Why should you look for the best home loan rates?
While there is no one-size-fits-all mortgage, working out which home loans most closely match your needs can help you to find the best mortgage for you.
With the variety of Australian home loan offers available, there will likely be several mortgages that could fit your purposes. Once you know what to compare and what you’re looking for, you should be able to identify some good options.
Our comparison tool allows you to filter mortgages by many different features, to give you a better idea of which mortgages could offer the best home loan rates, features and benefits to suit your needs.
How do I decide which is the best mortgage for me?
Want to know how to get a home mortgage? There are several questions to consider when weighing up home loan options to find the right one for you:
- How long will I need to take out the loan for?
- What are the best home loan rates? Are they fixed or variable rates?
- What will my repayments be? Can I make additional repayments?
- Are there any added fees to include in my calculations?
- Can I sustain a good lifestyle while paying off this mortgage?
Remember that while advice on the best home loans from friends and family might be useful, it alone shouldn't be the sole basis of your home loan decision. Everyone is different, which is why making your mortgage comparison to find the best home loan rates for your finances is so important.
Estimate your borrowing power:
How much can I borrow?
When looking for the most suitable mortgage for your needs, here are a few of the factors to keep in mind:
Fixed or variable interest rate?
Before you start looking for the best mortgage interest rates, decide whether you're interested in a variable or fixed interest rate. Keep in mind that the best home loan rates for your finances may not necessarily be the lowest rates available.
Variable rate home loans
Most mortgages are based on a variable interest rate that will fluctuate over time, often in line with the Reserve Bank of Australia cash rate. If rates rise, so will your mortgage repayments, but if your bank passes on a rate cut, you could find yourself paying less interest on your home loan.
Fixed rate home loans
Some mortgages allow you to lock in a low fixed interest rate for a period of time, keeping your budgeting consistent to help you plan your future repayments. While this could see you miss out on some savings if rates were to fall, you’d also be protected from higher repayments if rates were to rise.
What is the average interest rate for a home loan?
When you’re comparing home loan interest rates, finding a baseline average can help you better understand which home loans charge low or high interest.
Because mortgage rates change regularly, vary widely based on loan type, and aren’t always available to all types of borrowers (e.g. low owner-occupier home loan rates aren’t available to investors), the average of all home loan interest rates in the market rarely stays the same for very long.
One interest rate that’s commonly used in home loan comparisons is 4%, with loans at this rate or lower being generally regarded as low rate mortgages.
Finding the lowest interest rates
Once you've decided on which type of loan you would like, it's time to start comparing home loan interest rates to find the lowest mortgage rates in Australia. It’s important to keep in mind that the lowest current mortgage rates aren’t necessarily the best mortgage rates for all borrowers, as they may require borrowers to fulfil specific terms and conditions.
How large is your home loan deposit?
Many of the lowest rates on the market are available only to borrowers who can afford a large deposit, often 20% or more of the property value. This is because the higher the security deposit a borrower can afford, the less of a risk they represent to a lender.
Some loans can be applied for with a smaller deposit, such as 10% or even 5% of the property value, though these loans will likely require you to pay a higher interest rate, and as well as Lender’s Mortgage Insurance (LMI).
Are you an owner-occupier or an investor?
The interest rate on your home loan may also partially depend on whether you’re planning to live in the property you buy as an owner-occupier, or rent it out as an investor.
Due to the higher average risk of payment defaults involved, as well as government regulations, lenders generally charge higher interest rates for investor home loans than they do for owner occupier home loans.
Customising your home loan search using RateCity’s comparison tools can help you to compare mortgages that more closely match your circumstances, and determine which are the best home loan rates for your unique household.
Looking at home loan fees
Another consideration when looking for the best home loans in Australia is finding out what fees will be charged.
There are many different types of fees to be aware of when looking for the cheapest home loan for your needs. These can include:
- establishment fees;
- settlement fees;
- fees for using features such as an offset account of redraw facility, and;
- fees associated with making extra repayments.
Unfortunately, this doesn’t cover the whole range of fees out there that are charged by different lenders, so when looking for the best mortgage for your needs, it’s essential to thoroughly research potential loan options and enquire about what fees will be charged.
It is possible to find cheap home loans that charge relatively little to no fees, so don’t feel obliged to pay thousands in unnecessary costs.
You can also often negotiate with a lender when refinancing or taking out a new loan to waive some of the upfront costs – if a lender wants your business, they may be willing to offer a discount to keep you happy.
For this reason, the best home loan rates for your needs may not necessarily be exactly what’s advertised online, but may be arranged by contacting a lender and/or a mortgage broker.
Think about home loan features
When trying to figure out what the best home loan for your needs looks like, you should also consider the impact that different features can have on your home loan.
Consider what features are most likely to help you in future, whether you want to save money on interest in the long run, or enjoy more flexible repayments.
Finding out more about home loan features can help you narrow down what will be the ideal mortgage for you.
Choosing a loan with an offset account can help you to reduce the amount of interest you pay over the lifetime of the loan.
The offset account functions as a savings or transaction account linked to your mortgage, with the money held here being taken into account when calculating the interest on your home loan.
For example, if you owe $300,000 on your home loan, and have $50,000 saved in your offset account, your interest will be calculated as if you only owed $250,000.
Are they the same thing?
Mortgage offset accounts and all in one home loans
Another feature that can help you reduce the interest charged on your home loan is the ability to make extra repayments.
By paying more onto your mortgage than your regular repayments, you can pay off your home loan faster.
By reducing the principal amount owed on your loan at the fastest rate possible, you can potentially cut thousands off your total interest bill.
If you’re concerned that paying too much towards your mortgage could leave you short of available cash to pay for unexpected expenses, you may want to consider a home loan with a redraw facility.
Once you’re ahead of your mortgage repayment schedule, you’ll be able to redraw the extra repayments you need to manage your extra costs, subject to your lender’s terms and conditions.
Some lenders allow you to make interest-only mortgage repayments for a certain period, which can offer advantages to certain people.
For example, if you're a first home buyer, you may appreciate slightly lower monthly repayments at the beginning of your loan to ease you into the routine.
Alternatively, borrowers who experience an unexpected lifestyle change, such as a partner losing their job, or unexpected medical bills, may want to drop their payments down to an interest-only level while they adjust their finances.
It’s important to keep in mind that interest-only home loan payments are only temporary, and while you’ll pay less in the short term, you’ll likely end up paying more in interest over the longer term.
Want to know more?
Home loan repayment methods
Split interest rate
One feature that may help you enjoy the best home loan rates for you is opting for a split loan – a mortgage where part of the interest is charged at a fixed rate and another part at a variable rate.
This style of mortgage is intended for borrowers who’d like to benefit from the security of a fixed interest rate, as well as the flexibility of a variable rate home loan.
When searching for a new home loan, a mortgage calculator can help you to estimate how much your monthly repayments will be, and budget accordingly.
Once you’re confident you can afford your regular repayments comfortably, you can determine whether you can also make some extra repayments along the way. The more of your loan principal you can pay off, the less you’ll likely be charged in interest over the full term of your mortgage.
Some home loans allow you to make weekly, fortnightly or monthly repayments, and this flexibility can be helpful in syncing your payments with your pay cycle. The more frequently you make repayments, the more you may be able to save on interest over the life of the loan, as many lenders calculate home loan interest charges on a daily basis.
calculate your repayments
Mortgage repayments calculator
Bank vs non-bank home loans
Some of the lowest current mortgage rates in Australia are offered by non-bank lenders, rather than the major banks. Borrowers who have never banked with this type of lender before may wonder about the advantages of taking out your mortgage with one of these lenders.
One potential advantage of a mortgage from a non-bank lender is a more competitive home loan rate that will likely stay lower than those of the big four banks, so the smaller lender can keep your business. Several of these lenders are customer-owned, and put a greater focus on customer service as a result.
Customers of smaller lenders often report being happier with the service provided to them compared to customers of the big four banks.
Still, many borrowers prefer the tried and tested security of the big four banks, which can also offer some convenient package deals for borrowers who want to keep all their financial products in the one place.
For an annual fee, customers of the big four banks can tie their transaction account, credit cards and mortgages together, and manage them all on the one banking app. This sort of convenience appeals to many borrowers, and your preference should be factored into your decision when comparing the best home loans in Australia.
First home buyer or refinancer?
The ideal mortgage for you may partially depend on whether you’re applying as a first home buyer or as a refinancer.
Certain cheap home loans are specifically structured with first home buyers in mind.
Some of these loans offer a lower introductory interest rate (aka honeymoon rate) for a length of time, before reverting to a higher home loan rate. This revert rate is often much higher than the interest rates of many other home loans on the market, and may ultimately cost more in interest over the lifetime of the loan than a mortgage without the honeymoon rate.
Checking the comparison rate of a home loan, as well as the interest rate’s terms and conditions, will give you a better idea of its overall value, as the comparison rate takes the loan's fees and revert rates into consideration.
Refinancers often effectively have larger deposits available in the form of the equity in their current property. These borrowers can use that equity to secure some of the cheapest home loan interest rates in Australia.
These low home loan interest rates are often only available to borrowers who are borrowing less than 80% of the property value (e.g. can afford a deposit of 20% or higher), which often rules out many first home buyers with smaller deposits.
How to find the best mortgage lender
If you’re feeling confident enough to begin your search for the best home loans in Australia, and want to find out how to get a home mortgage, here’s how you can get started:
- Work out how much you want to borrow
- Consider what features and benefits you want
- Compare current mortgage rates
- Calculate the estimated repayments
- Contact your preferred lenders for more info
Our Home Loan Guide can offer further information on what to consider when choosing the most suitable mortgage for your needs.
The guide takes a closer look at the different features and fees included in a mortgage, and how these can suit different types of borrowers. Whether you are a first home buyer, refinancer or investor, your needs will be slightly different, and different mortgages may be more suitable.
Once you think that you've found the right loan for you, it's time to sit down and look at the terms and conditions. There will be plenty of fine print to go through, and it's critical that you understand it as thoroughly as possible before signing up for the loan.
Make sure you look at the product disclosure statement for the loan you are interested in and make a note of any fees you will be expected to pay. This way, you can avoid unpleasant surprises further down the line!
Don't be caught unawares!
Three mistakes home buyers make
Everyone's situation is different, which is why you must put in the necessary legwork before making that all-important home loan application. While carrying out a mortgage application might seem difficult, with the right preparation and research, it could be easier than you think.
It’s important to remember that your ideal mortgage will require a combination of the right interest rate, features and fees, from the right lender, and that a mortgage that works for one person may not work as well for you.
Comparison should be an important part of your decision-making process, so make sure you take the time to understand the mortgage market and what's on offer before deciding.
By having a thorough knowledge of the loans that are on offer, from banks and non-bank lenders, you will be in a better position to choose a reasonable interest rate and avoid unnecessary fees.
*The phrase ‘some of the best’ is not a recommendation or rating of products. This page compares a range of home loans from selected providers, not all products or providers are included in the comparison. No home loan is one size fits all. The best home loan for you will not be the best home loan for someone else. As a result, it's worth getting advice on whether a product is right for you before committing.