The interest rate isn’t the only thing that matters when choosing a home loan, but it is a major player. Learn how to get a low interest home loan and how to avoid mortgage stress. 

low interest

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3.27%

Variable

3.28%

HSBC

$1.5k

Redraw facility
Offset Account
Borrow up to 90%
Extra Repayments
Interest Only
Owner Occupied

4.00

/ 5
More details

3.09%

Variable

3.09%

UBank

$1.4k

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

4.27

/ 5
More details

2.99%

Fixed - 3 years

3.45%

UBank

$1.4k

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

3.42

/ 5
More details

3.09%

Variable

3.05%

Athena Home Loans

$1.4k

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

4.15

/ 5
More details

3.59%

Variable

3.24%

Athena Home Loans

$898

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

3.10

/ 5
More details

3.49%

Variable

3.49%

UBank

$1.5k

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

3.65

/ 5
More details

3.59%

Variable

3.49%

Athena Home Loans

$898

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

3.10

/ 5
More details

3.49%

Variable

3.45%

Athena Home Loans

$1.5k

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

3.53

/ 5
More details

3.19%

Fixed - 5 years

3.44%

UBank

$1.5k

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

3.51

/ 5
More details

3.49%

Fixed - 5 years

3.85%

UBank

$1.5k

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

3.05

/ 5
More details

2.97%

Variable

2.99%

Well Home Loans

$1.4k

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

4.54

/ 5
More details

2.88%

Variable

2.90%

loans.com.au

$1.4k

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

4.35

/ 5
More details

3.39%

Variable

3.39%

Hume Bank

$1.5k

Redraw facility
Offset Account
Borrow up to 95%
Extra Repayments
Interest Only
Owner Occupied

3.95

/ 5
More details

3.19%

Variable

3.22%

Mortgage House

$1.5k

Redraw facility
Offset Account
Borrow up to 90%
Extra Repayments
Interest Only
Owner Occupied

4.31

/ 5
More details

3.38%

Variable

3.52%

Virgin Money

$1.5k

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

4.00

/ 5
More details

3.32%

Variable

3.37%

Heritage Bank

$1.5k

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

3.88

/ 5
More details

3.15%

Variable

3.17%

State Custodians

$1.4k

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

4.45

/ 5
More details

3.36%

Variable

3.39%

IMB Bank

$1.5k

Redraw facility
Offset Account
Borrow up to 90%
Extra Repayments
Interest Only
Owner Occupied

3.87

/ 5
More details

3.19%

Fixed - 3 years

3.74%

Heritage Bank

$1.5k

Redraw facility
Offset Account
Borrow up to 95%
Extra Repayments
Interest Only
Owner Occupied

3.96

/ 5
More details

3.79%

Variable

3.79%

Hume Bank

$1.5k

Redraw facility
Offset Account
Borrow up to 85%
Extra Repayments
Interest Only
Owner Occupied

3.27

/ 5
More details

Learn more about home loans

How to get a low interest home loan

No one likes paying more than they have to. Getting a low interest home loan ensures that you’re paying less interest over the life of your loan. If you’re in the market for a low interest home loan, you’ll want to arm yourself with the following tools:

Comparison tables

Comparison tables are a helpful tool that allows you to compare apples with apples. Simply enter your borrowing amount, property value and the type of borrower you are. The tables will then surface a range of home loan options that suit your filters. Easily view rates, features and fees to create a mortgage shortlist. 

Comparison rates

Comparison rates were introduced in response to lenders advertising low rate loans to attract customers. They would then end up costing more due to high upfront and ongoing fees. Comparison rates take into account fees, and are calculated on a loan of $150,000 over 25 years. Look at a loan’s comparison rate to get a more accurate view of what the ‘real’ low interest rate loans are. 

Home loan calculators 

So, you’ve got a shortlist of low interest loans, now what? The easiest way to test which loans may cost you the least is to use a home loan calculator. Simply enter the mortgage rate, borrowing amount, length of loan and fees involved. You’ll then see how much the mortgage may cost you monthly, and the total cost including interest over the life of the loan. 

Keep in mind:

Some lenders offer heavily-discounted “Honeymoon Rates” for the early stage of a loan. These revert to a typically higher standard variable rate once this introductory period expires. Do your homework around what this revert rate will be, and whether you can afford it, before applying. 

Can anyone get a low interest home loan?

Not everyone will qualify for a lenders lowest rates. As lenders assess your eligibility for a home loan based on risk, how ‘risky’ you are can cost you more. 

