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Why are home loans so cheap at the moment?

It’s been a long time since the average home loan rate sat in the double-digit range. The last time Australia experienced a cash rate hike was November 2010, meaning there is a generation of homeowners who have never experienced interest rate increases.

With the Reserve Bank of Australia (RBA) cutting the cash rate to a record low, interest rates on home loans have followed suit. And as lenders are encouraged to cut home loan rates in cycle with the RBA, competition has begun to heat up.

This means that more and more lenders - including the big four banks - are now slashing interest rates out-of-cycle to encourage new and refinancing home loan customers to join with them.

Some of the lowest home loan rates on the market right now include:

Note: Data accurate as of 16.04.2021.

What makes up a cheap home loan?

If you're looking for the most affordable home loan for your budget, there's a few loan features you'll want to keep in mind before you make your loan application:

  • Interest rate - One of the biggest factors of a home loan's affordability. The higher the interest rate, the more expensive your loan repayments will be. Keep in mind that the lowest interest rates in the market are typically reserved for customers who meet specific criteria, as outlined below.
  • Fees - There are a range of potential home loan fees you may be charged that contribute to the overall cost of the mortgage. This includes, ongoing fees, application fees, upfront fees, late payment fees and more.
  • Features - If you opt for a home loan with all the bells and whistles, you'll typically find the mortgage is more expensive through fees and interest. Features could include the ability to make additional repayments, a redraw facility or an offset account. It may also mean choosing a home loan package with bundled credit cards, transaction accounts and a line of credit.Keep in mind that features such as the ability to make extra repayments, or hold an offset account, might mean higher ongoing fees, but could ultimately end up saving you thousands of dollars over the life of the loan.
  • Repayment frequency - As home loan interest is compounded daily, how often you make repayments will significantly reduce not only the principal amount, but the interest you are yet to pay. For example, switching from monthly repayments to fortnightly home loan repayments may help to reduce the overall cost of the mortgage.
  • Loan term - The period of time you choose to repay the full cost of the loan also plays a role in its affordability. A typical home loan length is around 25 years. A longer loan term, such as 30-40 years, may mean your monthly repayments are smaller, but the total interest you'll pay over the life of the loan can be tens of thousands of dollars higher.

Finding a cheap home loan

When comparing home loans, you'll immediately discover that there are a multitude of loan options and repayment types. From fixed or variable, to interest-only or principal and interest, finding the cheapest home loan may depend on the loan type you choose.

However, there are a few things to keep in mind that, as a rule of thumb, make up the cheapest home loans. 

  • Owner-occupier loans

Owner-occupier home loans typically come with lower interest rates than investor home loans. Lenders claim this is because they believe there's less risk to themselves when the homeowner is living in the home, rather than renting it out. The lower the risk to the lender, the lower the interest rate. 

  • Fixed rate loans

In a low cash rate environment, lenders typically offer cheaper fixed interest rates than variable home loan interest rates. This is because the lender is betting that interest rates could fall further and reduce their variable interest rates at greater numbers. If more borrowers are locked into fixed rates when a bank is forced to cut its variable rate home loans, the banks will still maintain some profits.

Australia has been in a low cash rate environment for several years now. And while no one can predict the bottom of the market, locking in a low fixed rate now could mean you have one of the cheapest home loans despite how rates may change in the future. 

  • Principal & interest loans

Lenders also offer cheaper home loans for borrowers paying principal & interest versus interest only. This is because the loan repayments on a principal and interest mortgage are actually chipping away at the outstanding debt. If you're only paying interest, but your principal (loan amount) is untouched, your debt is also not being reduced. 

This, again, all comes back to the amount of risk to the lender. If someone on an interest-only loan suddenly cannot meet their loan repayments and defaults, and they've never paid off any of their principal, the impact on the lender is much more severe. 

  • New home loan customers

Whether you're a first home buyer or looking to refinance, lenders also typically reserve their cheapest rates for new customers. This is also called the 'loyalty tax', as home loan lenders will use cheap rates to entice new customers onto their books, while keeping existing customers on higher rates. Generally, if you want a cheaper rate from your existing lender you'll either need to call them up and demand it, or make yourself a new customer and refinance. 

