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How to Compare Home Loans

Taking the time to compare home loans is really important to make sure you find the best home loan that suits your needs.

The best way to compare home loans is to ask for key fact sheets from different lenders. A key fact sheet will provide you with all the information you need in a set format. It will tell you the total amount to be paid back over the life of the loan, as well as the repayment amounts, fees and charges. It will also give you a personalised comparison rate that will help you check the total cost of a loan compared to other loans. Credit providers must give you a key fact sheet for a home loan if you ask for one - unless you are opting for an interest-only or a line of credit loan.

There are a lot of aspects to consider before choosing a home loan. To help you get started, here are some of the different ways you can compare them:

How our Home Loan Comparison Works

At Your Mortgage, we provide home loan comparison from over 80 lenders in Australia, including the Big Four, some of the most notable retail banks, non-banks, customer owned banks, and specialist lenders.

You can compare mortgages:

• For owner occupiers and investors
• For first home buyers
• For those refinancing
• For those renovating or constructing a home
• With principal and interest or interest-only repayments
• With fixed and variable interest repayments

Our home loan interest rate comparison tables allow you to compare the advertised interest rates, the home loan comparison rate (a better reflection of the loan's true value), and what the minimum monthly repayments are based on the loan size you input

Home Loan Interest Rates

One important factor to consider when comparing home loans is the interest rate option you want: variable, fixed or split.

Variable

The interest rate on your loan may rise or fall, usually in line with a change in the official cash rate set by the Reserve Bank - although lenders may make changes independently.

Fixed

The interest rate on your loan will remain unchanged for the fixed period, usually one to five years, after which your loan will revert to the standard variable rate.

Split

A split loan is where a portion of the loan is fixed and a portion of the loan is variable. This split doesn’t have to be 50:50 - it could be a 70:30 split or a 60:40 split.

This allows you to ‘hedge your bets’ by taking advantage of both types of interest rates. If rates are falling, having more of your loan as variable means you get the rewards of falling rates while on the other hand, fixing more of your loan could benefit you in a rising interest rate environment.

Home Loan Features

A home loan packed with features sounds great, however loans that come with a lot of features are generally more expensive. That’s why it’s really important to think carefully about what features you actually need in your loan.

The following features can be useful but may come at a cost:

Split rate option

A split rate option is where one portion of your loan is variable and another portion is fixed. This could be a 50:50 fixed variable split, or a 70:30 split. A split rate essentially means you get to hedge your bets by taking advantage of both types of interest rates.

Offset account

This is a savings or transaction account linked to your home loan. Your account balance is ‘offset’ against the amount you owe on your loan, reducing the amount of interest you pay. However, you need to be realistic when calculating the expected benefit an offset account may give you. For instance, if the balance of your offset account is low, the additional costs may outweigh any benefits you get from having it.

Redraw facility

A redraw allows you to pay extra money into your loan that you can take out later if you need. The extra money you pay into the loan reduces your loan balance, which in turn reduces the interest you pay. Your loan balance will still decrease each month according to the terms of your loan. Lenders may impose conditions or a fee for redrawing funds, so check what conditions and charges apply to your loan. If your loan allows you to have your whole pay credit to the loan account and pay bills or use EFTPOS to withdraw funds, it is operating with a redraw facility.

Repayment holiday

Some loans offer this feature for a short period (such as six months). Check the conditions, as sometimes you can only use this feature if you have made extra repayments, or you may have to make higher repayments after the repayment holiday to make up for it.

Portability

This feature allows you to transfer your existing loan from one property to another. It helps a lender keep you as a customer and helps you save money on fees such as exit fees (which have been banned on loans taken out after 1 July 2011) and application fees (although some lenders may charge you a fee for swapping over the secured property).

Loan portability also enables you to keep loan features such as the interest rate, online banking, ATM card and cheque book - as you will have the same lender and loan structure.

To transfer your loan from one property to another, both your sale and purchase properties must settle on the same day, which can be difficult to arrange.

However, portability is usually only a feature of variable rate loans. If you have a fixed rate loan, check with your lender first, as you may incur break costs. Each lender has different rules about loan portability, so make sure you understand the portability rules of the loan you are considering. You should also look to see if there are more competitive loans on the market from other lenders.

Loan Types

To be able to enjoy the loan features discussed above, you will need to choose one of the following types of home loans:

Basic loan

This is a no-frills loan with few features and a low interest rate. Many lenders now offer redraw facilities, but there can be restrictions and fees, so this kind of loan may not suit if you want to make extra repayments and access them later.

Standard loan

This loan offers more flexibility than a basic loan. For instance, you can redraw any extra money you have paid in, switch to a fixed rate, or split the loan into fixed and variable portions. This loan also often offers a 100% offset account. But you can often find a loan with a cheaper interest rate and similar features.

Home loan package

This is a standard loan with an interest rate discount of up to 1.2% p.a. depending on your loan amount, which is cheaper than many basic loans. The package usually includes a free transaction account and no annual credit card fee. However, package fees of up to $400 per year apply.

Line of credit loan

In this loan, you can only spend up to a set credit limit. Typically, you will have your wages paid into the account, as well as pay your bills and other expenses out of the account. The credit limit is fixed and does not reduce as you repay the loan, thus, you can always draw up to that limit. You will eventually need to repay the loan in full, usually by a specified date, which you will need to plan for. This type of loan suits someone who is a disciplined and careful budgeter who may have irregular income.

