The cheapest home loans*
Everybody looking for a home loan wants to save money but doing so isn’t as simple as it might seem at first. To find the cheapest home loans you will need to understand the ways in which different loans work.
Identifying the cheapest home loans
To find one of the cheapest home loans for you, you will need to consider several different aspects of those available. Sometimes a loan offering low interest rates will entail high fees, meaning that you would be paying more overall than for a loan with a higher rate. Sometimes paying off a loan more quickly will mean spending less overall, even if the interest rate is higher.
How your personal circumstances affect what is cheapest
Whenever you take out a loan you need to think carefully about your personal circumstances. This isn’t just about avoiding financial difficulties; it’s about saving money. For instance, your income will affect the amount of risk you can afford to take, and as a rule higher-risk options are cheaper. You will also need to prioritise between lower monthly payments and a lower overall cost.
Low interest rates
The first thing people look for when comparing the coast of loans is the basic interest rate. The cheapest rates tend to be on variable rate loans but these will not necessarily stay cheap – they could rise if the national interest rate rises. Finding a low interest rate is more important if you expect to pay off the loan over a longer period of time. If you plan to pay it off over a shorter term, the interest rate should be lower in your scale of priorities when you’re working out which loan is cheapest for you.
Most home loans include fees that you will need to consider when working out the overall cost. These include upfront arrangement fees and ongoing administration fees, which are often charged on an annual basis. Sometimes cashback is available when you are accepted for a loan, which will reduce your costs, but you must always make sure your lender tells you clearly what fees apply.
The loan period
Many lenders will try to lock you into a specific loan period when offering you what looks like a cheap deal. If you would be capable of paying back the loan more quickly (without placing yourself at financial risk) then this can be a problem. It effectively makes the loan more expensive because even if the monthly charges are lower you’ll be paying interest over more months, and this will add up.
Money saving features
Many loans offer additional features that can save you money if you know what you’re doing. An offset account, for instance, can enable you to reduce the overall amount of interest you pay on your loan. The option to make additional payments at no charge means you may be able to save money by paying the loan off more quickly, and loan portability means you won’t be hit by extra charges if you move house before the loan period ends.
* The phrase ‘one of the cheapest’ 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. As a result, it's worth getting advice on whether a product is right for you before committing.