Compare home loans
Do you have the best home loan interest rate on the market? Are your mortgage repayments higher than average? Are you missing out on home loan features or discounts because you haven't switched lenders in several years? All of these questions are reasons to compare home loans with a financial comparison website like RateCity.com.au.
With thousands of home loans on the Australian market, it can be difficult to know which one will be best for you. One of the easiest ways to figure this out is to make a home loan comparison by looking at several home loans side by side to see which ones come out ahead, both in terms of the current home loan rates, and the features and benefits they offer.
How to compare home loans
Before you start your home loan comparison journey with RateCity, it can be helpful to work out exactly what you’re looking for from a mortgage. Some borrowers compare home loans looking for the lowest possible home interest rates, but this often comes at the cost of flexibility. Other borrowers may look for a range of features, such as offset accounts, redraw facilities and flexible repayment schedules, though these may cost more in interest and fees.
Once you've worked out your preferences, you can start to narrow down your list of potential home loan options when making your mortgage comparison:
- Start by entering how much you want to borrow for the property of your choice. The more you choose to borrow, the higher the repayments you’ll need to budget for.
- Next, work out how much you have available for your deposit. Lenders generally favour borrowers with higher security deposits, offering these borrowers lower home loan interest rates. Also, if you have a deposit below 20% of the property value, you may be required to pay Lender’s Mortgage Insurance (LMI).
- Next, select your loan term. The most common loan term for both owner-occupiers and investors is 30 years, but some borrowers opt for shorter loan terms (e.g. 25 years or less) depending on their circumstances. A few lenders allow you to borrow for up to 45 years. Keep in mind that the longer your loan term, the less you’ll likely pay from month to month, but the more you’ll likely pay in total interest charges.
- Select what type of borrower you are – owner occupier or investor. This will help determine the best home loan rates you are eligible for. A quick home loan comparison will show that investors are generally charged higher home loan rates than owner-occupiers.
Example: Finding a low rate investment loan
Roy is a first-time investor who wants the lowest interest rate on the home loan market. He has a deposit of $100,000 and wants a loan of $500,000. By selecting a loan term of 30 years using RateCity’s compare home loans function, he discovers there are more than 1500 potential loans available to him.
Roy previously asked his bank, one of the Big Four, about the cost of a home loan with them. During his home loan comparison, Roy discovers there are at least five lenders on RateCity that can shave up to $80 a month off what his bank offered, with interest rates below 4.2%. Over 30 years, that adds up to a significant saving.
Roy wants to know more about one of the loans on offer, due to its low rate and low fees. He simply clicks the ‘View Now’ button to be directed to the lender’s website.
How to customise your results
On the second half of the form, you have the option to enter your preferred features, so you can compare home loans to find an option that suits your needs.
Do you want a variable rate loan or a fixed rate loan? The interest rate on a variable rate loan may change over the course of your mortgage term, often in line with changes to the official cash rate from the Reserve Bank of Australia (RBA), but sometimes independently, depending on your lender. If the cash rate drops, and your lender passes on the rate cut, you could save money on your mortgage repayments, but if your rate increases, you could find yourself paying more.
A fixed home loan secures your interest rate for a length of time. For the duration of your loan’s fixed term, there will be no changes to your repayments, for simple and consistent budgeting. Keep in mind that while a fixed loan can protect you from paying more if interest rates were to rise, you could also miss out on potential savings if interest rates were to fall.
Some borrowers also choose to split their rate between fixed and variable to lock in a bit of certainty, while also making the most of low rates.
You can also choose between making principal and interest repayments or interest-only repayments.
Principal and interest repayments allow you to pay off the amount you’ve borrowed along with the interest charges, and make steady progress towards clearing your debt.
Some lenders allow you to delay paying your loan's principal for a period of time and simply pay the interest. This can help to make your repayments temporarily more affordable in the short term, though you may end up paying more total interest over the loan’s full term.
Select your features
After you’ve chosen your preferred type of loan and repayments, you can compare mortgages with some popular home loan features, such as an offset account, a redraw facility, or extra repayments.
An offset account allows you to reduce the interest you pay by using money in a separate, but linked account to offset what you owe. For example, if you owe $300,000 but have $50,000 in an offset account, you’ll be charged interest as if you only owed $250,000.
Some lenders allow you to make extra mortgage repayments if you have a good month or receive a one-off windfall, which can help to pay off your loan quickly, and reduce the interest you’re charged.
A redraw facility lets you redraw any extra home loan repayments you’ve made if you need that money back in your pocket, which can be useful under the right circumstances.
Choose your fees
One of the benefits when you compare home loans with a financial comparison website like RateCity.com.au is that as well as looking at home loan interest rates, you can also compare fees. High fees on a home loan can negate the impact of a low interest rate, so they should always be considered.
Some of the fees you’re likely to encounter during your mortgage comparison include:
- Upfront fees – These are the fees the lender will charge when you start your loan. They sometimes include establishment fees, conveyancing fees, stamp duty and Lender’s Mortgage Insurance (LMI). Upfront fees vary significantly between lenders.
- Ongoing fees – These are the fees your lender charges either monthly or yearly for the upkeep of your loan.
- Redraw fees – If you choose a loan with a redraw facility, sometimes those redraws charge a fee. This can be important to know for your budgeting.
- Discharge fees – At the conclusion of your loan, your lender may charge you a termination fee.
Example: Flexibility seals the deal
Louise already has a home loan, but it doesn’t offer many benefits. She instead wants a loan where she can offset interest and make extra repayments once a year when she gets her tax refund. However, she doesn’t want to pay a high rate or high fees for those benefits.
To compare home loans, Louise enters her preferences at RateCity and finds there are a dozen loans with no ongoing fees, but many features. Even better, many of those home loans have interest rates lower than 4%, when at the moment she has a 4.5% interest rate. By switching, she stands to save more than $500 a year.
Other types of loans to compare
RateCity also allows you to compare less common loans, such as low doc loans. A low documentation loan is for borrowers who do not have the documents that are typically required to secure a loan, like an employment history or clean credit history. As a result, lenders often treat these customers as higher default risks, and decline their applications for standard home loans.
If you are in this position, it may be helpful to compare the low doc options on the market as there is a significant variance in the current home loan interest rates on offer.
How to find the lowest rates on RateCity.com.au
Sometimes a home loan’s interest rate can serve as a good starting point for your mortgage search.
If you’re mostly interested in finding out which bank has the lowest interest rates on the home loan market, you can compare the currently available mortgage options by interest rate on RateCity, with or without adding additional filters, such as home loans with fixed interest rates, or offset accounts.
4% or lower is generally considered to be a good interest rate for a home loan, though it’s important to remember that these low-interest home loans are often relatively basic, offering few additional features. Seeing how much extra interest you may need to pay for home loans with additional benefits can help you get a better idea of the value they can offer your household finances.
As well as offering home loan comparison, RateCity lets you compare many other financial products: