Home loan interest rates are often the biggest cost-consideration of buying a home in Australia. When comparing home loans, finding a low rate should be one of your priorities, as it could save you thousands of dollars over the life of your loan.
In this guide you will learn:
- How to find the lowest home loan rates on the market
- The difference between variable, fixed and split interest rates
- Pros and cons of interest-only loans vs principal and interest loans
- How to compare home loan rates
- What the difference is between the comparison rate and the advertised rate
While a low interest rate is important, it’s not everything. Borrowers may also consider the features, suitability and fees of each home loan when making a decision.
Finding the lowest home loan interest rates
The key to finding the lowest home loan interest is to simply shop around and compare all the options on the market. There are several ways to compare home loan interest rates, and you can look at the following factors:
Comparison sites that collate home loan data
This is a good way to get a high-level idea of how much interest you can expect to pay. Keep in mind that many comparison sites do not include the products of all lenders.
Use a mortgage broker
Mortgage brokers are intermediaries between the banks and borrowers. A good mortgage broker will:
- Offer expert advice on what type of home loan is right for you.
- Shop around lenders for you to make sure you get a good interest rate.
- Help you with your home loan application and submit it to the bank.
Mortgage brokers are usually paid via commission from the lender when they arrange a loan. While this means the service is usually completely free for customers, it also means that mortgage brokers may push certain financial products or lenders who offer higher commissions.
Visit each lender’s website
If there are certain lenders you’d like to use, visiting each lender's website, checking out their rates and fees, and gathering information on your options is a good start. This will give you an in-depth idea of how much a home loan will cost with each lender.
Home loan interest rates comparison
| Bank | Product | Fixed period (years) | Interest rate (%) | Comparison rate (%) | Monthly repayment example ($) |
|---|---|---|---|---|---|
ANZ | ANZ fixed home loan | 1 | 2.54 | 4.27 | $2,466 |
CommBank | Commbank fixed home loan | 1 | 2.44 | 4.50 | $2,533 |
Westpac | Westpac fixed home loan | 1 | 2.49 | 4.52 | $2,539 |
NAB | NAB Tailored Home Loan | 1 | 2.49 | 4.46 | $2,522 |
Macquarie Bank | Macquarie fixed | 1 | 2.39 | 2.85 | $2,068 |
Bendigo Bank | 1 year basic | 1 | 2.34 | 3.13 | $2,143 |
Suncorp Bank | Suncorp fixed | 1 | 2.29 | 3.32 | $2,195 |
Ubank | 1 year fixed | 1 | 2.29 | 3.12 | $2,141 |
ING | Orange | 1 | 2.19 | 3.95 | $2,373 |
Home loan interest rate vs comparison rate
Several lenders in Australia offer loans that have low interest rates and high fees, so the interest rate alone won’t always reflect the true cost of the loan. There are two important numbers to look at when comparing home loans:
- The interest rate or advertised rate is the amount that lenders charge you in interest for borrowing money. Does not include fees charged by the bank.
- The comparison rate is the interest rate charged by the lender plus fees expressed as a percentage. This reflects the true cost of the loan.
Variable interest rate vs fixed interest rate
There are two main types of interest rates offered by lenders: fixed and variable rates. Each type of rate has different pros and cons and will affect your mortgage repayment amounts, loan flexibility and total interest payable in different ways.
Variable interest rate home loans
Variable-rate home loan interest rates are based on the market. If the cost of lending increases for lenders for whatever reason variable rates will increase. However, if the cost of lending decreases your variable interest rate may decrease.
Variable Rate Home Loan
PROS
- Variable interest rates will decrease if market rates decrease.
- Offset accounts are usually available.
- Make extra repayments at no cost.
- Changing loans may cost less.
- May be possible to redraw payments made in advance.
CONS
- Variable interest rates will increase if market rates increase.
- Because rates go up and down your repayment amounts will not be fixed. This can make it hard to budget.
Fixed interest rate home loans
Fixed-rate home loans have the same interest rate for whatever the fixed period is - this is usually one to five years but can be longer. After the fixed period ends your loan will automatically revert to a variable rate unless you enter another fixed-rate contract with your lender.
Fixed Rate Home Loan
PROS
- Your interest rate will not change during the fixed period.
- Repayments will stay the same during the fixed period.
CONS
- Less flexibility than variable home loan rates. You may be charged to make extra repayments and you may not be able to redraw payments in advance.
- If you want to exit the loan early you may have to pay early exit fees.
- If market interest rates decrease you may miss out on savings.
Split rate home loans
It’s possible to have a portion of your home loan on a fixed interest rate and the rest on a variable rate - this is known as a split rate home loan.
This option can provide some repayment certainty and protection against rising interest rates, while maintaining some certainty over repayments through the fixed-rate portion of the home loan.
Home loan interest rate types comparison
| Rate type | Description | Pros | Cons |
|---|---|---|---|
Fixed | Interest rate stays the same for a set period of time. | Your repayment amount will not change. If market interest rates increase yours will not. | Less flexibility than variable rate home loans. You may be charged fees for making extra repayments. |
Variable | Interest rate goes up and down with market rates. | Rate will decrease if the market decreases. More flexibility. | Rate will increase if the market rate increases. Repayment amounts may change. |
Split | A portion of your loan is fixed, while a portion is variable. | Protect yourself against interest rate increases and gain repayment certainty with the fixed portion. Gain flexibility and make extra repayments with the variable portion. | May include extra fees. |
Summary
Interest is by far the biggest cost of most home loans in Australia. That’s why it’s worth taking the time to shop around when you need a home loan and make sure that you’re getting a good, low rate.
There are a few easy ways that you can compare home loans including:
- Using comparison sites.
- Working with a mortgage broker.
- Visiting each lender's website or talking to each lender individually.
When comparing home loans keep in mind that the comparison rate is the most important number to look at. This figure includes the loan’s interest rate plus fees - the true cost of a home loan.
When choosing a home loan you should also know that interest is charged in more than one way, including fixed and variable rates. Fixed rates stay the same for a set period of time, while variable rates move up and down with the market. Both have their pros and cons and you should fully understand the difference before you start searching for a loan.
You’ll also need to know the difference between principal and interest home loans and interest-only home loans. Principal and interest is usually the way to go for most borrowers as interest-only loans can be risky and expensive over time.
Home loan interest rates FAQ
What are home loan interest rates?
Home loan interest rates are the interest charged on money borrowed from a lender. This will be expressed as a percentage of the total loan amount and included in loan repayments.
How can I find the lowest home loan interest rates?
To find the lowest interest rates, compare home loans from several providers. To do this you can either get help from a mortgage broker, use home loan comparison websites or do your own research.
What are owner-occupied home loan interest rates?
Owner-occupiers - those who live in the home they’re buying - may be charged lower interest rates than investors by some lenders.
What are variable home loan interest rates?
Variable home loan interest rates are rates that change with the market. That means if market interest rates increase, you’ll pay a higher interest rate on your home loan and your regular repayment amount will increase (and vice versa if rates decrease).
What are fixed home loan interest rates?
Fixed home loan interest rates stay the same for a set period of time, usually one to five years. A fixed rate will give your certainty around your repayment amount and protect you from rising interest rates. However, if market rates decrease yours will not.
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Shaun McGowan
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