Bridging loan

A bridging loan can be used to manage the transition between buying and selling properties. Bridging loans are generally used by people who buy a new house before selling their existing house. There are typically two types of bridging loans. After assessing the level of equity available in your existing house, lenders may offer the following options:

• A single loan taking both properties as security. The lender will give you a bridging period (usually six months to a year) for you to sell your existing property. Generally speaking, you will only have to make interest payments during this period. Once the first house is sold, the proceeds are put towards your overall debt and the balance (and debt) will either revert to principal and interest payments or you will have to enter into a new loan.
• A separate loan for the property being purchased. You will not need to make repayments on this loan during the bridging period. Interest will accrue on the new loan and you will still need to make your normal repayments on your existing home loan. When your existing property is sold and the original home loan is paid out, the outstanding debt on the new property will need to be renegotiated.

When you take out a bridging loan, keep this in mind: if you do not sell your existing property within the bridging period, you may have to accept a price lower than you expected, leaving you with a larger end debt to repay.

Construction loan

If you are building a new house, you may need a construction loan. With this type of loan, you can withdraw funds in stages, as you receive bills from tradespeople and suppliers. You will only pay interest on the funds you have used. Most lenders offer construction loans at a variable interest rate. Once the construction is finished, the loan will revert to principal and interest repayments.

The approval for a construction loan often requires a plan, permits and a fixed-price building contract. If you are a building owner, you may be able to apply for this loan without a fixed-price contract, but the lender requirements might be stricter and the loan amount less. You can get more information on building a home from your state’s fair trading or consumer protection agency.

How to Compare Home Loan Lenders

There are many lenders in the Australian mortgage space and we compare over 80 of them. All lenders in Australia are regulated by the Australian Prudential Regulation Authority (APRA) or the Australian Securities and Investments Commission (ASIC).

With so many different lenders to choose from, we’ve broken them down into their respective categories.

The Big Four

The Big Four banks are the 'big dogs' in the Australian mortgage market and are by far the most popular banks the majority of people bank with. These banks all offer a wide range of products from home loans to savings accounts, credit cards, term deposits, car loans, insurance and more. Many people who decide to take out a home loan with one of the Big Four do so out of convenience because they already bank with them. The Big Four banks don’t necessarily offer the lowest home loan rates, but it is still worth to do Home Loan Comparison because their home loans are competitive and usually offer lots of features.

The Big Four are:

• Commonwealth Bank
• NAB
• ANZ
• Westpac

Large or challenger banks

Outside of the Big Four are large retail banks that offer services nationwide, as well as some international banks that operate in Australia.

Most states or cities also have their own local banks that offer a range of products, including home loans.

Some of these large banks are also owned by the Big Four banks. For example, Bank of Melbourne, St George and Bank SA are all owned by Westpac, while Commonwealth Bank owns Bankwest, and NAB owns UBank.

Some large banks we compare in our database include:

• AMP
• Auswide Bank
• Bank of Melbourne
• Bank of Queensland
• Bank of Sydney
• Bankwest
• Bendigo and Adelaide Bank
• Beyond Bank
• Citibank
• HSBC
• ING
• Macquarie Bank
• St George
• Suncorp
• UBank

Credit unions, building societies and mutual banks

Credit unions, building societies and mutual banks are all examples of customer-owned banks, meaning they’re owned and operated with the purpose of providing banking services to members (customers) as opposed to generating a profit, like the Big Four banks.

The terms ‘credit union' and ‘building society’ have become outdated in recent years and many have dumped these labels in favour of having the word ‘bank’ in their name. There isn’t much difference between a credit union, a mutual bank or a building society these days, as they’re all operating under a customer-owned structure.

Some mutual banks, building societies and credit unions we track in our database include:

• Australian Unity
• Bank Australia
• Bank First
• Gateway Bank
• Greater Bank
• Heritage Bank
• IMB
• ME Bank
• P&N Bank
• Teachers Mutual Bank
• Endeavour Mutual Bank

Online banks, fintechs, neobank and non-bank lenders

Non-bank lenders are financial institutions that don’t have an Authorised Deposit Taking Institution (ADI) license, meaning they can’t accept deposits from customers and therefore can’t offer deposit products like savings accounts, transaction accounts, term deposits or offset accounts.

However, they can still offer loans, including home loans. Non-bank lenders are not regulated by APRA but they are governed by the National Consumer Credit Protection Act (NCCP) which is administered by ASIC.

These kinds of lenders do their business entirely online (with phone support) and are generally app-based. Because these lenders operate online, they have fewer overhead costs than traditional banks. This means they can pass these savings onto customers in the form of lower interest rates and fees. Many online lenders also offer a fast and simple application process.

Some online, neobank or non-bank lenders we compare include:

• Athena
• loans.com.au
• Nano Digital Home Loans
• homeloans.com.au
• Freedom Lend
• Reduce Home Loans

Specialist lenders

Lastly, there are specialist lenders who offer products for borrowers in unique circumstances. This may include offering bad credit home loans for borrowers with bad credit history to bridging finance or reverse mortgages for retirees.

Some specialist lenders we track in our database include:

• Heartland
• La Trobe Financial