Compare some of Australia's best home loan mortgage rates

Home loan interest rates are affected by a wide variety of economic factors, both in Australia and overseas. Understanding the factors that influence home loan interest rates can provide valuable insights when comparing mortgage options. 

Arguably the most important factor to follow is the national cash rate, which is set by the Reserve Bank of Australia (RBA) each month. Lenders generally raise rates when the cash rate is increased and lower them when the cash rate is cut. Keeping track of changes to the cash rate could give you a better idea of what may happen to mortgage rates in Australia. Some of the domestic data that influences the cash rate includes: 

• Quarterly and monthly inflation figures 
• Retail trade figures 
• The unemployment rate 
• Business and consumer confidence levels 

Keeping an eye on economic indicators and understanding their impact on interest rates may help you to make pre-informed decisions when comparing home loans and choosing the most suitable option for your financial circumstances. 

There is no one “best” rate on the market. You may assume that the best rate is just the lowest available, but that isn't always the case. For example, the right home loan for your financial needs and budget may have a higher rate than others because it offers additional perks, like a packaged credit card, or an offset account. 

There are some features that borrowers typically look for in a competitive mortgage. These may change the total cost of the home loan depending on how many you focus on: 

• A lower-than-average interest rate and comparison rate 
• Few, or no, ongoing fees
• Features, such an offset account, redraw facility or making extra repayments
• Signup perks, such as cashback offers
• Packages, such as linked credit cards or transaction accounts 

When you’re comparing home loans, try to keep in mind that there is more to it than just the interest rate. Your definition of the best home loan may differ from someone else’s. 

For example, if you depend on face-to-face customer service you may find that an online-based lender isn’t your best option – even if one offered a lower rate loan. And while major financial institutions like the big four banks (CBA, Westpac, ANZ and NAB), may be able to provide you with more products under the one bank, the nearest bank in your regional area may be a smaller credit union. It all depends on what you prioritise with a lender, and what type of service you are seeking. 

One factor to consider when researching the best home loan option for you is the type of lender you're considering applying with. Depending on what you need from your home loan, banks and non-bank mortgage lenders offer a range of competitive perks and features to compete in the market. 

If low rates and waived fees matters to you 

Consider comparing some non-big bank lenders. RateCity’s database shows that on average, smaller lenders generally offer lower variable interest rates. This is because these smaller lenders tend to have fewer overheads to pay for and may be able to pass on these savings to customers. 

If customer service matters to you 

Consider comparing home loans from financial institutions in your area. As mentioned above, if you rely on face-to-face customer service, then an online-based lender may not suit your needs. The bigger banks typically have more resources available to borrowers in the way of customer service, particularly in regional areas. 

If innovation and fintech matters to you 

Consider comparing non-bank lenders who are bringing innovation to the Australian banking sector. Neobanks, for example, are app-based lenders who may compete by pushing the boundaries of fintech. 

If security matters to you 

Consider that not every home loan lender is classified as an Authorised Deposit-taking Institution (ADI), and only these ADIs (and your deposit up to the value of $250,000) are protected by the Financial Claims Scheme. 

Pros and cons of non-bank lenders 

Home loan interest rates vary across a wide scale, and typically follow the movements of the Reserve Bank of Australia's cash rate. If the cash rate currently sits at, say, 4%, you could expect home loan interest rates to be upwards of this rate. 

As of 29 February 2024, the average variable interest rates in Australia are as follows: 

Data by RateCity (excludes fixed rate home loans). Average interest rates updated on 29 February 2024. 

How do the banks set their mortgage interest rates? 

Banks and lenders are influenced by several factors when they set their rates, including the Reserve Bank of Australia’s (RBA) cash rate, market reference rates and deposit rates. The actual home loan rate you will be offered will also depend on your borrower type, your credit history, your deposit size, and several other factors. 

Different types of home loans may impact the rate. There are a variety of home loan types and features available, all of which impact the overall cost, including the interest rate the lender will charge. A more basic, no-frills loan may come with a lower interest rate than one with home loan features. 

Further, smaller lenders with fewer overheads than their big competitors may choose to offer lower interest rates to compete in the market. All of this comes into play when a lender sets its interest rates and is why rates will differ across each lender and each home loan. 

If you want to know the current average interest rates for various borrower types, it may be worth checking out the RBA's Lenders' Interest Rates page. 

To find the best home loan option for you, you’ll need to ask yourself a few key questions: 

Are you an owner-occupier or an investor? 

Firstly, you’ll need to identify if you plan on living in the owner-occupied property, or if you will rent it out as an investment property. This may affect the home loan interest rate you are offered as, generally speaking, lower interest rates may be offered on owner-occupier loans than investment loans. This is because someone living in the asset they’ve offered up as security on a loan is seen as less likely to miss mortgage repayments and default than an investor. 

How large is your home loan deposit? 

The deposit you save up may also impact the home loan. This is because home loan lenders typically offer more competitive interest rates to those with bigger deposits. A deposit of at least 20% or more, or a loan-to-value ratio (LVR) of 80% or less, can make you seem more reliable and secure than an applicant with a smaller deposit as it showcases a greater level of financial discipline. 

Do you want to make principal & interest or interest-only repayments? 

You’ll also need to decide between making principal and interest repayments or interest-only repayments. Paying off the principal so you can chip away at your loan amount faster may seem like a no-brainer. But for investors, interest-only loans can help to keep expenses much lower so they may potentially earn a greater return when they sell the property. It may be worth weighing up the pros and cons of both repayment types before you apply for a mortgage. 

Will you choose a fixed or variable interest rate? 

A fixed home loan rate may offer more stability in your budget as you’re locking in the rate for a set period of time. Lenders may also offer competitive deals on fixed rate loans, particularly if they expect rates to lift soon. Comparatively, variable rate loans will fluctuate based on market conditions, which may increase or decrease your home loan repayments. Variable rate home loans also tend to offer more features than fixed rate home loans, so if features are important to you then this is worth considering. 

Can you afford a 2-3% rate rise? 

Another good question to ask yourself before applying for any home loan is whether you can afford to repay higher mortgage repayments if rates were to increase. Over a 20–30-year home loan term, interest rates will move, and you need to be prepared. A good rule of thumb is to test your ability to afford mortgage repayments at a 3% higher rate. For example, if a lender advertises a rate of 5.75%, you should calculate if you could afford repayments as if the rate were 7.75% and higher. 

Ideally, you want to try to keep your mortgage repayments under 30% of your pre-tax income, as paying a higher percentage is considered to be “mortgage stress”. 

There are a range of home loan fees that a lender may charge you, including upfront, ongoing and exit fees. These will factor into the overall cost of your mortgage, and may include: 

• Application fees 
• Valuation fees 
• Package fees 
• Monthly service fees 
• Annual fees 
• Redraw fees 
• Discharge fees 
• Fixed rate break fees (if refinancing from a fixed rate home loan) 

If your home loan comes with features, the lender may be more likely to charge you more in ongoing costs, like an annual fee. If you want to avoid paying as many fees as possible, a no-frills basic home loan may better suit your budget.