Compare home loans
Do you have the best interest rate on offer in the home loan market? Are your repayments higher or lower than the average? Are you missing out on 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 loan products on the Australian market, it can be difficult to know what the best product is for you. The easiest way to figure that out is to make a home loan comparison by selecting a series of home loan products and looking at them 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 repayment rate, but that often comes at the cost of flexibility. Other borrowers may want a range of features, like offset accounts, redraw facilities and flexible repayment schedules, but that may cost a little more in interest and fees.
Once you've prepared your preferences, you can use these to filter 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. You’ll then be asked how much you have available for your deposit. Lenders generally favour borrowers with higher deposits because it reduces the risk on their side, so higher deposits often expand your search results when comparing home loans. If you have a deposit below 20%, you may be required to pay Lender’s Mortgage Insurance (LMI).
Once you've entered your loan amount details, you have the option to 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 depending on their circumstances. A few lenders also give you the option to borrow for terms of up to 45 years.
The next step when comparing home loans is to select what type of borrower you are. Again, this will determine the best home loan rates for which you are eligible. Since a crackdown from the prudential regulator in 2015, lenders have been limiting investment lending through a number of measures, one of which is by charging slightly higher home loan rates. A quick home loan comparison will show that as an investor you may be charged up to a percentage point more than an owner-occupier.
Example: Finding a low rate investment loan
Roy is a first-time investor who wants the lowest rate on offer in the home loan market. He wants a loan of $500,000 and has a deposit of $100,000. By selecting a loan term of 30 years using RateCity’s compare home loans function, he discovers there are more than 1500 loans available to him.
Roy had previously asked his bank, one of the Big Four, about the cost of a home loan with them. He discovers that 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’s a significant saving.
Roy decides one of the loans on offer looks more compelling than the other loans available, due to its low rate and low fees. He simply clicks the ‘View Now’ button to be directed to the lender’s website.
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.
To begin with, you’ll be asked whether you want a fixed rate or variable rate loan. A fixed home loan secures your interest rate, which means for the term of your loan, there will be no changes to your repayments, even if the Reserve Bank’s official cash rate changes. On the other hand, a variable rate loan may change when the official cash rate does. If the cash rate is on a downward trend, this could mean extra savings for you if your lender passes on the rate cut, but the opposite is true if the cash rate trends upwards. Some borrowers also choose to split their rate between fixed and variable to lock in a bit of certainty, while making the most of a cheap market.
Next, you’ll be asked whether you’d like to make 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. However, some lenders allow you to delay paying your loan's principal for a set period of time and simply pay the interest.
Select your features
After you’ve chosen your type of loan and repayments, RateCity's home loan comparison tool will give you the option to show only loans with some popular home loan features, such as an offset account, a redraw facility and extra repayments.
An offset account allows you to offset the interest you pay with a separate, but linked account, while a redraw facility lets you redraw any extra home loan repayments you’ve made if you need that money back in your pocket. Some lenders also allow you to make extra repayments if you have a good month or receive a one-off windfall, which can help to pay off your loan quickly.
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 the home loan interest rate, you can 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 establish 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 attract 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 give her 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 inputs her specifications into RateCity and finds there are a dozen loans with no ongoing fees, but many features. Even better, many of those home loans are sub-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 traditional records required to secure a loan, like an employment history or clean credit history. As a result, they are often treated as higher default risk customers for lenders and attract a higher home loan interest rate.
If you are in this position, it can be helpful to compare the low doc options on the market as there is a significant variance in the current home loan rates on offer.
How to find the lowest rates on RateCity.com.au
If your primary interest is finding the lowest interest rates in the home loan market, one of the best ways to do so is by ‘clearing filters’ when you compare home loans. Your results will no longer be customised, but you will be able to see just how low lenders are willing to go to attract your business. Sometimes it can be a good starting point to ascertain how much you pay in extra interest for additional benefits.
In addition to offering home loan comparison, RateCity lets you compare the following products: