Much like death and taxes, paying interest on a loan is inevitable.

 However, with the Reserve Bank of Australia’s cash rate having reached historic lows, the lowest interest rates in Australia have also plunged to new depths. This means that homeowners may be able to nab a mortgage interest rate under 2 per cent.

Compare home loans with interest rates under 2%

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Comparison Rate*
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1.89%

Variable

1.98%

Reduce Home Loans

$1.3k

Redraw facility
Offset Account
Borrow up to 60%
Extra Repayments
Interest Only
Owner Occupied

4.38

/ 5
More details

1.99%

Variable

1.99%

Pacific Mortgage Group

$1.3k

Redraw facility
Offset Account
Borrow up to 60%
Extra Repayments
Interest Only
Owner Occupied

4.75

/ 5
More details

1.99%

Fixed - 1 year

2.36%

Freedom Lend

$1.3k

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

3.43

/ 5
More details

1.99%

Fixed - 1 year

2.37%

Pacific Mortgage Group

$1.3k

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

3.27

/ 5
More details

1.98%

Fixed - 1 year

2.38%

Homestar Finance

$1.3k

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

3.46

/ 5
More details

1.98%

Fixed - 1 year

2.41%

Homestar Finance

$1.3k

Redraw facility
Offset Account
Borrow up to 70%
Extra Repayments
Interest Only
Owner Occupied

3.46

/ 5
More details

1.90%

Fixed - 1 year

2.42%

Reduce Home Loans

$1.3k

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

3.69

/ 5
More details

1.99%

Fixed - 2 years

2.93%

Illawarra Credit Union

$1.3k

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

2.96

/ 5
More details

1.99%

Fixed - 3 years

3.10%

Bank First

$1.3k

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

3.97

/ 5
More details

1.99%

Fixed - 2 years

3.25%

Community First Credit Union

$1.3k

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

2.64

/ 5
More details

1.99%

Fixed - 3 years

3.34%

Hume Bank

$1.3k

Redraw facility
Offset Account
Borrow up to 90%
Extra Repayments
Interest Only
Owner Occupied

3.03

/ 5
More details

1.99%

Fixed - 1 year

3.52%

Greater Bank

$1.3k

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

1.65

/ 5
More details

1.99%

Fixed - 1 year

3.70%

P&N Bank

$1.3k

Redraw facility
Offset Account
Borrow up to 79.9999%
Extra Repayments
Interest Only
Owner Occupied

1.00

/ 5
More details

1.99%

Fixed - 3 years

3.71%

Hume Bank

$1.3k

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

2.61

/ 5
More details

1.99%

Fixed - 1 year

3.74%

Greater Bank

$1.3k

Redraw facility
Offset Account
Borrow up to 90%
Extra Repayments
Interest Only
Owner Occupied

1.96

/ 5
More details

Learn more about home loans

Why are low home loan rates important?

There are two types of home loan repayments: principal and interest or interest-only. Regardless of the type you choose, you’ll always end up paying interest to the lender for the privilege of having a loan with them. This, as well as fees and other ongoing costs, is how a lender makes money. 

A low interest rate, while not the only important cost of a home loan, is essentially the biggest determining factor for how much you’ll pay on an ongoing basis. Typically, the higher the interest rate, the higher your mortgage repayments will be. This is why it can literally pay to have a low home loan rate.

However, it’s not just your interest rate that determines your ongoing mortgage costs. It may also be helpful to keep fees and other ongoing costs down too. Take a look at the product disclosure statement for any home loan to get a good breakdown of these potential costs.

Why do we have home loan rates lower than 2 per cent?

Long-time homeowners may remember when the early ‘90s recession made it common for mortgage rates to sit around 15 per cent. So how do we have home loan rates under 2 per cent?

This is because home loan interest rates are determined by both the Reserve Bank of Australia’s cash rate, and the lender. Meaning, home loan rates are influenced by the Australian economy and subject to fluctuations in the market.

The Reserve Bank of Australia (RBA) board meet every first Tuesday of the month (besides January) to set the cash rate. There, they will make the decision to raise, lower or hold the cash rate, depending on how the Australian economy is looking.

The cash rate has fallen from 17.50 per cent in January 1990 to nearly zero per cent in 2020. This has created a perfect environment for home loan interest rates to plummet to historic lows.

The theory is that a cash rate cut can help in a few ways:

  • To reduce the biggest bill of most Australian households – their mortgage. Borrowers have more money to inject back into the economy.
  • To allow businesses to borrow money more cheaply to expand or hire more staff, helping to stimulate the economy.

Hiking the cash rate, however, is not necessarily a bad thing. It can be a necessity to prevent an economy from hyperinflation if it is growing at too rapid a rate.

Regardless of how the RBA acts, lenders will typically follow suit, hiking or dropping home loan rates. For variable home loan rates, this change can in many cases be immediate for your repayments.

For fixed home loan rates, you may be saved (for the length of your fixed term) from an increase in your repayments if the cash rate is hiked or miss out on a rate cut for said term if the cash rate is cut. Once you reach the end of your fixed term, you’ll find that lenders have moved fixed rates depending on how the cash rate has fluctuated over said term.

How much money could a low home loan rate save you?

Whether you wait for your bank to cut your mortgage rate, or you refinance to a lower rate loan, seeking out those savings may save you big time on your mortgage repayments.

For example, on a 30-year $500,000 home loan, the difference between an interest rate of 3 per cent versus 1.99 per cent amounts to $262 a month. This can make a serious difference in the budget of a typical Australian household and could potentially be put towards groceries or energy bills.

Different repayments on a $500,000 home loan

  Interest rate Monthly repayments Loan repayments over one year
Loan A 1.99% $2,108 $25,296
Loan B 3.00% $1,846 $22,152
Difference -1.01% $262 $3,114

Note: Based on $500k home loan over 30-years. Calculations do not factor in fees.

However, there are instances where a loan with a higher rate will cost you less over the life of the loan. This is due to the other determining factor of your home loan cost: the fees. A low-rate home loan with high upfront and annual fees may cost you more over time than a home loan with zero upfront and annual fees.

This is why it is crucial to compare not only the interest rate of a home loan, but the potential fees and ongoing costs as well.

How to get a home loan rate under 2 per cent

If you’re concerned your lender isn’t offering you the most competitive deal out there, or you’ve seen a much lower interest rate advertised and are considering refinancing, here is what you need to know to try and nab that lower rate.

  1. Find your current rate. To find your current home loan rate, simply download a copy of your latest mortgage statement. This will show you the current interest rate, as well as current balance left to pay. Once you have your interest rate, you can begin the comparison process.
  2. See what your lender is offering new customers. It can be much easier to ask for a lower rate than to refinance your mortgage. Simply hop online to a comparison site or your lender’s website and look at what low rates are being offered to new customers. Lenders will typically offer more competitive rates to new customers to entice them onto their books, while you’re left paying higher rates. This is called the ‘loyalty tax’ and is common across many, if not all, mortgage lenders.
  3. See what other lenders are offering. Your next step will be to use comparison tables, like the one on this page, to find what interest rates competitors are offering new customers. Keep an eye out for potential fees and costs, and use a mortgage calculator to make a short list of more affordable options to use in your negotiation, or to potentially refinance to.
  4. Call your lender and ask for a rate cut. Let them know you’re aware what new customers are being offered and demand that rate. If that doesn’t work, advise that other lenders are offering better rates and you’ll leave your lender if they can’t reduce your repayments. If they still don’t budge, threaten to leave (but only if you’re not locked into a fixed rate or still tied to your mortgage due to another condition, as you may face high fees and penalties). You’d be surprised how far you can get by saying three simple words: “mortgage discharge form”.
  5. Consider refinancing. If your lender absolutely refuses to offer you a lower rate, it may be time to consider looking at your competitor short list and refinancing. Sometimes giving yourself a rate cut through refinancing is the easiest way to get a rate cut. After all, if your bank is charging you more for your loyalty, why stay loyal to begin with?

