What’s the ‘Best Home Loan’ or ‘Best Mortgage Rate’ for Me?

Get interested in interest rates 

The Reserve Bank of Australia sets the official cash rate, which then influences the interest rates you’ll see for Home Loans. While the cash rate was close to zero from late 2020 to early 2022, it’s since risen quickly – much to the dismay of borrowers.¹Reserve Bank of Australia – Cash Rate Target  

Interest rates follow a similar trend, averaging a few percentage points higher than the cash rate.²Reserve Bank of Australia – Lenders’ Interest Rates  But while there’s only one official cash rate, interest rates vary from lender to lender and from loan to loan.  

Getting a general sense of interest rates and what they’re doing in the Australian market will give you a better perspective when comparing Home Loans. While you won’t find massive variations between the rates on offer, even small variations make a difference to your monthly repayments and may make a huge difference over the lifetime of your loan.   

Choose between fixed and variable interest rates 

Home Loans come in two flavours: fixed rate and variable rate. If they were ice cream flavours, fixed would be vanilla – you know what you’re going to get. Variable would be the flavour of the day. Might be balsamic fig – cool! Might be wasabi – hmmm.  

As the name suggests, Fixed Rate Home Loans guarantee you a particular interest rate for a certain period of time. If you manage to fix a low interest rate, it can have obvious benefits. It’s a way to protect yourself from future interest rate rises, or to have some certainty when planning your budget. But if interest rates fall, you won’t benefit from the newly reduced figure. There might also be less flexibility with making additional repayments, having an offset account or break fees associated with paying out your loan early.  

And in a surprise to no one, Variable Rate Home Loans vary – they go up and down in response to changes made by your lender. Variations can also be made when there are changes made by the Reserve Bank of Australia to the cash rate. A Home Loan with a variable interest rate generally allows more flexibility to make additional repayments or pay your loan out early without penalties, such as break fees charged to fixed rate borrowers.  

With these considerations in mind, people are more likely to opt for Fixed Rate Home Loans when they think interest rates are likely to rise in coming years. In 2020–22, when rates were low, lots of people jumped on the opportunity to get Fixed Rate Loans. Then, as the cash rate increased, the number of people getting Fixed Rate Loans decreased.³Reserve Bank of Australia – Fixed-rate Housing Loans: Monetary Policy Transmission and Financial Stability Risks 

Helpful tip:

If you’re buying your first home, take a look at the government assistance available for first homebuyers in your state. The First Home Owner Grant is available across Australia and may slightly differ from state-to-state. This is a great first step when you’re trying to figure out what you can afford.

Debbie Shankar

Former Group Content Manager, Lendi

Compare comparison rates 

There’s a particular number that all lenders have to include on their loans to help you compare them with other loans. It’s called the – wait for it – comparison rate. Every lender calculates this number the same way, using a complicated formula that only makes sense to them (or maybe to you too if you’re a mathematician, in which case, we’re impressed).  

The comparison rate includes the interest rate, plus most fees and charges.⁴Australian Securities & Investments Commission – National Credit Code Combined as a single percentage figure, it gives a good picture of how loans compare beyond just the interest rate.  

But note that the comparison rate doesn’t necessarily include all fees and charges. It might be useful to use the comparison rate as a starting point to rule loans in or out, and then look at them more closely from there. 

Get across annual fees 

Annual fees – the tollbooths on the highway of life. Some loans have them. (They’re also known as service or administration fees.)⁵Moneysmart.gov.au – Choosing a home loan Annual fees might set you back up to around $400 per year, which is a decent chunk of money if you add it up over the term of your loan.⁶Lendi – How much refinancing might cost It’s not hard to find a loan that doesn’t come with these extra fees, but that doesn’t necessarily mean it’s better, all considered – just like you don’t necessarily want to avoid a toll road if it gets you to your destination quicker. Just another thing to add to your pros and cons list!  

Use your savings to offset your loan interest 

Have some extra money lying around? Want to have your cake and eat it too, financially speaking? Then you might want to look for a loan that includes an offset account. An offset account is a savings account connected to your loan. Whatever amount you have in there is subtracted from the loan amount you have to pay interest on. So, for example, if your loan is $300,000 and you have $20,000 in your offset account, you’d only have to pay interest on $280,000.⁷As above

Compare Home Loans with our nifty calculator 

Once you’ve narrowed your search down to a few loans, there can still be a lot of variables to hold up against each other. Don’t be daunted – just try our calculator!

How can I compare Home Loans? 

Feeling a bit overwhelmed by all the ins and outs of your Home Loan decision? We can help. We’ve partnered with Lendi, Australia’s #1 online Home Loan platform, to help Aussies like you compare a variety of Home Loans and even apply online. Compare online and find what works for you.