Find some of the best home loan rates on the market

How do you find the best home loan for you?

When you’re deciding which home loan to go with, it’s important to consider your individual needs as a borrower. Here are some things to consider before applying for a home loan.

1. Are you an investor, a first home buyer or a refinancer?

The kind of borrower you are will have an impact on the kind of home loan and interest rate you’ll be offered. For example, owner occupier home loans generally offer lower interest rates than investment home loans, as investors can be seen as riskier borrowers than owner occupiers.

Here’s what your home loan needs may be according to the kind of borrower you are:

The first home buyer

First home buyers are generally going in with smaller deposits or getting parental help, so their ideal home loan should have:

• Option for a guarantor . The Bank of Mum and Dad is a big business in Australia, with more than half of all first home buyers getting financial help from their parents. A home loan that allows for guarantors is a great option if your parents are willing to contribute towards the deposit.
• A low interest rate . First home buyers generally can’t afford huge mortgage repayments which is why searching for a home loan with a competitive interest rate is important.
• Is a low deposit home loan . Many first home buyers are going in with a deposit smaller than the recommended 20% so a home loan with a maximum loan-to-value-ratio (LVR) of 90% or even 95% is something to consider. Of course, this means you will need to pay Lenders Mortgage Insurance (LMI).

The investor

Investment home loans generally have higher interest rates than owner occupier home loans and stricter lending criteria. Generally, a good home loan for an investment property should have:

• Useful features. These may include an offset account, redraw facility, ability to make extra repayments, ability to ‘split’ the loan into principal and interest and interest-only repayments, repayment holidays, ability to make interest-only repayments for a period of time, and choice of repayment frequency.
• An investment home loan. Investors can only take out investment home loans, not owner occupier home loans.
• Competitive interest rate. It’s always important to shop around for a competitive rate but even more so with an investment home loan, as interest rates are generally higher.
• Interest-only repayments. This depends on personal preference, but interest-only loans are popular among investors because the interest is tax-deductible.

The refinancer

Borrowers generally refinance because they’re paying too much on their loan and want to get a better deal. In that case, refinancers should look for the following when comparing home loans:

• A competitive interest rate. If it’s been a hot minute since you’ve checked your interest rate, you’re probably paying too much. A lower interest rate could save you thousands over the life of the loan..
• Low fees. To avoid being stung by fees, make sure you look at all the costs involved. Some lenders may charge an application fee, settlement fee, valuation fee, and discharge fee, as well as ongoing fees. These ongoing fees may only be $10 a month but over a 30-year loan term that adds up to $3,600 which is better put towards your loan repayments instead.
• Offset account . An offset account is an everyday transaction account linked to your home loan that allows you to deposit your savings and wages into, and the balance is then offset against your home loan, lowering your interest repayments.

2. How big is your deposit?

The size of your deposit can also impact the home loan as many lenders will offer more generous interest rates to borrowers with a 20% deposit or more saved . Some lenders won’t lend to borrowers with less than a 20% deposit or will charge higher interest rates as these borrowers are seen as being more risky.

3. Do you want a fixed or variable interest rate?

Fixed rate home loans offer repayment certainty as you essentially ‘lock in’ an interest rate for a period of time (usually between one and five years, but some lenders offer up to 10 years). This can make budgeting for your loan repayments easier as you know the repayment amount won’t change during this period. This is why fixed rates can be popular among investors and first home buyers. If lenders expect rates to rise soon, you may be able to score a competitive fixed rate.

On the flipside, a variable rate can fluctuate based on market conditions, which means the amount of interest you pay could increase or decrease over the life of the loan. Variable home loans are more likely to offer useful features like an offset account or redraw facility. You can also repay a variable loan early, whereas paying a fixed rate home loan early could see you slugged with an expensive discharge fee or break fee if you decide to refinance before the end of the fixed term.

4. Do you want to make principal and interest, or interest-only repayments?

When comparing home loans you’ll also need to decide whether you want to make principal and interest, or interest-only repayments. Principal and interest repayments mean you’re chipping away at the principal amount (the amount you’ve borrowed) as well as the interest portion of the loan. With this method, you’re paying down your loan faster than interest-only repayments, where you’re only paying off the interest portion of the loan. However, investors generally prefer interest-only repayments because they’re tax-deductible.