There are a few factors that determine what home loan rate you’ll get, including:

 Factor About 
Borrower type (owner occupier or investor)  Typically, home loans for owner occupiers tend to come with lower interest rates than investment loans. This is due to government regulations surrounding investment lending, and because lenders consider investors to be greater financial risks.
Deposit size The greater your deposit, the more reliable you look, and the less risk you pose to the lender. Borrowers with 20% or more deposits may be offered lower rates. 
Credit score Borrowers with excellent credit scores are more likely to qualify for lower home loan rates. 
Transactions Lenders can frown upon what they see as ‘’frivolous’ spending, such as using Afterpay or food delivery services. Try to avoid these things at least a few months before you apply for your home loan. 
Existing debt If you have one or more sources of debt, you’ll not only run the risk of a higher interest rate, but the lender may reject your loan application. 

Lenders look for stability in your finances. Keep this in mind before applying for any financial product. 

Benefits of a low interest home loan

While savings for a home loan deposit can feel like an expensive endeavour, paying interest on your home loan is actually one of the biggest costs you’ll face. The major benefit of a low interest home loan is keeping your mortgage repayments down. This can also help you to avoid falling into mortgage stress. The lower your interest rate, the less you’ll pay over the life of your loan. 

For example:

Rachel has a $500,000 home loan with a rate of 3.80 per cent that she’s paying over 30 years. While her principal is $500,000, she will end up paying $338,723 in interest over the life of her loan. 

This is why it pays to never stop doing your research around what rate you’re paying, what your bank is offering new customers and what competitors are offering. 

If you’ve had a home loan for 5 years, it’s recommended that you see if your current rate is still competitive. 

How to talk your way into a lower rate:

  • Do your research: Use RateCity’s comparison tools to find and compare lower mortgage rates available in the market.

  • Look at your lender's rates: Banks often offer new customers lower rates to attract them onto their books. If your rate is higher than what new customers are getting, ask your bank to match it.

  • Know who to call: Armed with all of this information, call your bank and ask to speak to a customer retention specialist. Their role is to make you happy and keep you with the bank. Tell them you want to switch to a lower rate. Say you want either a rate offered to new customers or a rate reduction. Threaten to leave to one of the lower rate lenders you found in you research.

  • Be prepared to leave: If your bank isn’t prepared to reduce your home loan rate, why not consider switching to one of the lower rate lenders?

Impact of a 0.50% rate discount

 Loan size Savings over life of loan 
$400,000  $33,687 
$750,000  $63,164 
$1,000,000  $84,218

Notes: Rates are based on the major banks package rates as recorded by the RBA statistics Sept 2018 of 4.55% for an owner occupier paying principal and interest. Calculations are based on someone switching five years in to a 30 year-loan. Major banks package fees are estimated at $395 / yr based on an average of the big four package fees. Discharge fees included.

Mortgage stress and how to avoid it

Mortgage stress is when a household spends 30 per cent or more of its pre-tax income on mortgage repayments. Borrowers can run the risk of mortgage stress if interest rates increase. 

If you’re considering a variable home loan rate, keep in mind that if the Reserve Bank of Australia (RBA) increases the cash rate, your rates will rise too. It is recommended that you factor in your ability to afford an interest rate rise of 2 - 3 per cent before applying for any home loan. This is why finding a low interest home loan can be so important. 

For example:

Between October 2009 and November 2010, the RBA increased the official cash rate by 1.50 percentage points. Imagine if you took out a home loan at, say, 4.50 per cent, and your lender then increased your interest rate by 1.50 percentage points over the next 13 months. Could you afford it? 

Here’s what a 1.50 per cent increase could cost you:

 Loan amount Monthly repayments at 4.50% Monthly repayments at 6.00% Monthly repayment increase
$350,000 $1,773 $2,098 $325
$500,000 $2,533 $2,998 $465
$650,000 $3,293 $3,897 $604
$800,000 $4,053 $4,796 $743

What else should you consider before choosing a home loan?

If you’re looking at low interest home loans to minimise how much interest you’ll pay, consider the length of your loan. Many mortgages start with terms of 25 or 30 years, though shorter and longer loan terms do exist.

Paying back your mortgage over a longer term means your monthly repayments will be smaller, but you’ll pay more interest over time. A shorter term does the opposite - and can potentially save you tens of thousands. If you’re trying to avoid the sting of interest over time, consider a home loan term under 30 years.

For example:

Mark is considering a $500,000 home loan at 3.50 per cent. On a 30-year term, his monthly repayments would be $2,245, but he’d pay $308,280 in interest over time. 

