your income stability and how much repayment certainty you need.

If your income fluctuates or you want the option to make extra repayments without penalty, a variable structure offers that flexibility. Offset accounts, which reduce the interest charged by holding your savings against the loan balance, are typically available on variable products but restricted or unavailable on fixed.

Fixed rates provide predictable repayments, which can be useful if your budget has little room for adjustment. However, breaking a fixed rate loan early due to sale, refinance, or significant repayment generally incurs a cost calculated on the difference between your rate and the lender's current wholesale funding rate. A split loan structure, where part of the loan is fixed and part remains variable, allows you to manage both repayment certainty and flexibility within a single facility.

What Lenders Assess When Calculating Your Borrowing Capacity

Lenders assess your income, existing debts, living expenses, and the deposit you have available. Your borrowing capacity is not simply a multiple of your income. The lender applies a serviceability buffer, typically 3%, on top of the loan's interest rate to confirm you can still afford repayments if rates increase.

Consider a household earning $180,000 annually with no dependents and minimal debt. At current variable rates, they might expect to borrow above $1,000,000. If they carry $40,000 in personal loan commitments and regular monthly expenses that exceed the lender's benchmark, their approved amount may reduce by $150,000 or more. Paying down or closing other credit facilities before applying can increase the amount a lender will approve.

Your employment structure also matters. Permanent employees typically need two recent payslips and a letter of employment. Self-employed applicants generally provide two years of tax returns and financial statements, with some lenders accepting a single year if income is strong and stable. If you receive income from bonuses, commissions, or rental properties, lenders apply different weightings depending on consistency and documentation.

Offset Accounts and How They Reduce Interest Without Extra Repayments

An offset account is a transaction account linked to your loan. The balance in the account offsets the loan principal when calculating daily interest, reducing the amount you pay over time without requiring you to lock funds into the loan itself.

If you hold a loan balance of $800,000 and maintain $50,000 in a linked offset, you are charged interest on $750,000. You retain access to the $50,000 for expenses or other purposes, unlike funds paid directly into the loan as extra repayments, which may not be easily redrawn depending on your product terms.

Offset accounts are common on owner-occupied variable products but less available on fixed rate loans. Some lenders offer partial offset, where only a percentage of the account balance offsets the loan. Full offset is more effective if you regularly hold significant balances. If your savings are minimal, the benefit may not justify the higher interest rate or ongoing account fee that offset products sometimes carry.

Loan to Value Ratio and Lenders Mortgage Insurance

Your loan to value ratio (LVR) is the loan amount divided by the property value, expressed as a percentage. If you borrow $720,000 to purchase a property valued at $900,000, your LVR is 80%. Lenders typically require you to pay Lenders Mortgage Insurance (LMI) if your LVR exceeds 80%, though some professions and schemes allow higher LVR lending without this cost.

LMI protects the lender if you default and the property sells for less than the outstanding loan balance. It does not protect you. The premium is usually capitalised into the loan, increasing your total borrowing and repayment amount. For a loan of $850,000 at 85% LVR, the LMI premium may range from $15,000 to $25,000 depending on the lender and property location.

In some cases, paying LMI to enter the market sooner is preferable to waiting years to save a larger deposit, particularly in areas where property values are rising. In others, delaying purchase to reach an 80% LVR avoids the premium entirely. The decision depends on your timeline, savings rate, and market outlook. The Australian Government 5% Deposit Scheme allows eligible first home buyers to purchase with a 5% deposit without paying LMI, as Housing Australia guarantees part of the loan to the lender. Property price caps apply, and in Victoria the cap is $950,000 in capital cities and regional centres, which excludes most properties in Kew.

Principal and Interest or Interest Only: How the Repayment Structure Affects You

Principal and interest repayments reduce the loan balance over time. Each repayment includes an interest component and a principal component, with the proportion shifting as the loan matures. This structure builds equity and is the standard approach for owner-occupied lending.

Interest only repayments cover only the interest charged each period, leaving the principal unchanged. The loan balance remains the same throughout the interest only period, which is usually capped at five years for owner-occupied loans. Monthly repayments are lower during this time, but you do not reduce the debt or build equity through repayments.

Interest only can be useful if you are managing cash flow in the short term or if the property is an investment and you want to maximise deductibility of interest. For owner-occupied purchases in Kew, where most buyers intend to hold the property long term, principal and interest is generally more suitable. Once an interest only period ends, the loan reverts to principal and interest with repayments recalculated over the remaining term, which increases the payment amount significantly.

Portability and What Happens If You Sell Before the Loan Term Ends

Some lenders offer portable loans, which allow you to transfer your existing loan to a new property if you sell and purchase within a short timeframe. This can be useful if you have a particularly low fixed rate and want to avoid break costs, or if you want to retain specific product features.

Portability is not universal. Many lenders require you to discharge the existing loan and apply for a new facility when you purchase a different property. Even where portability is offered, conditions apply. The new property must meet the lender's security requirements, and your financial situation is reassessed to confirm you still meet serviceability.

If you sell your Kew property and purchase in a different area, or if the new property is outside the lender's acceptable LVR range, portability may not be approved. In that case, you will need to refinance or apply with a different lender. Understanding whether your loan is portable, and under what conditions, helps you plan ahead if your circumstances are likely to change within the fixed term.

What Documents You Need and How Long the Application Takes

Most lenders require proof of income, recent bank statements, identification, and evidence of your deposit source. The exact list depends on your employment type and the lender's policy. Providing complete and accurate documentation at the start reduces delays.

For a straightforward application with a permanent employee and a clear deposit source, conditional approval may be issued within 24 to 48 hours. Formal approval, which includes property valuation and final credit assessment, usually takes five to ten business days. More complex applications, such as those involving self-employment, multiple income sources, or properties requiring specialist valuation, may take two to three weeks.

In Kew, where many properties are period homes or located in heritage overlays, some lenders request additional information about the property's condition or any planning restrictions. Having a building and pest inspection report available, even before formal approval, can help address lender queries and keep the process moving.

Call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions