Key Takeaways
- Home loan rates in Australia are influenced by the RBA cash rate, economic conditions, lender policies, and borrower-specific factors.
- Different types of home loans have different rates, so it’s important to review and compare home loan rates thoroughly.
- Effective comparison involves researching, comparing beyond interest rates, and considering your personal financial situation.
Buying a home is a significant milestone and financial decision for many Australians. Understanding home loan rates is one of the most important things to consider so you can make informed choices in your home-buying journey. Let’s explore how to compare home loan interest rates in Australia.
The Impact of Interest Rates on Your Mortgage
When you have a mortgage, you’re not just paying back the cost of the home you’re buying. The total cost of your loan includes the principal, interest rate, and other fees. Interest rates directly affect your monthly repayments and the total amount you’ll pay over the life of the loan. It’s a major factor to consider, that’s why it’s crucial to shop around and compare rates across different lenders before applying.
Factors Influencing Home Loan Rates in Australia
Home loan interest rates in Australia can vary widely based on several factors. Thus, they can change over time and affect your monthly repayments if your loan isn’t fixed. Here are some factors that influence home loan rates:
- RBA Cash Rate: The Reserve Bank of Australia’s cash rate target is one of the major influences on lender borrowing costs, directly impacting home loan rates. When the RBA raises or lowers the cash rate target, the banks and other lenders are soon to follow, which will reflect on your loan right away if it’s not fixed.
- Economic Conditions: National and global economic trends, inflation rates, and employment rates affect lender risk assessments and will thus affect interest rates.
- Global Events and Other Factors: Australia’s economy is also influenced by global conditions, such as international interest rates, geopolitical events, large-scale global events (like the pandemic), and global financial stability. These factors can impact funding costs for Australian banks, affecting their lending rates.
- Lender Policies: Each lender sets its interest rates based on their funding costs and their risk appetite.
- Lender Competition: Competition among banks and lenders can also affect pricing. Banks may adjust their rates to attract borrowers, especially during periods of intense competition.
- Borrower Profile: Your credit score and history, income, loan size, loan-to-value ratio (LVR), and deposit amount all influence the rate offered by lenders.
- Type of Loan: The type of loan (e.g., variable rate, fixed rate, split loan) and its associated features (such as offset accounts or redraw facilities) can affect the interest rate offered by various lenders.
Types of Home Loans
The type of loan is also another factor that determines what rate you will pay and for how long. Let’s take a look at the following:
- Variable Rate Loans: The most common type of loan in Australia, a variable rate loan changes with market interest rates, impacting your mortgage rate accordingly. If the market rates rise or fall, your repayment amount will change right away.
- Fixed Rate Loans: These types of loans “fix” your mortgage rate for a certain period, usually 1-5 years. Fixed-rate loans offer stability and predictability during the fixed period, shielding you from rate hikes, but potentially limiting savings during rate drops. Once the fixed period ends, the loan reverts to the current variable rate.
- Split Rate Loans: Split-rate loans allow you to fix only a portion of your loan, combining features of both variable and fixed-rate loans. This type of loan offers both flexibility and stability.
The rates for variable and fixed-rate loans differ slightly, so it’s worth checking out what lenders offer. Here’s a table of what the big 4 Australian banks are currently offering (note that Dark Horse Financial has access to major bank pricing discounts – request a discount here):
Table: Variable vs. Fixed Rates: Home Loan Interest Rates Comparison for Australian Big 4 Banks
| Bank | Standard Variable Rate | Fixed Rate |
|---|---|---|
| Commonwealth Bank | 6.49% p.a.* | 6.59% p.a. (3 Years)* |
| Westpac | 6.44% p.a.* | 6.59% p.a. (1 Year)* |
| ANZ | 6.54% p.a. | 6.69% p.a. (1 Year, 80%< LVR) |
| NAB | 6.84% p.a. | 6.69% p.a. (1 Year, 60%< LVR) |
Sources: [1] [2] [3] [4], Information as of June 29, 2024,
*Rates for $450,000 loan amount, 30-year term
How to Compare Australian Home Loans Effectively
A thorough mortgage rate comparison can save you thousands over the loan term. With the right comparison, you can find the cheapest home loan rates in Australia. Here’s how to approach it:
1. Research, research, research.
Take the time to check the different rates offered by lenders — and don’t just limit yourself to banks. Rates are usually available on lenders’ websites but not their discounted rates. You can use online comparison tools or seek help from a lending expert to streamline your research process. It’s important to do research to get the most competitive home loan rates.
2. Look at the comparison rates.
Look beyond advertised rates and consider comparison rates, which include fees and charges. They provide a more accurate representation of the total cost of the loan over its term. Lenders are legally required to display the comparison rates beside the advertised rates, so you’ll see them right away when browsing lenders’ websites.
3. Consider the different loan types.
Compare the interest rates offered by different lenders for the same type of loan (e.g., variable or fixed rate). However, when choosing a loan type, it’s not just the rate you’re supposed to watch out for. You should also keep your finances and life plans in mind when deciding.
4. Look at the big picture.
The interest rate should always be looked at within the context of the loan terms. What looks like a low interest rate can actually cost you more depending on the length of the term. Pay attention to the loan term as well and use loan calculators to estimate total repayments over the life of the loan.
6. Get professional help.
Researching and comparing home loan rates can be overwhelming, and not many know where to start. Getting help from a qualified mortgage broker can help simplify the process for you. Plus, you’ll get personalised service fit for your individual needs, situation, and timeline.
Comparing Mortgage Rates and Finding the Lowest Ones in the Market
We’ll help you compare the rates of various lenders, from banks to non-bank lenders and find the best one for you. We can get you the best home loan rates in Melbourne, Brisbane, and all across Australia. Get expert, tailored advice today.
