Apartment vs House: Everything You Need to Know

When it comes to achieving home ownership in Melbourne, understanding the differences between apartment and house financing can significantly impact your home loan application and loan amount approval. Whether you're considering a one-bedroom unit in the CBD or a family home in the suburbs, lenders assess these property types differently, which affects home loan interest rates, loan to value ratio (LVR) requirements, and the overall cost of borrowing.

Why Property Type Matters for Your Home Loan

Lenders view apartments and houses through different risk lenses, which directly influences the home loan products and home loan features available to you. Houses typically sit on their own land and often maintain value more consistently, while apartments exist within a shared building structure with body corporate involvement. These fundamental differences mean that when you apply for a home loan, your interest rate, deposit requirements, and Lenders Mortgage Insurance (LMI) calculations can vary substantially between property types.

For owner occupied home loan applications, lenders consider factors such as building height, construction quality, unit mix within the development, and the total number of units in the complex. Properties in developments with more than 50% non-owner occupied units or buildings exceeding a certain number of storeys may face more stringent lending criteria.

Loan to Value Ratio (LVR) Differences

One of the most significant distinctions when comparing apartment versus house financing relates to LVR limits. While you might secure financing for a house at 95% LVR through various low deposit home loan options, many lenders cap apartment loans at 90% LVR, particularly for smaller units or properties in high-density areas.

This means you'll likely need a larger deposit for an apartment purchase. For example, on a $600,000 apartment, a 90% LVR requirement means you'd need at least $60,000 plus costs, compared to potentially just $30,000 plus costs at 95% LVR for a comparable house purchase.

Some lenders also impose additional restrictions on studio apartments or properties under 50 square metres, sometimes requiring deposits of 20% or more. These requirements directly impact your borrowing capacity and can affect your ability to build equity quickly.

Interest Rate Considerations

Home loan rates comparison between apartments and houses reveals that lenders often apply different pricing structures. While the advertised variable interest rate or fixed interest rate may appear identical, apartments sometimes attract rate loadings or 'property type adjustments' that add to your interest rate.

These rate adjustments typically range from 0.10% to 0.50% above standard rates, depending on factors including:

• Building size and height
• Unit size and bedroom count
• Location and suburb desirability
• Proportion of commercial space in the building
• Age and condition of the complex
• Whether you're seeking an interest only or principal and interest loan structure

When reviewing current home loan rates and calculating home loan repayments, these seemingly small rate differences compound significantly over the life of your loan. On a $500,000 loan amount, an additional 0.25% in interest rates equals approximately $700 more per year in repayments.

Lenders Mortgage Insurance (LMI) Variations

Lenders Mortgage Insurance costs also differ between property types. Since LMI protects the lender if you default on your loan, insurers charge higher premiums for properties they perceive as riskier investments. Apartments generally attract higher LMI premiums than houses at the same LVR.

For buyers exploring their first home loan or those seeking to invest in property with smaller deposits, understanding these LMI variations is essential for financial stability. Some lenders offer low LMI loan products that can reduce these costs, though availability may be more limited for apartment purchases.

Professional occupations may qualify for LMI waivers or discounts, and these concessions typically apply to both houses and apartments, providing an opportunity to improve borrowing capacity regardless of property type.

Home Loan Features and Package Benefits

Both apartments and houses can access standard home loan features including:

• Offset account or linked offset facilities to reduce interest charges
• Split loan options combining fixed rate and variable rate portions
• Portable loan features allowing you to take your loan to a new property
• Redraw facilities on principal and interest loans
• Extra repayment options to build equity faster

However, some premium home loan packages with enhanced home loan benefits or larger interest rate discounts may exclude apartments, particularly those in smaller buildings or studio configurations. When comparing home loan options from banks and lenders across Australia, it's important to verify that all advertised features apply to your specific property type.

Valuation and Approval Considerations

The home loan application process differs slightly between property types. Apartment valuations require more comparable sales data from within the same building or immediate area, and lenders are more cautious about approving loans for apartments with unusual characteristics.

Properties that may face additional scrutiny include:

• Serviced apartments or hotel-style buildings
• Units in developments with significant unsold stock
• Properties with short-term rental restrictions affecting investment potential
• Buildings with structural issues or incomplete remedial work
• Developments with inactive or poorly funded body corporate arrangements

These factors can extend approval timeframes and may impact your ability to secure Home Loan pre-approval with confidence. Working with experienced mortgage professionals who understand Melbourne's diverse property market helps identify potential issues before you commit to a purchase.

Fixed Interest Rate Home Loan Considerations

For buyers seeking certainty through a fixed interest rate home loan, the same property type considerations apply. While fixed rate home loan products are available for both apartments and houses, some lenders offer better fixed interest rate options or longer fixed rate terms for houses.

Using a fixed rate expiry calculator helps you plan for rate changes, which becomes particularly important if you've paid a premium rate due to your property type. Whether you choose a split rate loan combining fixed and variable portions or a full fixed rate structure, understanding the rate differential between property types ensures you're making informed decisions about your secure future.

Investment Property Considerations

For those looking to invest in property, the apartment versus house decision involves additional complexity. Investment property loans for apartments may have different serviceability calculations, particularly if you're considering interest only repayment structures.

Rental yield assessments also vary, with lenders typically applying higher rental discounts (lower rental income recognition) for apartments in certain locations. This affects how much lenders will let you borrow and can impact strategies for expanding your property portfolio.

Making Your Decision

Whether an apartment or house suits your needs depends on multiple factors beyond just financing considerations. However, understanding these lending differences ensures you can:

• Accurately compare rates between property types
• Budget appropriately for deposit requirements and LMI costs
• Access home loan options that align with your property choice
• Calculate realistic borrowing capacity based on actual lending policies
• Secure competitive variable home loan rates or fixed rate products
• Plan for lowest rates available for your specific property type

Both property types offer pathways to achieve home ownership and build wealth through real estate. The key is understanding how lending policies affect your specific situation and choosing a property that aligns with both your lifestyle needs and financial capacity.

At AXTON Finance, our experienced team works with clients throughout Melbourne to access home loan options from banks and lenders across Australia. We understand the nuances of apartment versus house financing and can help you navigate the lending landscape to find home loan products that match your property goals. From calculating home loan repayments to securing interest rate discounts and exploring mortgage offset benefits, we provide comprehensive support throughout your property journey.

Call one of our team or book an appointment at a time that works for you to discuss your apartment or house financing needs.