Compare Home Loans
Find the best home loan in Australia by comparing offers with Savvy
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You can find out all about home loans and how to compare them with Savvy, as well as seeing how they can save you significant money overall. Considering your options with us not only saves you time and hassle but also brings offers from lenders all around Australia together in one place so you can compare them with confidence.
How do I compare home loans?
There are many ways to go about comparing home loan offers on the market. It’s crucial to do so, as taking the time in the leadup to your application could help you save thousands of dollars and maximise your chances of securing the best loan for your needs. Three of the main areas to consider when comparing home loans are:
The type of home loan
There’s a range of different home loans designed for different types of borrowers. As such, it’s important to find the one which is best suited to the property you’re purchasing and how you wish to repay it. The types of home loans you can compare are:
- Principal and interest (P&I): this is the standard payment structure almost all types of loan are structured around. Each repayment you make will consist of both principal (the outstanding loan debt) and interest from the outset. Because interest is calculated based on your outstanding principal, the proportion of your repayment taken up by interest will decrease each instalment until you pay off the loan in its entirety.
- Interest-only (IO): this is a feature on standard loans which enables you to only pay the interest owed on your mortgage for the opening one to five years (up to as many as ten in some cases). While this results in a much cheaper repayment for the opening years of the loan (which may be useful if you want to ease the burden on your finances while you’re furnishing your home), it’s more expensive overall to do this. Investors who wish to sell their property in the next few years can also benefit from this, as they can claim the interest as a tax deduction and maximise any profits from their sale.
- Construction loans: if you’re looking to build a new property, you might look to take out a construction loan instead of a standard P&I mortgage. Instead of granting a lump sum all at once, you’ll be paid in stages, which you can then use to pay your builder as construction is ongoing. The stages at which you’ll receive your payments are likely to be:
- Deposit and site clearing
- Laying the slab, base or foundation
- Erecting the property’s frame
- “Lockup”, where you can lock doors and windows to shut off the interior of the property
- Fitting out the interior of the home with fixtures and utilities
- Completion
- Investment mortgages: as the name suggests, they’re designed for investors to help them purchase a property to be rented out. These loans are seen as being riskier than owner-occupier mortgages, meaning they typically come with higher rates and fees. However, this interest and other costs associated with owning and maintaining the property can be claimed as a tax deduction.
- Bridging loans: if you find yourself stuck between selling your old home and buying your new one, a bridging loan can help you manage the gap. This enables you to buy your second property even if you’re struggling to sell your existing one. Once you sell your previous property, your bridging loan will be paid out and you can focus on your main home loan payments. These are short-term loans of up to 12 months in length and can come with higher rates.
The interest rate
Making sure you lock in the lowest possible interest rate is a highly important part of choosing the best home loan for you. Even small differences in rate can result in a significant saving of tens of thousands of dollars over your term, so taking the time to pick out the best rate available to you can be a significant boost to your finances. See the table below to demonstrate this:
| Home loan | Interest rate | Term length | Monthly repayment | Total interest | Overall saving |
|---|---|---|---|---|---|
|
$500,000 |
6.50% p.a. |
30 years |
$3,160 |
$637,722 |
N/A |
|
$500,000 |
6.25% p.a. |
30 years |
$3,079 |
$608,291 |
$29,431 |
|
$500,000 |
6.00% p.a. |
30 years |
$2,998 |
$579,191 |
$58,531 |
The term length
Similarly, the term over which you’ll repay your home loan will play a significant role in determining its overall cost. Although longer loan terms are cheaper in terms of the repayments month to month, they’re likely to cost more in the long run. Because interest is calculated based on the principal outstanding on your loan, a longer loan where your loan debt decreases at a slower rate will naturally result in a greater overall outlay. See the following table:
| Home loan | Interest rate | Term length | Monthly repayment | Total interest | Overall saving |
|---|---|---|---|---|---|
|
$500,000 |
6.25% p.a. |
30 years |
$3,079 |
$608,291 |
N/A |
|
$500,000 |
6.25% p.a. |
28 years |
$3,155 |
$560,047 |
$48,244 |
|
$500,000 |
6.25% p.a. |
25 years |
$3,298 |
$489,504 |
$118,787 |
Calculations in the tables above do not include home loan fees or account for interest rate changes during your loan term. These calculations aren't necessarily representative of the interest rate you may receive on your home loan.
How do I compare different types of interest rate?
There are several different types of interest rate for you to choose from when it comes to home loans, all of which are important to compare and understand the differences of. The differences between these types of rate are:
Variable rates
This interest rate fluctuates depending on the base rate set by your lender, which is influenced by the Reserve Bank of Australia (RBA). This means your repayments can increase or decrease depending on the interest rate cycle. There are two main benefits which stem from variable interest rates: the capacity to save money on your home loan and the ability to freely make additional payments.
The cost of your repayments can decrease if your lender’s rate favours you during your term, but the real savings can be made by paying above the minimum required amount. For example, on a $500,000 mortgage at 6.25% p.a. over 30 years, you’d save more than $61,000 overall by only paying an extra $100 each month, as well as shorten your term by two years and six months.
Fixed rates
Unlike variable rates, the interest rate you pay and your loan repayment amount are locked in under a fixed rate agreement. These only typically last from one to five years, though, meaning any low rate you lock in for yourself will only apply for the length of the fixed term. Many Australians prefer this type of interest structure to ensure their monthly commitments will remain the same for an extended period, enabling easier and more accurate budgeting overall. These rates also protect borrowers from any rises in rate during their term.
However, additional repayments typically aren’t allowed during these terms or are capped at a maximum amount each year, which may be anywhere from $5,000 to $30,000 depending on the lender you go with. Also, you’ll miss out on any decreases in your lender’s rate applying to your loan.
Split loans
With a split loan, part of your mortgage has a fixed interest rate and the remainder has a variable rate, the percentage split of which you can choose. For example, you could choose to fix 30% of your loan with fixed interest and the remaining 70% will have a variable interest rate. This can benefit you if you want to lock in a rate for most of your loan but still have the ability to make additional repayments without worrying about any fees or caps for doing so.
It’s important to note, though, that splitting your loan will essentially result in two different accounts, meaning you could end up paying double the amount of fees you would otherwise. You can use Savvy’s split home loan repayment calculator to work out if it would be the most advantageous option for your circumstances.
What fees should I consider when comparing home loans?
It’s not just the interest which should be front of mind when comparing home loans, but also fees. There’s a range of different costs which you should have front of mind when considering your home loan options, such as the following:
- Application fee: this covers the cost of applying for your loan and the other administrative costs involved on the lender’s end and typically ranges from $0 up to $700.
- Ongoing fees: these are charged each month as part of your mortgage repayments and can cost between $5 and $20 overall. However, many lenders are willing to waive this fee.
- Conveyancing and legal charges: you’ll have to employ a conveyancer to handle the legal processes of transferring ownership of the land to you which, all up, could cost you $700 up to as much as $2,000 or more.
- Discharge fee: when the time comes to close your home loan account, you’ll usually be charged a fee of up to $400 to cover administrative costs.
- Early exit fee: if you’re paying off a fixed rate home loan and have enough money to complete your payments in one lump sum, you’ll likely have to pay a fee to do so. This will depend on the size of your loan, interest rate and the time remaining on your term, but could add up to thousands of dollars.
- Switching fees: these fees may be charged if you refinance your home loan down the track internally (with the same lender). Doing so is often much cheaper than breaking a fixed term but will still cost between $250 and $500 on average.
- Property valuation fee: part of the process involves your lender valuing your property to determine how much it’s worth before approving your loan application. This typically only costs $100 to $300.
How much will I need for a deposit?
Different lenders will have different requirements when it comes to how much is needed for a deposit. As such, it’s important to have a clear idea of what you can manage as a borrower and compare lenders based on their deposit requirements.
A standard mortgage will require a 20% deposit on the cost of the property you wish to purchase, resulting in the other 80% being supplied by your lender (also known as an 80% loan-to-value ratio or LVR). This is seen by lenders as the cut-off in terms of risk; 80% is the maximum they’ll be willing to commit to any home purchase without any additional assurances on the loan being paid.
Loans with a deposit of less than 20% can be approved if the borrower agrees to take out Lenders Mortgage Insurance (LMI). This is an insurance policy which protects the lender in case of loan default, but the premium is paid by the borrower. LMI can amount to tens of thousands of dollars but will be waived if you supply a deposit of 20% or more. However, there are other situations in which you can provide a low deposit and not have to pay LMI, including:
- Having equity in another property, such as an investment, to use in place of a deposit. This can enable you to borrow up to 100% of the value of your new property if you have enough equity to cover the value of a 20% deposit.
- Having a guarantor on your mortgage agreement. This is a person, such as a parent or grandparent, in a stronger financial position and equity in property to use in place of a cash deposit. A guarantor is put in place as a safety blanket for your lender in the event you become unable to repay your loan, as they’re agreeing to take on the responsibility should you not be able to do so. With a guarantor, you can potentially borrow more than 100% of your property’s value, such as a 105% or 106% mortgage.
- Receiving a lump sum cash gift from family to make up the remainder of your 20% deposit. While this is still technically a 20% upfront payment, you won’t have to have earned all of that money yourself.
- Accessing a government grant as a first-time buyer to sidestep the need to put up a full deposit. The First Home Loan Deposit Scheme guarantees up to 15% of your deposit, meaning you’ll only have to pay 5% upfront, with the New Home Guarantee doing the same for newly built or off-the-plan properties. You can also use your First Home Owner Grant (FHOG) funds towards your deposit.
- Working in a profession which qualifies for an LMI waiver. Some lenders will be willing to waive LMI if they deem your employment and profession safe enough to entrust a lower deposit to. For instance, many doctors and lawyers can qualify for loans as large as 85% to 90% LVR without LMI being charged.
What features can I compare on home loans?
Mortgages can often come with a range of features which you may find useful to your repayment experience. It’s important to compare home loans on this basis also, as these can make your home loan instalments more flexible and, in some cases, help you save a substantial amount. The main features to compare are:
- Repayment flexibility – can you choose to make your loan repayments weekly or fortnightly instead of the standard monthly payments? Paying your loan off more often can save you thousands. For example, a $500,000 loan over 30 years at 6.25% p.a. would set you back $3,079 each month and $608,291 in interest overall. However, halving this amount and making fortnightly contributions of $1,540 would save you over $135,000 and five years and 18 fortnights. Use this weekly or fortnightly repayments calculator to see exactly how much you can save by paying your mortgage repayments more frequently
- Offset accounts – these are a type of linked transaction account which reduces the interest you pay on your loan on a dollar-for-dollar basis. If you have your wages paid into your offset account, you can shave thousands off the overall cost of your loan. For instance, using the same loan as the previous example, you’d save over $51,000 by depositing $30,000 in an offset account, as well as shortening your term by almost two years.
- Redraw options – a loan redraw facility enables you to access any additional payments made as part of your home loan. Most home loans these days come with redraw facilities, but it’s worth analysing what these might cost or if there are any caps on the amount you can redraw. This typically applies more to fixed rate loans, such as limiting you to $30,000 in redraws over the life of your loan before fees apply. Some lenders can also charge up to $50 per redraw. Although redrawing on your home loan may seem like a backwards step on your loan repayment journey, it can be a cheaper option than taking out a more expensive personal loan or paying with your credit card.
- Honeymoon interest – some lenders will be willing to offer an initial high interest rate on your home loan. This is known as a honeymoon or introductory rate and can apply for the first six to 12 months on average. However, it’s important to consider what the loan’s standard rate is, as this is what you’ll have to pay for the majority of your loan after the introductory period ends.
Your home loan options
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What can I do to get the best home loan interest rate?
Have an excellent credit score
The higher your credit rating, the better chance you have of being accepted for a loan with a super-low interest rate. Increase your credit score by lowering your credit card limits and paying off all other debts.
Prove you have a solid track record of savings
Lenders like to see a proven track record of being able to save money from your pay regularly. Proof of ‘genuine savings’ creates a great impression with your new lender and can assist you in getting your loan application over the line
Have a low debt to income ratio
This is a percentage figure you can work out by dividing your total monthly debt by your monthly gross income. Lenders like to see a ratio of less than 36%. A percentage over 45% may prevent you from getting approved for a home loan.
Prove a steady, reliable income
Lenders look favourably at borrowers who have been in the same job (or the same industry) for an extended period and have a steady, regular income. Applying for a home loan within three months of changing your job may work against you in terms of approval and conditions offered.
Provide at least a 20% deposit
It makes sense that the greater the deposit you’re able to offer towards the purchase of your home, the lower risk you pose to the lender and so the lower interest rate you’ll be charged.
Compare loans to find the best
Comparing mortgage offers with Savvy will help you find the loan with the cheapest interest rate and all the loan features you’re looking for. Making an informed call will increase your chances of finding a mortgage perfectly suited to you.
