Lowest Home Loan Rates
Looking to save money on your home loan? Finding low interest home loans is one of the best ways to do it!
Fact checked
Getting the lowest home loan rates in Australia is well worth it. A home loan is the biggest financial commitment most Australians ever make. Finding low interest home loans either yourself or via using a broker can save you a LOT of money.
How much difference does a low home loan rate make?
A lot.
It’s important to understand that home loans are usually for large sums of money. According to the Australian Bureau of Statistics, the average home loan in Australia is $500,000. It’s higher in some parts of Australia than others. In Sydney and Melbourne, the average mortgage is higher than $500,000.
Even a 1% difference in home loan interest rates can make a huge difference to your repayments. The table below shows just how much difference it makes to a $500,000 home loan over a 30-year term.
| Interest rate | Monthly repayment | Total interest payable |
|---|---|---|
|
3% |
$2,108 |
$258,887 |
|
4% |
$2,387 |
$359,348 |
|
5% |
$2,684 |
$466,279 |
Note how much interest you have to pay over the life of your loan at each rate. It is more than $100,000 higher with each 1% interest rate increase! All those extra monthly repayments certainly add up. The benefits of low interest home loans are a no-brainer.
What happens to my home loan when interest rates rise?
That depends on whether you have a fixed or variable home loan rate.
If you have a fixed rate, it won’t change even if market rates change. It will stay the same for the fixed rate period. This is usually between one and five years, depending on the terms and conditions of your loan. This means that your repayments will also stay the same during this period even if market rates rise.
On the other hand, if you have a variable rate, it will move in line with market rates. So if those rates rise, so will your variable home loan rate. This means your repayments will increase as well. The table below shows the difference a rise in interest rates of 0.5% has on a $500,000 home loan over a 30-year term.
| Interest rate | Monthly repayment |
|---|---|
|
3% |
$2,108 |
|
3.5% |
$2,245 |
As you can see, your monthly repayments would increase by $137. That may not sound like much, but it means you’ll pay nearly $50,000 more over the life of your loan.
Are fixed or variable rates the lowest home loan rates?
There is no definitive answer to that question. It depends on what lenders believe market rates will do in the future. Unfortunately, no one has a crystal ball to accurately predict that. Fixed rates are often higher than variable rates for that reason.
Lenders are risk-averse. It would be costly for a lender to lock you into a fixed rate if market rates rise. It would be great for you though because you’d be charged less interest and your repayments wouldn’t increase!
However, there will be times when principle and interest fixed rates in the market are lower than variable rates. If lenders genuinely believe that rates will fall, fixed rates may be lower. On the flip side, if lenders believe rates will rise, fixed rates will be higher.
It’s important to shop around to find low interest home loans. Lenders in Australia compete aggressively for home loan business because it is a lucrative, long-term market.
What factors affect home loan interest rates?
Several factors affect home loan interest rates, including:
- Official movements in the Reserve Bank’s cash rate.
If this rate rises or falls, home loans may also rise or fall accordingly. The Reserve Bank Board reviews the cash rate every month.
- Economic conditions.
Reserve Bank cash rate decisions are influenced by the general state of the economy. For example, the Reserve Bank Board may decide to lower interest rates to encourage borrowing to stimulate consumer demand. This can help to lower unemployment.
On the other hand, if the Reserve Bank is worried about inflation, it may increase interest rates.
- The purpose of the home loan.
Owner-occupied home loans have a lower rate than investment property loans. That’s because lenders perceive investment property loans as being higher risk.
- Your perceived credit risk to the lender.
When you apply for a home loan, a lender will make an assessment of your credit risk. In other words, the risk of you not making your home loan repayments.
The lower your credit risk, the lower interest rate you’ll likely be offered (and vice versa). You will be perceived as higher risk if you have a bad credit score, a low deposit, or both.
How do you compare different products to get the lowest home loan rates?
Make sure you use the comparison interest rate when comparing different loan products. This is the higher of two interest rates that will be advertised on a loan. It includes the cost of all loan fees as well as the interest rate. The lower interest rate on the other hand is just the cost of interest.
One home loan can have a lower nominal interest rate than another, but still cost more overall. This will be reflected in its higher comparison rate. Lenders in Australia must advertise the comparison rate on their products to comply with consumer protection legislation.
It’s also important to compare optional home loan features that may be available to you. These usually come at an additional cost. Make sure you won’t be paying for any optional features unless you’re going to get enough benefit from them. For example, offset accounts or redraw facilities.
An offset account will only significantly reduce your home loan interest if you have a high balance in it. A redraw facility also costs money. It can offer you flexibility, but if you use it, you won’t pay your loan off as quickly as possible.
Do a cost/benefit analysis before you agree to pay for any optional home loan features.
Your home loan options
Why compare home loans with Savvy?
100% free
You don't have to pay a cent to compare home loans with us, enabling you to do so at any time.
Paperless quote process
You can fill out a simple online quote via our form without having to worry about sorting through heaps of paperwork.
Trusted lenders
With a panel of reputable mortgage lenders behind us, you can rest assured you'll be comparing high-quality options.
How to get the lowest home loan rates
If you have a good credit score, you’ll be more likely to qualify for the lowest home loan rates.
You can check your credit score for free with credit reporting agencies in Australia. The major ones are illion, Equifax and Experian.
If you find it’s low, you can improve it by making any overdue payments immediately. This includes debt like credit cards as well as mobile phone plans and electricity or gas accounts.
You should then focus on making all your future credit repayments on time and reducing your debt. Do this before you apply for a home loan.
Reducing your risk will help you to qualify for low interest home loans. In addition to developing a good credit score, you can reduce your lender’s risk by providing a larger deposit. You can do this by saving more or accessing the First Home Owner Grant if you’re a first home buyer.
You can also reduce your perceived risk to a lender by having a guarantor for your loan. This is usually a family member who ‘guarantees’ your repayments. They do this by agreeing to take responsibility for your home loan debt if you don’t make your repayments.
There are plenty of lenders and home loan products on offer in the Australian market. It’s important to compare them to find the lowest home loan rates. We’ll always have up-to-date information here at Savvy.
If you don’t have time to research the market yourself, get a licensed mortgage broker to do it for you.
You don’t get a second chance to make a first impression when you’re applying for a home loan. It’s your opportunity to show the lender that your financial affairs are organised. This will give them confidence that you’ll be able to make your loan repayments.
When you apply for a loan, make sure that you have:
- a demonstrated savings history.
You should be able to show a history of saving money. This shows that you are financially responsible and that you don’t spend beyond your means. The money you have saved will increase your home loan deposit.
It can also be used for your home loan repayments when your application is approved.
- prepared an accurate and up-to-date budget.
This budget should demonstrate your ability to afford your home loan repayments. You can use our calculators to work out your borrowing power and your repayments.
Look to eliminate or reduce any non-essential expenses you have when you do your budget. This will give you more disposable income for your home loan repayments.
- evidence of your assets and liabilities.
It’s important to show your ownership of as many age- appropriate assets as possible (for example, your car or furniture). Ideally, your debts (liabilities) should be minimal.
Lenders want home loan business, especially if you’re a low credit risk. You need to use that to your advantage and be prepared to negotiate for low interest home loans. Play one lender off against the other so you get the best possible terms and conditions.
If you’re not confident in your negotiating skills, get a mortgage broker to do it for you. They negotiate home loans with lenders for a living.
