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Is There A Way To Find Better Rates For Your Home Loan?
Whether you’re looking to apply for a new mortgage or you already have one, interest rates are probably on your mind. Unfortunately there is no “best rate home loan” – it’s all about comparing products to find one which suits your individual circumstances.
Finding a suitable home loan interest rate is one of the most important features to consider when comparing loans: a lower interest rate could mean more money in the budget for everyday living, and paying off your mortgage years earlier.
Making complicated financial decisions can be daunting, but it’s worth your time to find a suitable deal on your home loan interest rates. At iSelect powered by AFG, we’re here to help you make informed decisions about your mortgage, and help you find a fixed, variable and split interest rate that suits you, wherever you are in Australia.
Understanding the language of home loans
Banking and finance can seem like it has a language all of its own. By getting across some of the terms banks and lenders use when they talk about interest rates, you can put yourself in a good position to find competitive interest rates on a home loan that suits you.
Terms to understand:
- The Reserve Bank of Australia (RBA): the RBA sets the ‘cash’ interest rate1, which has been set at a very low rate of 1.5% since August 20162. Your bank or financial institution sets their own rates using the RBA cash rate and a range of other factors.
- Variable interest rate home loans: variable rates can go up and down in response to changes made by your lender. Their variable interest rate will usually (but not always) change depending on changes made by the RBA to the cash rate. A home loan with a variable interest rate usually allows more flexibility to make additional payments or pay your loan out early without penalties, such as extra or exit fees.
- Fixed interest rate home loans: if you find a good interest rate, a fixed rate home loan lets you lock it in for a set time, usually from 1 to 5 years. You might choose this option to protect yourself from future interest rate rises, or to have some certainty when planning your budget. The downside to a fixed interest rate is if interest rates fall, you won’t benefit, and there might be less flexibility with making additional repayments or paying out your loan.
- Loan to value ratio (LVR): is calculated by dividing the total amount of your home loan by the value of the property.
How to compare different home loans
When you start researching home loan interest rates, using a comparison site helps to compare apples with apples: you can compare mortgage rates, fees, and other loan features side by side and see exactly where they’re different.
Interest rates are important, but they’re not the whole story – each lender will have their own fees and charges. When comparing home loans, look at the comparison rate as well as the interest rate3. The comparison rate includes the interest rate and most fees and charges, combined as a single percentage figure.
It’s also a good idea to get across interest rates and what they’ve been doing in the Australian market4. Are they going up or down? What’s the average interest rate this month? Is it worthwhile considering a fixed rate home loan, or a partially fixed rate loan, where you pay a fixed rate on some of your loan, and a variable rate on the other part of your loan?
Be cautious of selling points such as low interest rates for the first couple of years (known as the honeymoon period), and claims that home loan features will help you pay off your loan faster – usually the only way to do that is by increasing your repayments, lowering fees and having a home loan with competitive interest rates.
Finding a home loan that’s suitable for you
A basic or ‘no-frills’ home loan will generally have a lower comparison rate than a home loan with features such as a redraw facility, offset account or line of credit5. These features can be convenient, but they’re not free – loans with these features may charge higher interest rates or have ongoing fees that add up over the course of the loan.
If you’re thinking about a mortgage for an investment property6, it’s likely to have slightly different conditions – and a different interest rate – than a standard ‘owner-occupier’ home loan. You may be able to access an interest only loan, or use equity in a property you already own.
Are you satisfied with your current home loan interest rate?
Unfortunately, there are no prizes for loyal customers – when you investigate the interest rate and fees for your current mortgage, you may find you’re not getting a great deal with your home loan interest rate. This could be adding years to your mortgage.
Don’t fall into the trap of staying with your lender because it seems too complicated to refinance to another lender with a lower interest rate.
If you compare interest rates and features and see a better deal, the new lender can probably help you switch without too much hassle. Refinancing too often is likely to cost you more than it saves, but that doesn’t mean you shouldn’t set aside time for a quick, regular check in on whether your home loan interest rate and features are still working for you.
If you do find you aren’t getting a good deal and decide you want to change lenders, you’ll need to weigh up lower interest rates with the costs of changing home loan providers, which may include exit or break fees, and establishment fees.
Compare home loans with iSelect powered by AFG
There are lots of things to think about when searching for the interest rate for your mortgage. iSelect powered by AFG helps you compare home loans from over 25 of Australia’s leading lenders, our industry experts do the leg work for you and let you make a direct comparison without hours of research.
iSelect powered by AFG can support your home loan application too, using qualified mortgage brokers to help you find a suitable deal on your home loan.
We don’t compare all home loan lenders or products in the market. Some products may only be available from iSelect powered by AFG’s call centre. The availability of products will change from time to time. Not all policies available from our providers are compared by iSelect powered by AFG and due to commercial arrangements, your stated needs and circumstances, not all policies compared by iSelect powered by AFG will be available to all customers. Click here to iSelect powered by AFG’s range of lenders.
Home loans products arranged by iSelect Mortgages Pty Ltd (ACN 148 217 181) powered by AFG, is an authorised credit representative of Australian Finance Group Limited (Australian Credit Licence Number 389087).
Any advice provided in this article is of a general nature and does not take into account your objectives, financial situation or needs. You need to consider the appropriateness of any information or general advice we give you, having regard to your personal situation, before acting on our advice or purchasing any product. We receive commission for each product sold.