TL;DR
– **Deposit myths** – A 20 % deposit is *not* a hard rule; 5 % deposits are possible with LMI or government schemes.
– **Credit myths** – A perfect credit score is not mandatory; lenders weigh income, employment, debt‑to‑income ratios and other factors.
– **Income myths** – Low‑income borrowers can still secure a loan through tailored products and accurate affordability assessments.
– **First‑home myths** – The First Home Owner Grant (FHOG) can be combined with other incentives and is not limited to a single purchase.
– **Lender myths** – Banks are not the only home‑loan providers; credit unions, non‑bank lenders and online platforms offer competitive options.
– **Pre‑approval myths** – A pre‑approval is conditional; final approval can still be denied if circumstances change.
– **Repayment myths** – Extra repayments can meaningfully shorten loan terms and reduce interest; they are not “negligible.”
– **Rental myths** – Renting does not preclude future homeownership; disciplined saving can bridge the gap to a deposit.
1. Introduction
Home‑ownership is a cornerstone of Australian financial planning, yet the path to a mortgage is littered with misconceptions. These myths can create unnecessary anxiety, delay decisions, or lead to costly mistakes. The following article debunks ten of the most pervasive myths, drawing on recent industry analyses and expert commentary. By separating fact from fiction, borrowers can approach the loan process with realistic expectations and better control over their financial future.
2. Myth 1 – A 20 % Deposit is Mandatory
Truth
The long‑standing belief that you must put down 20 % of the purchase price is no longer a universal requirement. Many lenders now offer loans with deposits as low as 5 % for suitable borrowers, provided they obtain Lender’s Mortgage Insurance (LMI) or qualify for a government scheme such as the First Home Guarantee. The 20 % rule still applies in certain circumstances—e.g., for high‑value loans or when a lender’s risk appetite is low—but it is far from a blanket rule.
Sources
[1]
3. Myth 2 – A Perfect Credit Score is Mandatory
Truth
While a high credit score improves your chances of approval and better rates, lenders assess a broader set of criteria. Income stability, employment history, debt‑to‑income ratio, and even the purpose of the loan are considered. Borrowers with less-than‑perfect credit can still secure a mortgage, especially if they demonstrate steady income and a realistic repayment plan.
Sources
[1]
4. Myth 3 – Low‑Income Borrowers Cannot Get a Mortgage
Truth
Affordability is calculated on a case‑by‑case basis. Lenders use the Australian Prudential Regulation Authority (APRA) guidelines to assess whether a borrower can comfortably meet repayments, taking into account income, living expenses, and existing debt. Many low‑income applicants obtain loans through products designed for them, such as low‑deposit loans or specialist lenders that focus on income‑based lending.
Sources
[1]
5. Myth 4 – The First Home Owner Grant (FHOG) Only Applies to First‑Time Buyers
Truth
The FHOG is indeed targeted at the purchase of a first home, but it can be combined with other incentives. For example, a first‑time buyer can simultaneously access the First Home Loan Deposit Scheme (FHLDS) or a state‑specific grant, allowing them to purchase a property with a smaller deposit while still receiving the FHOG. This combination can reduce the overall cost of borrowing and accelerate the path to ownership.
Sources
[1]
6. Myth 5 – Only Banks Offer Mortgage Products
Truth
The Australian home‑loan market is diverse. Credit unions, non‑bank lenders, and online platforms often provide competitive rates, flexible terms, and tailored products that banks may not offer. These lenders can be particularly attractive to borrowers with unique circumstances, such as self‑employed income or a lower deposit.
Sources
[1]
7. Myth 6 – Pre‑Approval Guarantees Final Loan Approval
Truth
A pre‑approval is a conditional offer that confirms a lender’s willingness to lend up to a certain amount based on current information. Final approval requires a full underwriting process that may uncover new debt, a change in income, or a decline in credit score. Therefore, a pre‑approval does not guarantee that the loan will be approved at closing.
Sources
[2,4,5,6,7]
8. Myth 7 – Lenders Only Offer Fixed‑Rate Loans
Truth
While fixed‑rate loans are popular, many lenders also provide variable‑rate products that can be cheaper over the long term, especially if interest rates are expected to fall. Variable‑rate loans offer flexibility and the potential to benefit from rate cuts, whereas fixed‑rate loans lock in a rate but may be more expensive if rates decline. Borrowers should compare both options and consider their risk tolerance.
Sources
[3,4,5,6,7,8]
9. Myth 8 – LMI is Always Required for Low Deposits
Truth
LMI is typically required when the deposit is below 20 % of the purchase price, but its necessity depends on the lender’s policy and the borrower’s risk profile. Some lenders waive LMI for deposits of 5 % if the borrower meets specific criteria, such as a high credit score or a large down‑payment on a lower‑value property. However, most low‑deposit loans will still carry LMI, which can add thousands to the cost of borrowing.
Sources
[1,3,5]
10. Myth 9 – Extra Repayments Have Negligible Impact
Truth
Even modest extra repayments can significantly reduce the loan term and the total interest paid. For example, adding $50 a week to a $400,000 mortgage can shave several years off the repayment period and save thousands of dollars in interest. Because extra repayments reduce the principal directly, they are an effective tool for borrowers looking to pay off their loan early.
Sources
[5,6]
11. Myth 10 – Renting in High‑Vacancy Cities Prevents Future Homeownership
Truth
Renting does not preclude eventual homeownership. In fact, the flexibility of renting can allow borrowers to save for a larger deposit, improve their credit profile, and build a stronger financial base. While high vacancy rates may increase rent, they also keep property prices relatively stable, making it easier for savers to enter the market when they are ready.
Sources
[5]
12. Conclusion
The mortgage landscape in Australia is more flexible and nuanced than many myths suggest. Deposits can be lower than 20 %, credit scores need not be perfect, and low‑income borrowers still have viable options. Government grants, diverse lenders, and strategic repayment plans can all help bridge the gap between aspiration and reality. By debunking these ten myths, borrowers can make informed decisions, avoid unnecessary delays, and ultimately achieve the goal of owning a home.
References
- https://corrigan.austlii.edu.au/au/journals/SAPoliceJl/2012/136.pdf — corrigan.austlii.edu.au — https://corrigan.austlii.edu.au/au/journals/SAPoliceJl/2012/136.pdf
- Mortgage Myths Busted: What Every Aussie Home Buyer Must Know – BritWealth — britwealth.com — https://britwealth.com/au/real-estate-au/home-buying-au/mortgage-myths-busted-what-every-aussie-home-buyer-must-know/
- Busting Home Loan Myths: Facts vs. Fiction — craggle.com.au — https://www.craggle.com.au/blog/home-loan-myths
- Top Mortgage Myths Busted – Separating Fact from Fiction — reliiancefs.com.au — https://reliiancefs.com.au/top-mortgage-myths/
- 10 Mortgage Myths Every Australian Needs To Stop Believing — simplywealthgroup.com.au — https://simplywealthgroup.com.au/mortgage-myths/
- Home Loan Myths Busted:
Answers to 10 Mortgage Questions You Might Be Getting Wrong — Petra Mortgage Broking — petramb.au — https://petramb.au/blog/home-loan-myths-busted-answers-to-10-mortgage-questions-you-might-be-getting-wrong - Home Loan Advice [2025] | Don’t Fall for Mortgage Myths — capitalconnections.com.au — https://capitalconnections.com.au/home-loan-advice-and-mortgage-myths/
- Biggest home loan myths busted – realestate.com.au — realestate.com.au — https://www.realestate.com.au/news/biggest-home-loan-myths-busted/
