What is the smallest home loan you can get?

If you’re shopping around for a home loan, you may be surprised to learn that borrowing a small amount can be just as challenging as trying to take out a massive mortgage. This is because mortgage lenders typically have minimum amounts they are willing to lend.

When you compare home loan options, you’ll notice that the lender will often specify a minimum and maximum loan amount, sometimes known as the ‘borrowing range’. As a home loan is typically a 25 to 30-year commitment, allowing you to borrow a very small amount may not be as economical for a lender over the loan term, even considering the interest charges and fees you’ll be paying to them.

What is the minimum home loan amount?

According to the RateCity database at the time of writing, the smallest average home loan you may be approved for is $106,761.

Taking out a smaller home loan means a smaller debt, which can in turn mean lower repayments and paying less interest on your property. It also means only needing to save up a smaller deposit to buy a property. For example, a 20% deposit for a $110,480 home loan would be $21,352.

Keep in mind that a smaller home loan could limit your choice of properties to purchase, depending on where in Australia you want to buy. Property prices in some Australian capital cities can be measured in millions of dollars, and at the time of writing, the average home loan in Australia was $626,055 according to the Australian Bureau of Statistics (ABS).

In some cases, if you’re looking at a low-value property, you may be better off saving up the purchase price to buy it outright rather than taking out a mortgage and paying interest on the property for decades. Examine your personal financial situation, make some home loan calculations, and consider contacting an accountant, mortgage broker or financial adviser to get a better idea of the best course of action for you to take.

What are the benefits of a small home loan?

• Smaller debt – With less money to repay, your monthly mortgage repayments could make a smaller impact on your household budget.
• Smaller deposit needed- Get a foot on the property ladder faster by cutting down your saving time.
• Spend on other things - A small home loan may give your budget the breathing room to save up for other expenses, such as holiday or emergency bill payments. 

What are the downsides of a small home loan?

• Fewer properties in capital cities - Your property search may be more challenging outside of regional areas.
• Fewer lender options - If you’re looking for a sub-$100,000 home loan, your lender options may be limited.
• Alternative options may be better - Spreading the cost of a smaller mortgage over 30 years plus interest could be more costly than saving up the purchase price.

Calculate how much you can borrow

RateCity’s Borrowing Power Calculator can help you estimate how much a bank may offer to lend you when you apply for a mortgage.

Simply enter some basic details that a lender would use to assess your application, such as your income, expenses and number of dependents (if any). The calculator will then estimate a home loan amount that a lender may approve you for, assuming you meet all the eligibility criteria involved.

For example, imagine a single Australian with no dependents is looking for an owner-occupier home loan, and earns $90,000 a year. Visiting the Borrowing Power Calculator, they enter their details and request that their expenses be automatically estimated as they don’t have this exact information available on hand. 

They are then presented with an estimated borrowing range that a lender may approve them for, considering the current interest rate environment:

• Low: $432.8k
• Mid: $432.8k
• High: $649.3k

Source: RateCity.com.au. Hypothetical example relevant as of 24/07/2024

Compare home loans in Australia