Why you should compare mortgage rates when conducting a home loan health check

A home loan is the biggest financial commitment that most people will ever make. It's not just a big commitment, but a long one - generally 25 to 30 years.

That's why a home loan should never be something that you "set and forget" for two or three decades.

Instead, it should be something you review on a regular basis to ensure you're getting the best mortgage rates, the best fees and the best features for your household's unique needs.

In other words, it's time for your home loan health check.

Find and compare popular home loans

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Advertised Rate

2.55%

Fixed - 1 year

Comparison Rate*

3.21%

Company
Adelaide Bank
Repayment

$744

monthly

Features
Redraw facility
Offset Account
Borrow up to 79.9999%
Extra Repayments
Interest Only
Owner Occupied
Real Time Rating™

2.57

/ 5
Go to site
More details
Advertised Rate

2.84%

Variable

Comparison Rate*

2.46%

Company
Athena Home Loans
Repayment

$828

monthly

Features
Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied
Real Time Rating™

1.92

/ 5
Go to site
More details
Advertised Rate

3.39%

Variable

Comparison Rate*

3.59%

Company
Pepper
Repayment

$1,732

monthly

Features
Redraw facility
Offset Account
Borrow up to 85%
Extra Repayments
Interest Only
Owner Occupied
Real Time Rating™

2.03

/ 5
Go to site
More details
Advertised Rate

2.44%

Variable

Comparison Rate*

2.27%

Company
Homeloans.com.au
Repayment

$712

monthly

Features
Redraw facility
Offset Account
Borrow up to 59.9999%
Extra Repayments
Interest Only
Owner Occupied
Real Time Rating™

3.07

/ 5
Go to site
More details
Advertised Rate

2.27%

Variable

Comparison Rate*

2.33%

Company
Freedom Lend
Repayment

$662

monthly

Features
Redraw facility
Offset Account
Borrow up to 70%
Extra Repayments
Interest Only
Owner Occupied
Real Time Rating™

3.63

/ 5
Go to site
More details
Advertised Rate

2.27%

Variable

Comparison Rate*

2.33%

Company
Freedom Lend
Repayment

$662

monthly

Features
Redraw facility
Offset Account
Borrow up to 70%
Extra Repayments
Interest Only
Owner Occupied
Real Time Rating™

3.77

/ 5
Go to site
More details
Advertised Rate

2.54%

Variable

Comparison Rate*

2.37%

Company
Homeloans.com.au
Repayment

$741

monthly

Features
Redraw facility
Offset Account
Borrow up to 79.9999%
Extra Repayments
Interest Only
Owner Occupied
Real Time Rating™

2.83

/ 5
Go to site
More details
Advertised Rate

2.47%

Variable

Comparison Rate*

2.54%

Company
Freedom Lend
Repayment

$720

monthly

Features
Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied
Real Time Rating™

3.14

/ 5
Go to site
More details

Learn more about home loans

How do mortgage interest rates affect your home loan's health?

One reason to conduct regular home loan health checks is because a seemingly small difference in mortgage rates can make a big difference over the term of a loan.

Some people don't refinance their mortgage because they don't compare mortgage rates and realise there are lower-rate options on the market.

Other people never get around to refinancing because they keep telling themselves, "There's no rush, I'm only paying a few dollars extra per month”.

However, a small reduction in monthly repayments can add up to a saving in total costs over the life of the loan.

For example, imagine you have 20 years left on your mortgage and you manage to refinance from a home loan with an interest rate of 4.50 per cent to one at 4.00 per cent. Here’s how much you could save based on an outstanding loan of $300,000, $500,000 or $700,000:

  $300,000 $500,000  $700,000 
Total repayments at 4.50 per cent $455,508 $759,179 $1,062,851
Total repayments at 4.00 per cent $436,306 $727,176 $1,018,047
Savings $19,202 $32,003 $44,804

Hypothetical examples are for illustrative purposes only. Does not account for fees or interest rate changes over time. Source: MoneySmart

The cheapest loan isn't necessarily the best loan, but the interest rate is always an important factor when assessing the pros and cons of a mortgage.

By conducting a home loan health check, you can not only get an idea of how your home loan interest rate compares to the rest of the market, but you can also consider several alternative mortgage options.

Watch out for honeymoon rates

When you’re comparing home loan interest rates, check to see whether the lender’s low rate comes from a discount available as an introductory offer. Once this initial “honeymoon” period expires, the loan may revert to a higher interest rate, resulting in higher repayments.

Fees in your home loan health check

Conducting a home loan health check shouldn't mean just comparing mortgage interest rates. It's also important to look at home loan fees.

