When you’re comparing home loan interest rates, it can be hard to work out which are the good rates, let alone the best rates. Finding an average home loan interest rate can be tricky, as banks and mortgage lenders frequently update their home loan offers. That said, a common benchmark is to look for interest rates under 3 per cent if you want to minimise the interest charges on your home loan.

What are the benefits of an interest rate under 3 per cent?

The lower the interest rate on your home loan, the less your mortgage payments are likely to cost. Cheaper home loan payments can save you money from month to month, and allow you to pay less in total interest on your home loan overall.

For example, here are the estimated costs of a home loan for $500,000, paid in monthly instalments over 30 years at one of three different interest rates:

 Interest rate Monthly repayment  Total cost after 30 years 
3.50 per cent  $2245  $808,280 
3.00 per cent  $2108  $758,887 
2.50 per cent  $1976  $711,218

Example for illustrative purposes only. Does not include fees or changes to the interest rate over time.

In this hypothetical example, a home loan with an interest rate of 3 per cent means you can pay less from month to month, and potentially save tens of thousands of dollars over the long term.

Even if you already have a home loan, refinancing to a loan with an interest rate of 3 per cent or less can make a big difference. The lower minimum repayments can relieve some pressure on your household budget, but if you can afford to keep making your original repayments, you could potentially pay off your home sooner and save even more in long term interest charges.

For example, using the same assumptions as the previous example, if you had a mortgage interest rate of 3.50 per cent, and refinanced to a rate of 3.00 per cent, your monthly repayment would be reduced from $2245 to $2108. But if you kept paying $2245 each month, the extra $137 per month would be added to your mortgage. This could reduce the mortgage loan term from 30 years to just over 27 years, and you’d pay $731,632 on your loan in total – that’s a long-term saving of over $76,000.

Will my interest rate stay under 3 per cent?

Just because a mortgage currently has an interest rate of 3 per cent or less, this rate isn’t guaranteed to stay that low forever.

Many home loans have variable interest rates, where your lender can choose to increase or decrease the amount of interest you’re charged on your mortgage payments. Your lender may choose to raise or lower its variable interest rates based on changes to the national cash rate from the Reserve Bank of Australia (RBA), or other economic factors. 

If your lender chooses to slash its interest rates, you could find yourself paying less for your home loan. But if your lender decides to hikes its rates, you may find yourself having to budget for higher mortgage payments.

If you choose a mortgage with a fixed interest rate that’s under 3 per cent, you’ll pay the same rate of interest on your home loan for the duration of the fixed rate period. This can keep your mortgage payments consistent for a limited time, letting you enjoy simpler budgeting and protection from surprise rate hikes.

On the other hand, fixing your interest rate can mean missing out on potential interest savings if your lender was to cut its variable rates – you’d have to keep making the same repayments for the rest of the fixed rate period. Plus, if you wanted to refinance your mortgage with another lender, you’d need to pay hefty break fees to do so during the fixed rate period.

Will I qualify for rates under 3 per cent?

Lenders often offer their lowest interest rates to the “safest” borrowers, who have higher than average incomes and can secure their loans with larger than average deposits or equity in an existing property. This can make getting an interest rate under 3 per cent a challenge, especially if you’re a first home buyer.

Additionally, lenders often consider certain types of mortgages to be riskier than others, and charge higher interest rates for these loans. For example, if you apply for an investment mortgage with interest-only repayments, you’re less likely to be offed an interest rate under 3 percent than a borrower applying as an owner-occupier and paying principal and interest.

Before you fill out an application form for a home loan with an interest rate under 3 per cent, have a read through the loan’s eligibility criteria, as well as its terms and conditions. Compare the loan requirements to your financial situation to work out if your application is likely to be approved. If you’re not sure, a mortgage broker may be able to help you.

Should I only look at loans under 3 per cent?

Just because a home loan has an interest rate of less than 3 per cent, that’s no guarantee it will be a good choice for you and your financial circumstances.

The lower a home loan’s interest rate, the less likely it is to come with special home loan features and benefits, such as the option to make extra repayments, a redraw facility, or an offset account. The flexibility offered by these features (and others) can sometimes mean a home loan with a higher interest rate actually provides more value than a loan with a lower rate. However, depending on your circumstances, a “no frills” mortgage with a low rate could offer better value for you.

Remember, even if you can’t get an interest rate under 3 per cent when you first apply for a home loan, you may be able to refinance onto a lower rate after a few years.

Who can help me get a home loan with an interest rate of 3 per cent?

If you’re not sure if a low-rate home loan will be right for your financial situation, you could consider contacting a mortgage broker.

These home loan experts can help you understand the home loan market, and work out which home loans may most closely match your needs. Even if it turns out you’re unlikely to be eligible for a home loan with an interest rate of under 3 per cent, the broker can point you in the direction of a mortgage that should still suit your household budget. 

Mortgage brokers can take you through the pros and cons of different home loans with interest rates of 3 per cent or less from different lenders, and may even be able to tell you about exclusive discount offers that aren’t normally advertised. They can also take you through the paperwork, manage the application process for you, and even negotiate with the lender on your behalf to help you get an even better deal.