On a 25-year term, his monthly repayments would be $2,503, but he’d only pay $250,935 in interest over time. 

A shorter term loan would save him $57,345 in interest repayments. 

Are there banks that specialise in low interest home loans?

Yes, there are lenders who specialise in low interest rate home loans. 

While the bigger banks do offer a range of competitive home loan rates, online lenders tend to have less overhead. They also don’t need to as cautiously balance the needs of shareholders with that of customers. This may lead to lower rates being offered by the online lenders. 

RateCity data found that:

  • Almost 30% of lenders in the RateCity database are online.
  • Australia’s fifth largest home loan lender is online only (ING).
  • Seven of the 10 lowest rate lenders in our database are online lenders.

Keep in mind that, as mentioned above, you may not qualify for the lowest rates offered by these lenders. Further, if you’re the kind of person who enjoys the convenience of going into a branch, online lenders may not suit you. Always do your research before choosing any loan, particularly around fees. 

 

Frequently asked questions

What happens to my home loan when interest rates rise?

If you are on a variable rate home loan, every so often your rate will be subject to increases and decreases. Rate changes are determined by your lender, not the Reserve Bank of Australia, however often when the RBA changes the cash rate, a number of banks will follow suit, at least to some extent. You can use RateCity cash rate to check how the latest interest rate change affected your mortgage interest rate.

When your rate rises, you will be required to pay your bank more each month in mortgage repayments. Similarly, if your interest rate is cut, then your monthly repayments will decrease. Your lender will notify you of what your new repayments will be, although you can do the calculations yourself, and compare other home loan rates using our mortgage calculator.

There is no way of conclusively predicting when interest rates will go up or down on home loans so if you prefer a more stable approach consider opting for a fixed rate loan.

How do you determine which home loan rates/products I’m shown?

When you check your home loan rate, you’ll supply some basic information about your current loan, including:

  • the amount owing on your mortgage
  • the value of your property
  • your current interest rate
  • name of existing lender
  • property address

We’ll compare this information to the home loan options in the RateCity database, and show you which home loan products you may be eligible to apply for.

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. 

What is an interest-only loan? (include how do I work out interest-only loan repayments)

An ‘interest-only’ loan is a loan where the borrower is only required to pay back the interest on the loan. Typically, banks will only let lenders do this for a fixed period of time – often five years – however some lenders will be happy to extend this.

Interest-only loans are popular with investors who aren’t keen on putting a lot of capital into their investment property. It is also a handy feature for people who need to reduce their mortgage repayments for a short period of time while they are travelling overseas, or taking time off to look after a new family member, for example.

While moving on to interest-only will make your monthly repayments cheaper, ultimately, you will end up paying your bank thousands of dollars extra in interest to make up for the time where you weren’t paying off the principal.

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 variable home loan?

A variable rate home loan is one where the interest rate can and will change over the course of your loan. The rate is determined by your lender, not the Reserve Bank of Australia, so while the cash rate might go down, your bank may decide not to follow suit, although they do broadly follow market conditions. One of the upsides of variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts.

Does the Rate Guarantee apply to discounted interest rate offers, such as honeymoon rates?

No. Temporary discounts to home loan interest rates will expire after a limited time, so they aren’t valid for comparing home loans as part of the Rate Guarantee.

However, if your home loan has been discounted from the lender’s standard rate on a permanent basis, you can check if we can find an even lower rate that could apply to you.

How can I calculate interest on my home loan?

You can calculate the total interest you will pay over the life of your loan by using a mortgage calculator. The calculator will estimate your repayments based on the amount you want to borrow, the interest rate, the length of your loan, whether you are an owner-occupier or an investor and whether you plan to pay ‘principal and interest’ or ‘interest-only’.

If you are buying a new home, the calculator will also help you work out how much you’ll need to pay in stamp duty and other related costs.

What is the best interest rate for a mortgage?

The fastest way to find out what the lowest interest rates on the market are is to use a comparison website.

While a low interest rate is highly preferable, it is not the only factor that will determine whether a particular loan is right for you.

Loans with low interest rates can often include hidden catches, such as high fees or a period of low rates which jumps up after the introductory period has ended.

To work out the best value for money, have a look at a loan’s comparison rate and read the fine print to get across all the fees and charges that you could be theoretically charged over the life of the loan.

What is the difference between fixed, variable and split rates?