Many home loans come with ongoing fees, which can include:

  • monthly fees
  • annual fees
  • offset account fees 

Borrowers can also be slugged with fees for making use of some home loan features, like redrawing funds or making additional repayments.

Some lenders also get you on the way out by charging a discharge fee when you finally close the loan.

Fees can be a bit like interest rates in that paying a bit more in the short term can lead to a paying a lot more over the loan's full term. 

Imagine that you had 20 years left on your mortgage and you switched to a home loan with lower fees. Here’s how those savings can add up:

  • $100 per year = $2,000 over 20 years
  • $200 per year = $4,000 over 20 years
  • $300 per year = $6,000 over 20 years
  • $400 per year = $8,000 over 20 years
  • $500 per year = $10,000 over 20 years

Still not convinced about the benefits of a home loan health check?

Features in your home loan health check

Does your home loan offer the kind of features and benefits that could make managing your finances quicker and easier? 

A few examples include:

  • Extra repayments: Paying more than the minimum required amount onto your home loan can shrink your home loan principal, paying off your property faster and helping you save on interest charges. 
  • Redraw facility: This flexible feature gives you the option to take any extra repayments you make onto your home loan back out of your mortgage again if you need the cash. 
  • Offset account: A savings or transaction account linked to your home loan. Money saved in this account is used to “offset” your mortgage principal, so you can be charged less interest. For example, if you owe $300,000 on your mortgage, and have $20,000 saved in your offset account, you’ll be charged interest as if you only had $280,000 owing. 

Similarly, if you’re not getting a lot of use out of your current home loan’s features and benefits, refinancing to a more basic “no frills” home loan could mean enjoying a lower interest rate and/or cheaper fees. 

Home loan package deals

Some banks and mortgage lenders offer home loan bundles, which combine a home loan with a transaction account, credit card, or other financial products, and let you benefit from a discount on the lot.

How to refinance a mortgage

Once you've done a home loan health check and mortgage rate comparison, if you decide you do want to switch home loans, you'll have to refinance your mortgage.

How refinancing works: 

  1. Imagine you have a mortgage with Lender X, with an interest rate of 4.50%, outstanding debt of $300,000, and a remaining loan term of 20 years.
  2. After comparing more than 100 lenders, you decide you like the look of Lender Y, which is offering a similar home loan to Lender X, but with a mortgage interest rate of just 4.00%.
  3. If you decide to refinance, Lender Y would repay your debt to Lender X – you would owe nothing to your old lender, and instead owe $300,000 to your new lender.

However, before you sign on any dotted lines, it’s important to ask yourself a few questions, such as:

Did you check the comparison rate?

When you make a home loan comparison as part of a home loan health check, it’s important to consider the 'comparison rate', and not just the 'advertised rate'.

A home loan’s advertised rate only indicates the cost of mortgage interest, and doesn't include fees or other charges. Sometimes a home loan with a low interest rate but high fees can actually cost more over the long term than a home loan with a higher interest rate and low or no fees. 

A home loan’s comparison rate combines its interest rate with the cost of its standard fees and charges, giving you a better idea of its total overall cost. This can provide a quick and simple way to compare home loans and provide a better idea of which offers may cost more over the long term.  

With some loans, there will be no gap between the advertised and comparison rates, while others will have a significant gap of one percentage point or more.

Will you need to pay fees? And what for?

If you do refinance, you may have to pay a range of fees to both lenders. 

Your old lender may slug you with a discharge fee, and if you're exiting a fixed-rate loan ahead of schedule, you will probably have to pay break costs as well.

Your new lender will probably charge you any combination of standard set-up fees – establishment fee, valuation fee and settlement costs. All these fees could easily add up to more than $1000.

Has your property’s value fallen?

If your property is located in an area where values have fallen in recent years, refinancing could potentially cost you more money than you expect.  

For example, imagine that when you bought the property it cost you $500,000 and you borrowed $400,000. That would have given you a loan-to-value ratio (LVR) of 80% and allowed you to avoid paying Lenders Mortgage Insurance (LMI), which is generally only charged if you have an LVR above 80%.

Now imagine that two years later, you've decided to refinance, having reduced your debt to $385,000 – but you’ve also seen the value of your property fall to $475,000.

When Lender Y values your property as part of the refinancing process, it will discover that your LVR is now 81% and charge you LMI, which could cost you thousands.

Are you refinancing into a longer home loan?

When you refinance, you may want to check if your new loan term matches your old one. The default loan term for many mortgages is 30 years, so if you're not careful, you could accidentally exit from a mortgage that has 20 years left to run with Lender X, and sign up for a new 30-year mortgage with Lender Y.

A longer loan term means you’ll be in debt and paying interest for longer. This could end up costing you more money, even if the mortgage interest rate is lower: 

  • The total repayments for a $300,000 mortgage over 20 years at 4.50% is $455,508
  •  The total repayments for a $300,000 mortgage over 30 years at 4.00% is $515,609
  • That's a difference of over $60,000!