  • Deposit size / loan-to-value ratio (LVR)

Another factor to consider when searching for your cheapest home loan is the loan-to-value ratio (LVR). This is the difference between the amount you're borrowing from the bank and the value of the property, generally represented as a percentage. For example, if you've saved a 10 per cent deposit for a home loan, your LVR would be 90 per cent when you purchase a property. 

Commonly, the lower the LVR, the cheaper the mortgage. This is because lenders view you as a less risky borrower if:

  1. you're a would-be buyer and have shown you can save a bigger deposit, or
  2. you're a refinancer and have built up some equity in your home.

If you're able to save up a 20 per cent deposit and have an LVR of 80 per cent, you'll also be able to avoid costly Lenders Mortgage Insurance (LMI). This is because if you have a higher LVR, you're seen to carry a greater risk. LMI is an additional insurance cost paid to the lender that helps to protect them at the risk you'll default.

How to compare cheap home loans

The best way to compare cheap home loans is to use comparison tools, such as comparison rates, comparison tables and calculators.

  • Comparison rates - Allow you to get a more realistic picture of what a home loan will cost. If you just look at the advertised interest rate against a potential loan amount, you'll be searching with a blind spot. Comparison rates also factor in any loan fees to give you a better picture of what your repayments may look like.
  • Comparison tables - There are hundreds of home loans in the Australian market. Comparison tables, such as the one on this page, can help you to compare apples with apples. By allowing you to filter down the loan amount, loan type, and any features you may want, you can best compare home loans that suit your specific budget and needs.
  • Home loan calculators - Calculators, such as mortgage repayment calculators or refinance calculators, can help give you a better picture of how a mortgage may fit into your financial situation. Once you've narrowed down your shortlist of home loans, putting their comparison rates into a calculator can show you what the potential loan repayments will look like, and if that fits into your budget.

How do I find my bank’s cheapest home loan rate?

If you’re set on banking with a specific lender, you may be curious to know the current lowest home loan rate it’s offering to customers. This information can be useful for refinancers hoping to talk their way to a lower interest rate, or just as a jumping off point in your research.

Here’s how to find the cheapest home loan rate offered by a bank on the RateCity database:

  1. Go to the comparison table at the top of this page, click ‘More filters’
  2. Scroll until you see lender details, enter the name of your lender
  3. Click apply filter at the top right hand corner of the box
  4. Ensure that under ‘Include all products’ you press the YES option.
  5. Now you can view a range of the lender’s home loan options to see the most competitive rates it may offer.

Can I get a cheap home loan if I have a bad credit history?

Another aspect that may play into the interest rate you're offered is your credit score and credit history. Cheap home loans for borrowers with bad credit history can be challenging to find. This is again all about the risk to the lender. Borrowers with excellent credit will be seen as a safer option, and more likely be rewarded with lower home loan rates. 

If you find yourself in this situation, spend some time building up your credit history, or look at lenders who specialise in non-conforming loans or low-doc loans.

If you spend some time comparing the options, you may find something that fits your budget and saves you money. Beware that you will often be charged a higher interest rate as you will be considered a risky borrower by the lending institution.

If you're not sure if you'll qualify for one of the lower rate home loans on the market, it may be worth reaching out to a mortgage broker for additional help and  information.

Frequently asked questions

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. 

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.

How do I apply for a home improvement loan?

When you want to renovate your home, you may need to take out a loan to cover the costs. You could apply for a home improvement loan, which is a personal loan that you use to cover the costs of your home renovations. There is no difference between applying for this type of home improvement loan and applying for a standard personal loan. It would be best to check and compare the features, fees and details of the loan before applying. 

