Home loan rates in Melbourne

Melbourne is one of the most in-demand and popular cities in Australia. The city's centre is a hub of culture, business and industry, with many national and international organisations and companies based in Melbourne. 

Melbourne’s property market can be daunting, with relatively high demand leading to high property prices in many areas. However, the potential value for both owner occupiers and investors could make a Melbourne home loan worth the cost to the right borrower.

Melbourne is one of the most in-demand and popular cities in Australia. It’s certainly possible to get a home loan in Melbourne but it may be more difficult and costly than most other markets across Australia.

Due to the city’s location by the natural bay of Port Phillip, there is limited land available for large developments and residential housing. There are already a large proportion of units, apartments and townhouses in the city, with these types of properties generally being more affordable than detached houses.

Affordability issues typically increase the closer you move to the central business district (CBD).

Getting a home loan in Melbourne is a lot like getting a home loan in most other Australian state capitals and metropolitan centres. Melbourne is the nation’s second largest city and therefore demand and competition are usually higher than in less populated areas. 

It’s helpful to be as prepared as possible, so that you can make a timely but considered decision and prevent a property that you're interested in from being snapped up by another buyer.

It is perhaps easier to access a wide variety of home loan providers in Melbourne than in some other smaller Australian towns and cities. As well as national banks, there are several Melbourne-based mortgage lenders for borrowers to consider when comparing home loans. 

If you’re an interstate buyer, it may be worthwhile consulting Melbourne-based real estate agents and mortgage brokers to help guide you through the process of narrowing down your property search and obtaining competitive financing, respectively.

Melbourne, home to more than five million residents, is Australia’s second largest metropolis and as such typically elicits higher property prices than smaller state capitals and regional areas.

Opportunities abound in the multicultural Victorian capital. Many large corporations have headquarters and offices in the city’s CBD. Tullamarine Airport is the nation’s second busiest aviation hub, behind Sydney Kingsford Smith.

The city is renowned for its cultural influence in the areas of art, music, dance, theatre, film and television.

Melbourne is also well known for its ever-changing weather conditions, with strong winds, heavy rain and hail events taking place between sunny spells and heat waves. Melbourne is regarded as a highly liveable city with a well-designed and accessible town centre.

The property purchasing process in Melbourne is similar to in other states, with the Victorian state government charging stamp duty and land taxes. 

If you are looking to purchase land or make major renovations to a property in the CBD, these areas are governed by the Melbourne City Council. Outside the CBD, you’ll need to go through the local government council. There are many building codes, restrictions and regulations that apply when building or renovating a property in this city.

A recent RateCity analysis of property price forecasts found the median house price in Melbourne is estimated to fall $156,367 (-17%) from $937,131 in September 2022 to $780,764 by the end of 2023.

The latest Australian Bureau of Statistics (ABS) lending indicators show that the average loan size for owner-occupier dwellings in Victoria was $623,974 in August 2022.

It’s important to understand that these prices represent median and average figures. Your individual circumstances may be very different, depending on a range of factors, including the type of home you wish to buy, the specific area where it’s located and market sentiment at the time of purchase.

Based on the above figures, the average borrower purchasing a median-priced home in Melbourne would currently need approximately $187,400 for a 20 per cent deposit.

The LVR (loan-to-value ratio) is determined by dividing how much you are borrowing compared to the value of the property you are purchasing, expressed as a percentage.

Generally, the lower the LVR, the lower the risk to the lender, due to the borrower providing more security on the loan. Most mortgage lenders prefer borrowers to pay an upfront deposit of at least 20 per cent of the property value, which equates to an LVR of 80 per cent.

If you have saved a deposit of less than 20 per cent, it’s likely that a lender will require you to pay for Lenders Mortgage Insurance (LMI). LMI is an insurance policy that covers the lender in the event that you default on your mortgage. This can be a costly expenditure.

Sharing the burden of these costs can expedite the process and there are a few different options to consider.

Eligible homebuyers can apply for the Victorian Homebuyer Fund to receive a contribution of up to 25% towards the purchase price of their property, reducing their minimum required deposit to 5% and avoiding the need to pay LMI.

Participants can repay the government’s share, or interest in their property over time. These repayments can be made by refinancing, using savings, and from proceeds when the property is sold.

There are conditions to be met for eligibility, including having an approved loan from a participating lender and sufficient funds to pay all acquisition costs associated with the purchase. For more, consult the State Revenue Office.

Step 1: Find the property you wish to purchase.

Step 2: Use RateCity's home loan eligibility calculator to determine your borrowing power and affordability.

Step 3: Compare your options in real-time using RateCity’s home loan rate comparison tables.

Step 4: Calculate the potential cost of mortgage repayments using RateCity’s home loan calculator.

Step 5: If you’d prefer further information or assistance, consult a mortgage broker or financial advisor.

Step 6: Decide on a mortgage provider and agree to the terms and conditions of the home loan.

There is no such thing as the single cheapest home loan rate available.

Different lenders may offer different rates depending on a borrower's eligibility and repayment capacity. Your credit score, the size of your deposit, the amount you intend to borrow and other fiscal considerations will determine the type of loan you’ll be offered.

It’s sensible to compare your options in order to make the most informed decision when choosing a lender.

More than half of Australians now use mortgage brokers, middle-men whose job is to help a borrower organise a suitable home loan with a lender. They’re industry experts that can help you decipher the mortgage market’s complicated rules and baffling jargon.

Mortgage brokers generally work with anywhere from 10 to 40 lenders. That means you’re exposed to a wide variety of home loan options. Local brokers may be able to provide extra insight into the Melbourne market.

Brokers typically won’t charge you for their services. Instead, they’ll charge the lender (in the form of a commission) if they end up organising a home loan for you. Search RateCity's database to find a mortgage broker in Melbourne.

When scouting brokers and deciding which home loan to select it may be useful to consider these 10 questions.