Hypothetical examples are for illustrative purposes only. Does not account for fees or interest rate changes over time. Source: MoneySmart.

You could save tens of thousands

Conducting regular home loan health checks is a no-brainer. Comparing home loans is quick, simple and free, plus there's no obligation to refinance.

Conducting your own home loan health check might reveal that there are alternative loans out there with mortgage rates, fees and features that could save you literally tens of thousands of dollars over the lifetime of your loan.

If you’d like some help conducting your home loan health check, you could consider contacting a mortgage broker. These home loan experts can look at your current home loan and financial situation and make personal recommendations of mortgage offers that may better suit your goals and situation, including exclusive home loan deals that aren’t typically advertised. 

Frequently asked questions

Who has the best home loan?

Determining who has the ‘best’ home loan really does depend on your own personal circumstances and requirements. It may be tempting to judge a loan merely on the interest rate but there can be added value in the extras on offer, such as offset and redraw facilities, that aren’t available with all low rate loans.

To determine which loan is the best for you, think about whether you would prefer the consistency of a fixed loan or the flexibility and potential benefits of a variable loan. Then determine which features will be necessary throughout the life of your loan. Thirdly, consider how much you are willing to pay in fees for the loan you want. Once you find the perfect combination of these three elements you are on your way to determining the best loan for you. 

Remaining loan term

The length of time it will take to pay off your current home loan, based on the currently-entered mortgage balance, monthly repayment and interest rate.

Monthly Repayment

Your current monthly home loan repayment. To accurately calculate how much you could save, an accurate payment figure is required. If you are not certain, check your bank statement.

How can I get ANZ home loan pre-approval?

Shopping for a new home is an exciting experience and getting a pre-approval on the loan may give you the peace of mind that you are looking at properties within your budget. 

At the time of applying for the ANZ Bank home loan pre-approval, you will be required to provide proof of employment and income, along with records of your savings and debts.

An ANZ home loan pre-approval time frame is usually up to three months. However, being pre-approved doesn’t necessarily mean you will get your home loan. Other factors could lead to your home loan application being rejected, even with a prior pre-approval. Some factors include the property evaluation not meeting the bank’s criteria or a change in your financial circumstances.

You can make an application for ANZ home loan pre-approval online or call on 1800100641 Mon-Fri 8.00 am to 8.00 pm (AEST).

Mortgage Balance

The amount you currently owe your mortgage lender. If you are not sure, enter your best estimate.

How do I refinance my home loan?

Refinancing your home loan can involve a bit of paperwork but if you are moving on to a lower rate, it can save you thousands of dollars in the long-run. The first step is finding another loan on the market that you think will save you money over time or offer features that your current loan does not have. Once you have selected a couple of loans you are interested in, compare them with your current loan to see if you will save money in the long term on interest rates and fees. Remember to factor in any break fees and set up fees when assessing the cost of switching.

Once you have decided on a new loan it is simply a matter of contacting your existing and future lender to get the new loan set up. Beware that some lenders will revert your loan back to a 25 or 30 year term when you refinance which may mean initial lower repayments but may cost you more in the long run.

What is a split home loan?

A split loan lets you fix a portion of your loan, and leave the remainder on a variable rate so you get a bet each way on fixed and variable rates. A split loan is a good option for someone who wants the peace of mind that regular repayments can provide but still wants to retain some of the additional features variable loans typically provide such as an offset account. Of course, with most things in life, split loans are still a trade-off. If the variable rate goes down, for example, the lower interest rates will only apply to the section that you didn’t fix.

How can I get a home loan with bad credit?

If you want to get a home loan with bad credit, you need to convince a lender that your problems are behind you and that you will, indeed, be able to repay a mortgage.

One step you might want to take is to visit a mortgage broker who specialises in bad credit home loans (also known as ‘non-conforming home loans’ or ‘sub-prime home loans’). An experienced broker will know which lenders to approach, and how to plead your case with each of them.

Two points to bear in mind are:

  • Many home loan lenders don’t provide bad credit mortgages
  • Each lender has its own policies, and therefore favours different things

If you’d prefer to directly approach the lender yourself, you’re more likely to find success with smaller non-bank lenders that specialise in bad credit home loans (as opposed to bigger banks that prefer ‘vanilla’ mortgages). That’s because these smaller lenders are more likely to treat you as a unique individual rather than judge you according to a one-size-fits-all policy.

Lenders try to minimise their risk, so if you want to get a home loan with bad credit, you need to do everything you can to convince lenders that you’re safer than your credit history might suggest. If possible, provide paperwork that shows:

  • You have a secure job
  • You have a steady income
  • You’ve been reducing your debts
  • You’ve been increasing your savings

What is a bad credit home loan?

