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Who offers the best home loan rates?

Whether you're a first home buyer, a long-term investor, or want to refinance, finding the best home loan rate is going to be a priority for you. But it’s important to know that there is no one “best” rate. In fact, the right home loan for your financial needs and budget may have a higher rate than others but offer additional perks, like a packaged credit card or an offset account.

When you’re comparing home loans, try to keep in mind that there is more to it than just the interest rate. Your definition of the best home loan may differ from someone else’s. For example, if you depend on face-to-face customer service you may find that an online-based lender isn’t your best option – even if one offered a lower rate loan.

That said, there are some features that some borrowers typically look for in a mortgage. These may change the total cost of the home loan depending on how many you focus on:

  • A lower-than-average interest rate
  • Few, or no, ongoing fees
  • Features, such an offset account,  redraw facility or making extra repayments
  • Signup perks, such as cashback offers or waived LMI
  • Packages, such as linked credit cards or transaction accounts

Are the best home loans from banks or non-bank mortgage lenders?

Depending on what you need from your home loan, banks and non-bank mortgage lenders offer a range of competitive perks and features to compete in the market.

If low rates and waived fees matters to you – then you may want to consider comparing some non-big four bank lenders. RateCity’s database shows that on average, smaller lenders generally offer lower variable interest rates. This is because these smaller lenders tend to have fewer overheads to pay for and may be able to pass on these savings to customers.

If customer service matters to you – then you may want to consider comparing home loans from established financial institutions. As mentioned above, if you rely on face-to-face customer service, then an online-based lender may not suit your needs. The bigger banks typically have more resources available to borrowers in the way of customer service.

If innovation and fintech matters to you – then you may want to consider comparing non-bank lenders who are bringing innovation to the Australian banking sector. Neobanks, for example, are app-based lenders who may compete by pushing the boundaries of fintech.

If security matters to you – consider that not every home loan lender is classified as an Authorised Deposit-taking Institution (ADI), and only these ADIs (and your deposit up to the value of $250,000) are protected by the Financial Claims Scheme.

Why don't all banks offer the best mortgage rates?

If a low rate is how you define the best mortgage rate, then you may be curious why all banks don’t just offer rock-bottom rates?

Home loan interest rates are influenced by several factors, including the Reserve Bank of Australia’s (RBA) cash rate, market reference rates and deposit rates. The actual home loan rate you will be offered will also depend on your borrower type, your credit history, your deposit size, and several other factors.

Also, different types of home loans may impact the rate. A more basic, no-frills loan may come with a lower interest rate than one with home loan features, for example. Further, smaller lenders with fewer overheads than their big competitors may choose to offer lower interest rates to compete in the market. All of this comes into play when a lender sets its interest rates and is why rates will differ across each lender and each home loan.

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What is the average interest rate for a home loan?

Home loan interest rates vary across a wide scale, with some lenders currently offering rates below 2 per cent, and some offering rates well into the 7 per cent range.

If you want to know the current average interest rates for various borrower types, it may be worth checking out the RBA's Lenders' Interest Rates page.

How do you decide which is the best mortgage for you?

To find the best home loan option for you, you’ll need to ask yourself a few key questions. These should help you to better understand your personal goals and create a short list of loans that may suit your financial situation.

1. Are you an owner-occupier or an investor?

Firstly, you’ll need to identify if you plan on living in the owner-occupied property, or if you will rent it out as an investment property. This may affect the home loan interest rate you are offered as, generally speaking, lower interest rates may be offered on owner-occupier loans than investment loans. This is because someone living in the asset they’ve offered up as security on a loan is seen as less likely to miss mortgage repayments and default than an investor. 

2. How large is your home loan deposit?

The deposit you save up may also impact the home loan. This is because home loan lenders typically offer more competitive interest rates to those with bigger deposits. A deposit of at least 20% or more, or a loan-to-value ratio (LVR) of 80% or less, is seen as more ‘reliable’ than one with a smaller deposit as it showcases a greater level of financial discipline.

3. Do you want to make principal & interest or interest-only repayments?

You’ll also need to decide between making principal and interest repayments or interest-only repayments. Paying off the principal so you can chip away at your loan amount faster may seem like a no-brainer. But for investors, interest-only loans can help to keep expenses much lower so they may potentially earn a greater return when they sell the property. It may be worth weighing up the pros and cons of both repayment types before you apply for a mortgage.

4. Will you choose a fixed or variable interest rate?

A fixed home loan rate may offer more stability in your budget as you’re locking in the rate for a set period of time. Lenders may also offer competitive deals on fixed rate loans, particularly if they expect rates to lift soon. Comparatively, variable rate loans will fluctuate based on market conditions, which may increase or decrease your home loan repayments. Variable rate home loans also tend to offer more features than fixed rate home loans, so if features are important to you then this is worth considering.

5. Can you afford a 3% rate rise?

Another good question to ask yourself before applying for any home loan is whether you can afford to repay higher mortgage repayments if rates were to increase. Statistically, over a 20–30-year home loan term interest rates may hike, and you need to be prepared. A good rule of thumb is to test your ability to afford mortgage repayments at least 3% higher. Ideally, you want to try to keep your mortgage repayments under 30% of your income, as paying a higher percentage is considered to be “mortgage stress”.

Home loan fees: what you need to know

There are a range of home loan fees that a lender may charge you, including upfront, ongoing and exist fees. These will factor into the overall cost of your mortgage, and may include:

  • Application fees
  • Valuation fees
  • Package fees
  • Monthly service fees
  • Annual fees
  • Redraw fees
  • Discharge fees
  • Fixed rate break fees (if refinancing from a fixed rate home loan)

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Who has the best rate home loan in Australia?

Unfortunately, there is no one lender that offers the best rates in Australia. If that were the case, then comparison websites would not exist.

Home loan rates will differ across each home loan lender and for different home owners, as determined by the lender's eligibility criteria. Rates are also subject to change depending on the Australian economy, the RBA’s cash rate and the decisions of the bank. What is more important is that you choose a home loan rate that best fits your personal goals, such as having in-person customer service options, allowing interest-only repayments, or offering a redraw facility.

How do you find the lowest interest rates?

Comparison tools, such as tables and calculators, may come in handy here and may be able to help you shortlist potential options for your best home loan.

Comparison tables allow borrowers to compare apples with apples. You can filter down the home loan results by your personal situation, loan amount and what you want from the loan (e.g. a low rate, lots of features). Then, you can view a range of options side by side to better get an overview of which home loans may be more competitive and create a shortlist of options.

A Mortgage Repayment Calculator may also help you narrow down your shortlist by allowing you to view an estimate of what your mortgage repayments may look like with said loan. You can then assess this repayment against your income, or even test the repayments at a higher interest rate to ensure you can afford potential rate hikes.

If you're feeling overwhelmed by all of the potential home loan options and tools to compare with, it may be worth considering reaching out to a mortgage broker. Brokers may be able to offer financial advice and assist you in the home loan process from start to finish, as well as offer broker-only interest rates not advertised by lenders. 

Can the best mortgage rate get you better home loan repayments?

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What is the comparison rate?

A comparison rate is another tool that may help you to better judge the cost of a home loan. Comparison rates take into consideration many of the fees a home loan lender will charge, as well as the interest rate, to calculate a “truer” cost of the mortgage. The comparison rate is based on a $150,000, 25-year home loan paying principal and interest.

Keep in mind that not every fee is factored into a comparison rate. Also, the base loan amount a comparison rate is calculated against is, understandably, considerably lower than the median dwelling price across most capital cities in Australia. Because of this it may be worth using different comparison rates as a gauge of which lenders offer greater ongoing costs than others.

Fact Check Verification

The information on this page was fact checked by Matthew Tinson, a broker in Queensland specialising in home loans, car financing, personal loans, debt consolidation, and asset financing. For more information on how brokers like this can assist you, look for a broker near you

Who has the best home loan?

Determining who has the ‘best’ home loan really does depend on your own personal circumstances and requirements. It may be tempting to judge a loan merely on the interest rate but there can be added value in the extras on offer, such as offset and redraw facilities, that aren’t available with all low rate loans.

To determine which loan is the best for you, think about whether you would prefer the consistency of a fixed loan or the flexibility and potential benefits of a variable loan. Then determine which features will be necessary throughout the life of your loan. Thirdly, consider how much you are willing to pay in fees for the loan you want. Once you find the perfect combination of these three elements you are on your way to determining the best loan for you. 

What is the best interest rate for a mortgage?

The fastest way to find out what the lowest interest rates on the market are is to use a comparison website.

While a low interest rate is highly preferable, it is not the only factor that will determine whether a particular loan is right for you.

Loans with low interest rates can often include hidden catches, such as high fees or a period of low rates which jumps up after the introductory period has ended.

To work out the best value for money, have a look at a loan’s comparison rate and read the fine print to get across all the fees and charges that you could be theoretically charged over the life of the loan.

Which mortgage is the best for me?

The best mortgage to suit your needs will vary depending on your individual circumstances. If you want to be mortgage free as soon as possible, consider taking out a mortgage with a shorter term, such as 25 years as opposed to 30 years, and make the highest possible mortgage repayments. You might also want to consider a loan with an offset facility to help reduce costs. Investors, on the other hand, might have different objectives so the choice of loan will differ.

Whether you decide on a fixed or variable interest rate will depend on your own preference for stability in repayment amounts, and flexibility when it comes to features.

If you do not have a deposit or will not be in a financial position to make large repayments right away you may wish to consider asking a parent to be a guarantor or looking at interest only loans. Again, which one of these options suits you best is reliant on many factors and you should seek professional advice if you are unsure which mortgage will suit you best.

Is the lowest home loan rate always the cheapest?

The home loan with the lowest interest rate may not always be the cheapest mortgage option for you. Sometimes a home loan with a low interest rate may charge high fees, which may cost more in total than a mortgage with a higher interest rate and no fees.

Consider checking the comparison rate, which combines interest and standard fees, to get a better idea of the overall cost of different home loan options.

What are the different types of home loan interest rates?

A home loan interest rate is used to calculate how much you’ll pay the lender, usually annually, above the amount you borrow. It’s what the lenders charge you for them lending you money and will impact the total amount you’ll pay over the life of your home loan. 

Having understood what are home loan rates in general, here are the two types you usually have with a home loan:

Fixed rates

These interest rates remain constant for a specific period and are a good option if you’re a first-time buyer or if you’re looking for a fixed monthly repayment. One possible downside of a fixed rate is that it may be higher than a variable rate. Also, you don’t benefit from any lowering of interest rates in the market. On the flip side, if rates go up, your rate won’t change, possibly saving you money.

Variable rates

With variable interest rates, the lender can change them at any time. This change can be based on economic conditions or other reasons. Changes in interest rates could be beneficial if your monthly repayment decreases but can be a problem if it increases. Variable interest rates offer several other benefits often not available with fixed rate home loans like redraw and offset facilities and free extra repayments.