Besides taking out a home improvement loan, you could also:

  1. Use the equity in your house: Equity is the difference between your property’s value and the amount you still owe on your home loan. You may be able to access this equity by refinancing your home loan and then using it to finance your home improvement.  Speak with your lender or a mortgage broker about accessing your equity.
  2. Utilise the redraw facility of your home loan: Check whether the existing home loan has a redraw facility. A redraw facility allows you to access additional funds you’ve repaid into your home loan. Some lenders offer this on variable rate home loans but not on fixed. If this option is available to you, contact your lender to discuss how to access it.
  3. Apply for a construction loan: A construction loan is typically used when constructing a new property but can also be used as a home renovation loan. You may find that a construction loan is a suitable option as it enables you to draw funds as your renovation project progresses. You can compare construction home loans online or speak to a mortgage broker about taking out such a loan.
  4. Look into government grants: Check whether there are any government grants offered when you need the funds and whether you qualify. Initiatives like the HomeBuilder Grant were offered by the Federal Government for a limited period until April 2021. They could help fund your renovations either in full or just partially.  

How do you determine which home loan rates/products I’m shown?

When you check your home loan rate, you’ll supply some basic information about your current loan, including the amount owing on your mortgage and your current interest rate.

We’ll compare this information to the home loan options in the RateCity database and show you which home loan products you may be eligible to apply for.


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.

Can I take a personal loan after a home loan?

Are you struggling to pay the deposit for your dream home? A personal loan can help you pay the deposit. The question that may arise in your mind is can I take a home loan after a personal loan, or can you take a personal loan at the same time as a home loan, as it is. The answer is that, yes, provided you can meet the general eligibility criteria for both a personal loan and a home loan, your application should be approved. Those eligibility criteria may include:

  • Higher-income to show repayment capability for both the loans
  • Clear credit history with no delays in bill payments or defaults on debts
  • Zero or minimal current outstanding debt
  • Some amount of savings
  • Proven rent history will be positively perceived by the lenders

A personal loan after or during a home loan may impact serviceability, however, as the numbers can seriously add up. Every loan you avail of increases your monthly installments and the amount you use to repay the personal loan will be considered to lower the money available for the repayment of your home loan.

As to whether you can get a personal loan after your home loan, the answer is a very likely "yes", though it does come with a caveat: as long as you can show sufficient income to repay both the loans on time, you should be able to get that personal loan approved. A personal loan can also help to improve your credit score showing financial discipline and responsibility, which may benefit you with more favorable terms for your home 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.

How do I refinance my home loan?

Refinancing your home loan can involve a bit of paperwork but if you are moving on to a lower rate, it can save you thousands of dollars in the long-run. The first step is finding another loan on the market that you think will save you money over time or offer features that your current loan does not have. Once you have selected a couple of loans you are interested in, compare them with your current loan to see if you will save money in the long term on interest rates and fees. Remember to factor in any break fees and set up fees when assessing the cost of switching.

Once you have decided on a new loan it is simply a matter of contacting your existing and future lender to get the new loan set up. Beware that some lenders will revert your loan back to a 25 or 30 year term when you refinance which may mean initial lower repayments but may cost you more in the long run.

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. 

When does Commonwealth Bank charge an early exit fee?

When you take out a fixed interest home loan with the Commonwealth Bank, you’re able to lock the interest for a particular period. If the rates change during this period, your repayments remain unchanged. If you break the loan during the fixed interest period, you’ll have to pay the Commonwealth Bank home loan early exit fee and an administrative fee.

The Early Repayment Adjustment (ERA) and Administrative fees are applicable in the following instances:

  • If you switch your loan from fixed interest to variable rate
  • When you apply for a top-up home loan
  • If you repay over and above the annual threshold limit, which is $10,000 per year during the fixed interest period
  • When you prepay the entire outstanding loan balance before the end of the fixed interest duration.

The fee calculation depends on the interest rates, the amount you’ve repaid and the loan size. You can contact the lender to understand more about what you may have to pay. 

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.

What is the Home Loan Rate Promise?

The Home Loan Rate Promise is RateCity putting its money where its mouth is. We believe that too many Australians are paying too much for their home loans. We’re so confident we can help Aussies save money, if we can’t beat your current rate, we’ll give you a $100 gift card.*

There are two reasons it pays to check your rate with the Home Loan Rate Promise:

  • You can find out how much you could save on your home loan by switching to a loan with a lower interest rate
  • If we can’t beat your current rate, you can claim a $100 gift card with our Home Loan Rate Promise*

What is a fixed home loan?

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.

What is a comparison rate?