A bad credit home loan is a mortgage for people with a low credit score. Lenders regard bad credit borrowers as riskier than ‘vanilla’ borrowers, so they tend to charge higher interest rates for bad credit home loans.

If you want a bad credit home loan, you’re more likely to get approved by a small non-bank lender than by a big four bank or another mainstream lender.

What are extra repayments?

Additional payments to your home loan above the minimum monthly instalments, which can help to reduce the loan’s term and remaining payable interest.

What if I can't pay off my guaranteed home loan?

If you can’t pay off your guaranteed home loan, your lender might chase your guarantor for the money.

A guaranteed home loan is a legally binding agreement in which the guarantor assumes overall responsibility for the mortgage. So if the borrower falls behind on their mortgage, the lender might insist that the guarantor cover the repayments. If the guarantor fails to do so, the lender might seize the guarantor’s security (which is often the family home) so it can recoup its money.

How can I pay off my home loan faster?

The quickest way to pay off your home loan is to make regular extra contributions in addition to your monthly repayments to pay down the principal as fast as possible. This in turn reduces the amount of interest paid overall and shortens the length of the loan.

Another option may be to increase the frequency of your payments to fortnightly or weekly, rather than monthly, which may then reduce the amount of interest you are charged, depending on how your lender calculates repayments.

How do I take out a low-deposit home loan?

If you want to take out a low-deposit home loan, it might be a good idea to consult a mortgage broker who can give you professional financial advice and organise the mortgage for you.

Another way to take out a low-deposit home loan is to do your own research with a comparison website like RateCity. Once you’ve identified your preferred mortgage, you can apply through RateCity or go direct to the lender.

Savings over

Select a number of years to see how much money you can save with different home loans over time.

e.g. To see how much you could save in two years by switching mortgages,  set the slider to 2.

Interest Rate

Your current home loan interest rate. To accurately calculate how much you could save, an accurate interest figure is required. If you are not certain, check your bank statement or log into your mortgage account.

How personalised is my rating?

Real Time Ratings produces instant scores for loan products and updates them based what you tell us about what you’re looking for in a loan. In that sense, we believe the ratings are as close as you get to personalised; the more you tell us, the more we customise to ratings to your needs. Some borrowers value flexibility, while others want the lowest cost loan. Your preferences will be reflected in the rating. 

We also take a shorter term, more realistic view of how long borrowers hold onto their loan, which gives you a better idea about the true borrowing costs. We take your loan details and calculate how much each of the relevent loans would cost you on average each month over the next five years. We assess the overall flexibility of each loan and give you an easy indication of which ones are likely to adjust to your needs over time. 

Do other comparison sites offer the same service?

Real Time RatingsTM is the only online system that ranks the home loan market based on your personal borrowing preferences. Until now, home loans have been rated based on outdated data. Our system is unique because it reacts to changes as soon as we update our database.

How does Real Time Ratings work?

Real Time RatingsTM looks at your individual home loan requirements and uses this information to rank every applicable home loan in our database out of five.

This score is based on two main factors – cost and flexibility.

Cost is calculated by looking at the interest rates and fees over the first five years of the loan.

Flexibility is based on whether a loan offers features such as an offset account, redraw facility and extra repayments.

Real Time RatingsTM also includes the following assumptions:

  • Costs are calculated on the current variable rate however they could change in the future.
  • Loans are assumed to be principal and interest
  • Fixed-rate loans with terms greater than five years are still assessed on a five-year basis, so 10-year fixed loans are assessed as being only five years’ long.
  • Break costs are not included.

What fees are there when buying a house?

Buying a home comes with ‘hidden fees’ that should be factored in when considering how much the total cost of your new home will be. These can include stamp duty, title registration costs, building inspection fees, loan establishment fee, lenders mortgage insurance (LMI), legal fees and bank valuation costs.

Tip: you can calculate your stamp duty costs as well as LMI in Rate City mortgage repayments calculator

Some of these fees can be taken out of the mix, such as LMI, if you have a big enough deposit or by asking your lender to waive establishment fees for your loan. Even so, fees can run into the thousands of dollars on top of the purchase price.

Keep this in mind when deciding if you are ready to make the move in to the property market.

What is the flexibility score?

Today’s home loans often try to lure borrowers with a range of flexible features, including offset accounts, redraw facilities, repayment frequency options, repayment holidays, split loan options and portability. Real Time Ratings™ weights each of these features based on popularity and gives loans a ‘flexibility score’ based on how much they cater to borrowers’ needs over time. The aim is to give a higher score to loans which give borrowers more features and options.