Fixed rate

A fixed rate home loan is a loan where the interest rate is set for a certain amount of time, usually between one and 15 years. The advantage of a fixed rate is that you know exactly how much your repayments will be for the duration of the fixed term. There are some disadvantages to fixing that you need to be aware of. Some products won’t let you make extra repayments, or offer tools such as an offset account to help you reduce your interest, while others will charge a significant break fee if you decide to terminate the loan before the fixed period finishes.

Variable rate

A variable rate home loan is one where the interest rate can and will change over the course of your loan. The rate is determined by your lender, not the Reserve Bank of Australia, so while the cash rate might go down, your bank may decide not to follow suit, although they do broadly follow market conditions. One of the upsides of variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts.

Split rates home loans

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.

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.

What is a fixed home loan?

A fixed rate home loan is a loan where the interest rate is set for a certain amount of time, usually between one and 15 years. The advantage of a fixed rate is that you know exactly how much your repayments will be for the duration of the fixed term. There are some disadvantages to fixing that you need to be aware of. Some products won’t let you make extra repayments, or offer tools such as an offset account to help you reduce your interest, while others will charge a significant break fee if you decide to terminate the loan before the fixed period finishes.

The fine print – what are the eligibility criteria?

This competition is only available to Australian residents who are over 18 and check their home loan interest rate at RateCity. However, you are not required to refinance your home loan or apply for any financial products.

You can still enter if you don’t have a home loan yet – enter how much you plan to borrow and the details of the property you’re considering, and we’ll compare mortgage offers that may suit your needs and estimate how much you could save compared to a loan with an average interest rate. 

How much are repayments on a $250K mortgage?

The exact repayment amount for a $250,000 mortgage will be determined by several factors including your deposit size, interest rate and the type of loan. It is best to use a mortgage calculator to determine your actual repayment size.

For example, the monthly repayments on a $250,000 loan with a 5 per cent interest rate over 30 years will be $1342. For a loan of $300,000 on the same rate and loan term, the monthly repayments will be $1610 and for a $500,000 loan, the monthly repayments will be $2684.

What is principal and interest'?

‘Principal and interest’ loans are the most common type of home loans on the market. The principal part of the loan is the initial sum lent to the customer and the interest is the money paid on top of this, at the agreed interest rate, until the end of the loan.

By reducing the principal amount, the total of interest charged will also become smaller until eventually the debt is paid off in full.

What is a low-deposit home loan?

A low-deposit home loan is a mortgage where you need to borrow more than 80 per cent of the purchase price – in other words, your deposit is less than 20 per cent of the purchase price.

For example, if you want to buy a $500,000 property, you’ll need a low-deposit home loan if your deposit is less than $100,000 and therefore you need to borrow more than $400,000.

As a general rule, you’ll need to pay LMI (lender’s mortgage insurance) if you take out a low-deposit home loan. You can use this LMI calculator to estimate your LMI payment.

Are bad credit home loans dangerous?

Bad credit home loans can be dangerous if the borrower signs up for a loan they’ll struggle to repay. This might occur if the borrower takes out a mortgage at the limit of their financial capacity, especially if they have some combination of a low income, an insecure job and poor savings habits.

Bad credit home loans can also be dangerous if the borrower buys a home in a stagnant or falling market – because if the home has to be sold, they might be left with ‘negative equity’ (where the home is worth less than the mortgage).

That said, bad credit home loans can work out well if the borrower is able to repay the mortgage – for example, if they borrow conservatively, have a decent income, a secure job and good savings habits. Another good sign is if the borrower buys a property in a market that is likely to rise over the long term.

What is a guarantor?

A guarantor is someone who provides a legally binding promise that they will pay off a mortgage if the principal borrower fails to do so.

Often, guarantors are parents in a solid financial position, while the principal borrower is a child in a weaker financial position who is struggling to enter the property market.

Lenders usually regard borrowers as less risky when they have a guarantor – and therefore may charge lower interest rates or even approve mortgages they would have otherwise rejected.

However, if the borrower falls behind on their repayments, the lender might chase the guarantor for payment. In some circumstances, the lender might even seize and sell the guarantor’s property to recoup their money.

Why do people use no credit check loans?

How do I know if I have to pay LMI?

Each lender has its own policies, but as a general rule you will have to pay lender’s mortgage insurance (LMI) if your loan-to-value ratio (LVR) exceeds 80 per cent. This applies whether you’re taking out a new home loan or you’re refinancing.

If you’re looking to buy a property, you can use this LMI calculator to work out how much you’re likely to be charged in LMI.