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The cheapest home loans on the market

The cheapest home loans on the market

You might be surprised to learn that various lenders are currently offering some of the cheapest mortgage rates in Australia’s history.

You might also be surprised to learn the names of these lenders – because they’re not your father’s lenders.

The big four banks might be market leaders, but they’re not price leaders. That’s why they often get undercut by smaller rivals, many of which are relatively new to the market.

We’re talking credit unions, building societies and non-bank lenders.

They’re still regulated and they offer many of the same services as banks – they just fit into a different technical category.

If you’re rusted on to the big four banks, there’s no point reading any further. But if you’re open to shopping around, you might be shocked when you discover the rates being offered by some of these challenger lenders.

The big four’s average discounted variable rate for owner-occupiers is 4.23 per cent. But if you browse the 4,000-plus loans on RateCity’s comparison search engine, you’ll find these options:

LenderProductAdvertised rateComparison rate
Reduce Home LoansRate Buster Standard Variable3.39%3.39%
FreedomLendFreedom Variable Home Loan3.49%3.49%
Hume BankFirst Home Starters Package3.49%4.62%
Pacific Mortgage GroupStandard Variable Home Loan3.54%3.54%
Loans.com.auEssentials Home Buyer Special3.54%3.56%

But what if you wanted to take out a three-year fixed rate, instead of a variable rate?

The big four’s average three-year rate is 4.01 per cent. Again, though, there are significantly cheaper options:

LenderProductAdvertised rateComparison rate
MoveLockit Home Loan3.69%3.96%
SCUMy Life Home Loan Package3.69%4.00%
Auswide BankFreedom Package Home Loan Plus Fixed3.69%4.44%
Greater BankUltimate Fixed Home Loan3.74%4.42%
Queenslanders Credit UnionSpecial Fixed Home Loan3.78%4.36%

It’s important to point out that the cheapest loan isn’t always the best loan. Some borrowers, depending on their circumstances, might be better off taking out a higher-rate loan.

But if a low-rate loan was suitable, you could save tens of thousands of dollars over the life of the loan if you chose a challenger lender over a big four bank.

Imagine you were an owner-occupier who wanted to take out a $300,000 mortgage over 30 years. Here’s how your repayments would look if you compared the average big four bank with a low-rate alternative:

Variable loan

Interest rateMonthly repaymentsTotal repayments
Reduce Home Loans3.39%$1,329$478,361
Big four4.23%$1,472$530,031
Difference0.84%$143$51,670

Three-year fixed loan

Interest rateMonthly repaymentsTotal repayments
Move3.69%$1,379$496,495
Big four4.01%$1,434$516,231
Difference0.32%$55$19,736

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Learn more about home loans

What happens to my home loan when interest rates rise?

If you are on a variable rate home loan, every so often your rate will be subject to increases and decreases. Rate changes are determined by your lender, not the Reserve Bank of Australia, however often when the RBA changes the cash rate, a number of banks will follow suit, at least to some extent. You can use RateCity cash rate to check how the latest interest rate change affected your mortgage interest rate.

When your rate rises, you will be required to pay your bank more each month in mortgage repayments. Similarly, if your interest rate is cut, then your monthly repayments will decrease. Your lender will notify you of what your new repayments will be, although you can do the calculations yourself, and compare other home loan rates using our mortgage calculator.

There is no way of conclusively predicting when interest rates will go up or down on home loans so if you prefer a more stable approach consider opting for a fixed rate loan.

What is a variable home loan?

A variable rate home loan is one where the interest rate can and will change over the course of your loan. The rate is determined by your lender, not the Reserve Bank of Australia, so while the cash rate might go down, your bank may decide not to follow suit, although they do broadly follow market conditions. One of the upsides of variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts.

What is the difference between fixed, variable and split rates?

Fixed rate

A fixed rate home loan is a loan where the interest rate is set for a certain amount of time, usually between one and 15 years. The advantage of a fixed rate is that you know exactly how much your repayments will be for the duration of the fixed term. There are some disadvantages to fixing that you need to be aware of. Some products won’t let you make extra repayments, or offer tools such as an offset account to help you reduce your interest, while others will charge a significant break fee if you decide to terminate the loan before the fixed period finishes.

Variable rate

A variable rate home loan is one where the interest rate can and will change over the course of your loan. The rate is determined by your lender, not the Reserve Bank of Australia, so while the cash rate might go down, your bank may decide not to follow suit, although they do broadly follow market conditions. One of the upsides of variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts.

Split rates home loans

A split loan lets you fix a portion of your loan, and leave the remainder on a variable rate so you get a bet each way on fixed and variable rates. A split loan is a good option for someone who wants the peace of mind that regular repayments can provide but still wants to retain some of the additional features variable loans typically provide such as an offset account. Of course, with most things in life, split loans are still a trade-off. If the variable rate goes down, for example, the lower interest rates will only apply to the section that you didn’t fix.

Does the Home Loan Rate Promise apply to discounted interest rate offers, such as honeymoon rates?

No. Temporary discounts to home loan interest rates will expire after a limited time, so they aren’t valid for comparing home loans as part of the Home Loan Rate Promise.

However, if your home loan has been discounted from the lender’s standard rate on a permanent basis, you can check if we can find an even lower rate that could apply to you.