Low interest home loans from 4.99%

A low interest home loan is, as the name suggests, a mortgage with a lower-than-average interest rate. These loans can offer value by keeping repayment costs down, as the interest charged on a mortgage is one of the most significant factors impacting the overall cost.

When you're shopping for a new home loan, it makes sense to look for a product that offers good value. But keep in mind that it's important to consider all of the key features of a home loan when you're comparing your options - not just a low home loan interest rate.

So, what is a low interest rate? Well, It depends on the current interest rate environment.

The interest rate environment is influenced by the Reserve Bank of Australia’s cash rate, among many factors. However, the cash rate is a good place to start to judge what is a low rate. Hop onto our RBA Rate Tracker page to get an idea of where the cash rate currently stands, and what major lenders in Australia are now offering as their lowest ongoing variable rates.

Interest rates charged on home loans are typically a few percentage points higher than the current cash rate. For example, if the current cash rate was 4%, you may find home loans around 5-7%. If you saw a home loan advertised at 10% in this same environment, you could assume that this was higher than average. 

Mortgages with the lowest home loan interest rates are popular among borrowers, as the lower your interest rate, the lower your interest repayments will be on top of your principal. However, there is more to a home loan than the interest rate.

Many lenders also charge fees with their mortgages, which can make a significant impact on the budget of a borrower. These can include:

• Upfront fees, like application fees
• Ongoing fees, like annual fees
• Break fees if ending a fixed rate term early
• Extra or early repayment fees
• Redraw fees
• Exit fees

A mortgage with a low interest rate and high ongoing fees may ultimately turn out to be more expensive in total than a mortgage with a higher interest rate with lower fees and charges. For this reason, it may be worth also looking at the comparison rate of the home loan.

A comparison rate takes stock of the advertised rate, as well as most of the fees charged, on a 25-year, $150,000 home loan. While this loan amount is lower than the average mortgage nowadays, it's still a helpful tool that shows you if a home loan has any sneaky fees. For example, if the advertised rate was 4%, but the comparison rate was closer to 6%, you could assume the lender charged higher fees.  

Additionally, you may prefer a home loan that comes with helpful features, such as a redraw facility, so you may chip away at your mortgage amount owing and ideally pay the debt off faster. Home loans with features may come with higher interest rates, so it’s all about what you’re willing to prioritise and pay for. 

The interest rate you’re offered will likely come down to your lender. You could also expect to pay a higher interest rate depending on whether you’re buying an investment property or a home to live in, planning to make principal and interest repayments or pay interest only, and if you’re looking for a variable or fixed interest rate. 

Here are some of the most common home loan factors that can influence the interest rate you are offered:

• Principal and interest or interest-only repayments - Choose between paying both the principal owing and your interest charges or the interest only for your repayments. Each principal and interest repayment pays off a little more of the loan, and brings you a little closer to paying off your property. However, you may be able to choose to pay only the interest on your mortgage for a limited time, minimising your loan’s short term costs.
  
  Interest-only mortgages often charge interest at higher rates than principal and interest mortgages, as there’s a risk that a borrower may not be able to afford the loan when it eventually reverts to principal and interest repayments. Keep in mind that this repayment type won’t reduce your loan amount, your loan may take longer to pay off, and you may end up paying more interest on your property in total. It is generally recommended for investors looking to make short-term gains, or new buyers needing breathing room in their budget. 

• Fixed or variable interest rate - The interest rate type you choose may also affect the  overall cost. Variable interest rates are subject to market fluctuation, with the amount of interest the lender charges influenced by the national cash rate set by the Reserve Bank of Australia (RBA).
  
  If the RBA keeps the cash rate on hold, the amount of interest you pay should remain steady. If the cash rate is cut, your lender may pass the interest cut on to you, reducing your home loan repayments. But if the cash rate is increased, your interest payments should move in tandem, hiking your mortgage repayments.
  
  Fixed rate home loans lock in their mortgage interest rates for typically 1-5 years. This can help to keep your repayments stable and comfortably affordable during the fixed period, which can prove especially valuable to first home buyers hoping to build up their initial equity. However, with one of these fixed home loans, you also won’t benefit from any savings if the RBA lowers the cash rate.

• Loan term - Many mortgages start with terms of 25 or 30 years, though shorter and longer loan terms do exist. By paying back your mortgage over a longer term, you’ll be making a larger number of repayments, each one for a smaller percentage of the principal. However, more repayments means more interest charges, so you may ultimately pay more in total interest over the longer loan term than if you’d opted for a shorter term. And vice versa for a shorter loan term.
  
  
• Deposit size - The general rule of thumb is that lenders prefer a 20% upfront deposit, as it showcases a strong level of financial responsibility. If you’re looking for a low rate loan, you’ll likely need to pay the full deposit to help reduce the lender’s risk. If you can’t afford a full deposit on the mortgage you’re looking at, there may be other options available to you. If you're still in the early stages of the home buying process, you might like to consider using RateCity's borrowing power calculator for an estimate of how much you may be approved to borrow.
  
  
• Home loan features - While a low interest home loan can be competitive, some borrowers may prefer to pay a little extra for helpful features, such as an offset account, a redraw facility, or the ability to make extra repayments. Many home loan features can help borrowers to reduce the interest charged on their mortgages or chip away at their principal owing faster. If this is more important to you than a lower rate, it may be worth considering prioritising a home loan with features.
  
  
• Introductory rates - Some lenders offer heavily-discounted introductory rates, or “honeymoon rates”, as a special offer for the early stage of a loan. These typically revert to standard variable interest rates once this introductory period expires. On the surface, these may appear to be the lowest home loan rates you can find, but if you don’t take into account the introductory period caveat when planning your budget, you could find yourself paying much more than you initially expected.

When looking at interest rates on their own, in many cases smaller, non-bank lenders may offer lower offers than the banks to stay competitive. And as these lenders are often smaller organisations than banks such as the big four (Westpac, NAB, Commonwealth Bank and ANZ), they may be able to offer more personalised services to their customers, or possibly offer more flexible lending criteria to better suit a wider range of borrowers.

RateCity research shows that smaller lenders may offer lower interest rates on average compared to their big bank competitors. This is because smaller banks tend to have fewer overheads, like branches, so they can pass these savings on to customers in the form of lower interest rates. 

However, just because a mortgage has a low rate doesn’t mean it will necessarily offer the greatest value. The low rate home loan that work best for you will be ones that meet your home loan goals and financial needs in the long term. 

Major financial institutions and banks are often able to offer full home loan packages, bundling the bank’s full range of services (transaction/savings accounts, credit cards etc.) along with the mortgage. Plus, with most banks you’ll have the option to visit a branch to talk over your home loan, which may not be possible with some online-only lenders.

For information or advice specific to your personal circumstances, you may want to consider reaching out to a financial adviser or mortgage broker.