Frequently asked questions

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.

What fees are there when buying a house?

Buying a home comes with ‘hidden fees’ that should be factored in when considering how much the total cost of your new home will be. These can include stamp duty, title registration costs, building inspection fees, loan establishment fee, lenders mortgage insurance (LMI), legal fees and bank valuation costs.

Tip: you can calculate your stamp duty costs as well as LMI in Rate City mortgage repayments calculator

Some of these fees can be taken out of the mix, such as LMI, if you have a big enough deposit or by asking your lender to waive establishment fees for your loan. Even so, fees can run into the thousands of dollars on top of the purchase price.

Keep this in mind when deciding if you are ready to make the move in to the property market.

How can I avoid mortgage insurance?

Lenders mortgage insurance (LMI) can be avoided by having a substantial deposit saved up before you apply for a loan, usually around 20 per cent or more (or a LVR of 80 per cent or less). This amount needs to be considered genuine savings by your lender so it has to have been in your account for three months rather than a lump sum that has just been deposited.

Some lenders may even require a six months saving history so the best way to ensure you don’t end up paying LMI is to plan ahead for your home loan and save regularly.

Tip: You can use RateCity mortgage repayment calculator to calculate your LMI based on your borrowing profile

What is mortgage stress?

Mortgage stress is when you don’t have enough income to comfortably meet your monthly mortgage repayments and maintain your lifestyle. Many experts believe that mortgage stress starts when you are spending 30 per cent or more of your pre-tax income on mortgage repayments.

Mortgage stress can lead to people defaulting on their loans which can have serious long term repercussions.

The best way to avoid mortgage stress is to include at least a 2 – 3 per cent buffer in your estimated monthly repayments. If you could still make your monthly repayments comfortably at a rate of up to 8 or 9 per cent then you should be in good position to meet your obligations. If you think that a rate rise would leave you at a risk of defaulting on your loan, consider borrowing less money.

If you do find yourself in mortgage stress, talk to your bank about ways to potentially reduce your mortgage burden. Contacting a financial counsellor can also be a good idea. You can locate a free counselling service in your state by calling the national hotline: 1800 007 007 or visiting www.financialcounsellingaustralia.org.au.

What is Lender's Mortgage Insurance (LMI)

Lender’s Mortgage Insurance (LMI) is an insurance policy, which protects your bank if you default on the loan (i.e. stop paying your loan). While the bank takes out the policy, you pay the premium. Generally you can ‘capitalise’ the premium – meaning that instead of paying it upfront in one hit, you roll it into the total amount you owe, and it becomes part of your regular mortgage repayments.

This additional cost is typically required when you have less than 20 per cent savings, or a loan with an LVR of 80 per cent or higher, and it can run into thousands of dollars. The policy is not transferrable, so if you sell and buy a new house with less than 20 per cent equity, then you’ll be required to foot the bill again, even if you borrow with the same lender.

Some lenders, such as the Commonwealth Bank, charge customers with a small deposit a Low Deposit Premium or LDP instead of LMI. The cost of the premium is included in your loan so you pay it off over time.

What is a low-deposit home loan?

A low-deposit home loan is a mortgage where you need to borrow more than 80 per cent of the purchase price – in other words, your deposit is less than 20 per cent of the purchase price.

For example, if you want to buy a $500,000 property, you’ll need a low-deposit home loan if your deposit is less than $100,000 and therefore you need to borrow more than $400,000.

As a general rule, you’ll need to pay LMI (lender’s mortgage insurance) if you take out a low-deposit home loan. You can use this LMI calculator to estimate your LMI payment.

Does Australia have no-deposit home loans?

Australia no longer has no-deposit home loans – or 100 per cent home loans as they’re also known – because they’re regarded as too risky.