5. What features are important to you?

Home loans that come with additional features can allow you to repay your mortgage sooner and give you more flexibility on your loan. For example, you may want an offset account so you can lower your interest repayments, or a home loan with a redraw facility so you can take out any extra cash you’ve put into your loan to pay for a renovation or other expense.

It’s important to note that home loans packed with features can be more expensive than home loans that aren’t, so if features aren’t that important to you it’s worth keeping that in mind.

6. Could you afford a rate rise?

A good rule of thumb to follow is to consider whether you could afford your mortgage repayments if interest rates were to rise by 3%. Over the life of a typical 20-30 year loan, interest rates will fluctuate and it’s important to keep this in mind before taking out a loan, particularly if you’ve taken out a home loan in a low interest rate environment as rates won’t always be that low. It’s recommended to keep mortgage repayments below 30% of your gross (pre-tax) income. Paying anything higher than this is widely considered to be an indicator of mortgage stress.

How can I get the best deal on my home loan?

When comparing home loans there are a few key things to look out for, including a competitive interest rate, low fees, the right loan type and features for your needs.

There’s more to a good home loan than a low interest rate but it’s definitely one of the top things to look for when comparing loans. The lower your interest rate, the less interest you’ll pay each month and the lower your overall repayments will be.

For example, lets say your loan amount is $500,000 over a loan term of 30-years with principal and interest (P&I) repayments. Here’s what your monthly repayments, total loan cost and total interest paid over the life of the loan could look like depending on how high or low your interest rate is.

It’s also important to keep your loan fees as low as possible to keep your loan costs down. Most home loans come with upfront fees like settlement or application fees, and others may charge an ongoing monthly fee. Some fees can’t be avoided but some can. A $10 monthly ongoing fee may not seem like much, but over the life of the loan it adds up to $3,600 - money that could better spent funneled into your repayments.

Another thing to keep in mind is to choose the right home loan type and features for your needs. So if you’re an investor, you’ll only be eligible for an investment home loan and you may want interest-only repayments, as these are tax deductible for investors. First time buyers may want to look for a low deposit home loan with the option for a guarantor, and refinancers may be after a home loan with an offset account or redraw facility.

Which lender offers the best home loan rates in Australia?

There’s no one lender in Australia that offers the best home loan rates - if there was, we’d be out of a job.

Home loan interest rates vary according to many different factors. They differ from lender to lender, and can vary from borrower to borrower based on their eligibility, LVR, the kind of borrower they are, the loan amount, and so on. Rates can also vary according to market factors, such as the official cash rate set by the Reserve Bank, or decisions made by the lender.

As we mentioned before, while a low interest rate is important to look out for when comparing home loans, it’s not always the be all, end all. There are other important things to look for including low fees, and choosing the right loan type and features that best suit your needs.

Do banks or non-bank lenders offer the best home loan rates?

Again, there’s not one type of bank that offers the best home loan rates. However, there is a difference between non-bank lenders and traditional banks and each have their own perks and unique features.

If you really value fintech and prefer to do all your banking online, you may prefer to choose a home loan with a non-bank or online lender. These lenders are generally app-based and can offer more competitive rates and fees than traditional banks because their overheads are lower as they don’t have physical bank branches. However, non-bank lenders aren’t always Authorised Deposit Taking Institutions (ADIs) meaning they cannot accept deposits from customers. This means home loans with non-bank lenders are limited in the features they can offer. For example, they may not offer features like an offset account in the traditional sense, although some may offer products that operate similarly to offset accounts like loans.com.au ’s ‘redraw offset facility’.

On the flipside, if you rely on face-to-face customer service then taking out a home loan with one of the traditional banks may be a better option for you. Many people prefer to take out a home loan with the same bank they do their day-to-day banking with, so for many the decision comes down purely to convenience. Others want the perceived benefit of being with a ‘safer’ bank as traditional banks like the Big Four are long established institutions and many people feel safer sticking to what they know and trust. Traditional banks still offer competitive rates, but because they have higher overheads than an online lender, they may not always be able to pass on savings to the customer in the form of lower rates or fees.

How do you find the lowest interest rate?

Using comparison websites like Your Mortgage! We monitor the market and have a huge database that includes daily updated interest rates, fees and charges, and features more than 1,400 Australian home and investment loan products from over 80 lenders in Australia. The interest rates in the table above are some of the lowest on the market.

It’s important to keep in mind that a good home loan isn’t always one with the lowest interest rate. You should also be looking out for a loan with low fees and the most useful features and loan type that suits your needs.