The comparison rate is a more inclusive way of comparing home loans that factors in not only on the interest rate but also the majority of upfront and ongoing charges that add to the total cost of a home loan.

The rate is calculated using an industry-wide formula based on a $150,000 loan over a 25-year period and includes things like revert rates after an introductory or fixed rate period, application fees and monthly account keeping fees.

In Australia, all lenders are required by law to publish the comparison rate alongside their advertised rate so people can compare products easily.

Can first home buyers apply for an ING home loan?

First home buyers can apply for an ING home loan, but first, they need to select the most suitable home loan product and calculate the initial deposit on their home loan. 

First-time buyers can also use ING’s online tool to estimate the amount they can borrow. ING offers home loan applicants a free property report to look up property value estimates. 

First home loan applicants struggling to understand the terms used may consider looking up ING’s first home buyer guide. Once the home buyer is ready to apply for the loan, they can complete an online application or call ING at 1800 100 258 during regular business hours.

Is a home equity loan secured or unsecured?

Home equity is the difference between its current market price and the outstanding balance on the mortgage loan. The amount you can borrow against the equity in your property is known as a home equity loan.

A home equity loan is secured against your property. It means the lender can recoup your property if you default on the repayments. A secured home equity loan is available at a competitive rate of interest and may be repaid over the long-term. Although a home equity loan is secured, lenders will assess your income, expenses, and other liabilities before approving your application. You’ll also want  a good credit score to qualify for a home equity loan. 

How do I apply for Westpac’s first home buyer loan?

If you’re a first home buyer looking to apply for a home loan with Westpac, they offer an online home loan application. They suggest the application can be completed in about 20 minutes. Based on the information you provide, Westpac will advise you the amount you can borrow and the costs associated with any possible home loan. 

You can use Westpac’s online mortgage calculators to estimate your borrowing power. You can also work out the time it might take to save up for the deposit, and the size of your home loan repayments

When applying for a home loan with Westpac, you’re assigned a home finance manager who can address your concerns and provide information. The manager will also offer guidance on any government grants you may be eligible for. 

How does ANZ calculate early repayment costs?

If you have a fixed interest home loan, you’ll pay ANZ home loan early exit fees for partial or full repayment of the loan amount before the end of the fixed interest rate duration. These fees are also payable if you switch to another variable or fixed-rate loan.

The ANZ mortgage early exit fees can vary and you can get an estimate from the lender before you decide to prepay the loan. However, the exact early repayment cost can be determined when you prepay the loan.

The early exit fees are calculated after considering factors like the prepayment amount, the period left before the fixed-rate duration ends, and the change in the market rates since the beginning of the fixed-rate period. The early exit fees may not be charged if you’re paying off a smaller amount. You can check with ANZ to see how much you’ll have to pay.

Why does Westpac charge an early termination fee for home loans?

The Westpac home loan early termination fee or break cost is applicable if you have a fixed rate home loan and repay part of or the whole outstanding amount before the fixed period ends. If you’re switching between products before the fixed period ends, you’ll pay a switching break cost and an administrative fee. 

The Westpac home loan early termination fee may not apply if you repay an amount below the prepayment threshold. The prepayment threshold is the amount Westpac allows you to repay during the fixed period outside your regular repayments.

Westpac charges this fee because when you take out a home loan, the bank borrows the funds with wholesale rates available to banks and lenders. Westpac will then work out your interest rate based on you making regular repayments for a fixed period. If you repay before this period ends, the lender may incur a loss if there is any change in the wholesale rate of interest.

What are the features of home loans for expats from Westpac?

If you’re an Australian citizen living and working abroad, you can borrow to buy a property in Australia. With a Westpac non-resident home loan, you can borrow up to 80 per cent of the property value to purchase a property whilst living overseas. The minimum loan amount for these loans is $25,000, with a maximum loan term of 30 years.

The interest rates and other fees for Westpac non-resident home loans are the same as regular home loans offered to borrowers living in Australia. You’ll have to submit proof of income, six-month bank statements, an employment letter, and your last two payslips. You may also be required to submit a copy of your passport and visa that shows you’re allowed to live and work abroad.