However, some lenders allow some borrowers to take out mortgages with a 5 per cent deposit.

Another option is to source a deposit from elsewhere – either by using a parental guarantee or by drawing out equity from another property.

How do I take out a low-deposit home loan?

If you want to take out a low-deposit home loan, it might be a good idea to consult a mortgage broker who can give you professional financial advice and organise the mortgage for you.

Another way to take out a low-deposit home loan is to do your own research with a comparison website like RateCity. Once you’ve identified your preferred mortgage, you can apply through RateCity or go direct to the lender.

How do I calculate monthly mortgage repayments?

Work out your mortgage repayments using a home loan calculator that takes into account your deposit size, property value and interest rate. This is divided by the loan term you choose (for example, there are 360 months in a 30-year mortgage) to determine the monthly repayments over this time frame.

Over the course of your loan, your monthly repayment amount will be affected by changes to your interest rate, plus any circumstances where you opt to pay interest-only for a period of time, instead of principal and interest.

How do I save for a mortgage when renting?

Saving for a deposit to secure a mortgage when renting is challenging but it can be done with time and patience. If you’re on a single income it can be even more difficult but this shouldn’t discourage you from buying your own home.

To save for a deposit, plan out a monthly budget and put it in a prominent position so it acts as a daily reminder of your ultimate goal. In your budget, set aside an amount of money each week to go into a savings account so you can start building up the ‘0’s’ in your account.  There are a range of online savings accounts that offer reasonable interest, although some will only off you high rates for the first few months so be wary of this.

If you aren’t able to save a large deposit, you can consider ways of entering the market that require small or no deposits. This can include getting a parent to act as guarantor for your home loan or entering the market with an interest only loan.

What are the pros and cons of no-deposit home loans?

It’s no longer possible to get a no-deposit home loan in Australia. In some circumstances, you might be able to take out a mortgage with a 5 per cent deposit – but before you do so, it’s important to weigh up the pros and cons.

The big advantage of borrowing 95 per cent (also known as a 95 per cent home loan) is that you get to buy your property sooner. That may be particularly important if you plan to purchase in a rising market, where prices are increasing faster than you can accumulate savings.

But 95 per cent home loans also have disadvantages. First, the 95 per cent home loan market is relatively small, so you’ll have fewer options to choose from. Second, you’ll probably have to pay LMI (lender’s mortgage insurance). Third, you’ll probably be charged a higher interest rate. Fourth, the more you borrow, the more you’ll ultimately have to pay in interest. Fifth, if your property declines in value, your mortgage might end up being worth more than your home.

How do I know if I have to pay LMI?

Each lender has its own policies, but as a general rule you will have to pay lender’s mortgage insurance (LMI) if your loan-to-value ratio (LVR) exceeds 80 per cent. This applies whether you’re taking out a new home loan or you’re refinancing.

If you’re looking to buy a property, you can use this LMI calculator to work out how much you’re likely to be charged in LMI.

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.

What is a standard variable rate (SVR)?

The standard variable rate (SVR) is the interest rate a lender applies to their standard home loan. It is a variable interest rate which is normally used as a benchmark from which they price their other variable rate home loan products.

A standard variable rate home loan typically includes most, if not all the features the lender has on offer, such as an offset account, but it often comes with a higher interest rate attached than their most ‘basic’ product on offer (usually referred to as their basic variable rate mortgage).

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.

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 the difference between a fixed rate and variable rate?

A variable rate can fluctuate over the life of a loan as determined by your lender. While the rate is broadly reflective of market conditions, including the Reserve Bank’s cash rate, it is by no means the sole determining factor in your bank’s decision-making process.

A fixed rate is one which is set for a period of time, regardless of market fluctuations. Fixed rates can be as short as one year or as long as 15 years however after this time it will revert to a variable rate, unless you negotiate with your bank to enter into another fixed term agreement

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 however fixed rates do offer customers a level of security by knowing exactly how much they need to set aside each month.

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.