A cheaper home loan can save you thousands. Learn how to find the cheapest home loan for you.
Finding a cheap home loan can save you thousands of dollars over the life of the loan.
This guide will give you expert advice on finding the cheapest loan by looking at interest rates, fees, features and loan periods. Or you can start comparing loans in the table below.
Home Loan Offer
With the Reduce Home Loans Rate Buster enjoy a home loan with 100% offset account and no ongoing fees as well as a competitive interest rate. Borrow up to 80% of the property's value.
- Interest rate of 3.54% p.a.
- Comparison rate of 3.54% p.a.
- Application fee of $440
- Maximum LVR: 80%
- Minimum borrowing: $50,000
- Max borrowing: $750,000
eChoice is an award-winning broker with over 18 years of experience, and has helped more than 50,000 Australians to find the right home loan.
- Completely free, expert home loan advice.
- Offers a suite of digital tools to make you a smarter borrower.
- Calculate your borrowing power with a free personalised home loan report.
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How can this page help?
The cheapest or lowest home loan rate for you may not be the cheapest home loan for someone else. Everyone is different, so you need to determine which home loan is the cheapest based on your borrowing capacity, your deposit, the features you need and how soon you plan to repay your loan.
The key features to focus on are finding a loan with:
- A low interest rate
- Low fees
- A shorter term
- Added features
This is probably what most people have in mind when they they think about finding the cheapest home loan. A low interest rate makes a massive difference to the overall expense of a home loan. Just look below to see how much of a difference it can make in the hypothetical situation below, all things being equal.
Typically, low interest rates are offered on basic home loans, or loans from lenders who have been able to reduce their costs, such as online lenders. Sometimes lenders will also offer very low fixed rates as promotions to secure new business. Once the fixed period ends, the rate can revert to a less competitive variable rate, so be sure to ask lenders what their revert rate will potentially be.
Different types of interest rate
It’s also important to consider the different types of rates on offer:
Standard Variable Rate
This is the standard headline rate on offer from the lender. It can change at any time, based on moves by the Reserve Bank of Australia, the lender’s cost of funds or regulatory change. Have a look at some of the reasons lenders change their rates.
Ongoing Discount Rate
This is a discount off a lender’s headline rate offered to entice borrowers, and can be dependent on factors such as special promotions, the borrower’s credit history and the loan-to-value ratio.
Package loans can also offer discounts in exchange for opening transaction accounts and credit cards with the lender. Bear in mind that they also usually charge an annual fee, so be sure that the discounts outweigh this fee. Some package loans also offer discounted insurance products and fee waivers for other products.
These rates remain locked in for a predetermined period, usually one, three or five years. While borrowers can secure some certainty that their home loan repayment won’t rise for the fixed term, fixed rate loans also mean they won’t see the benefit from any downward move on rates.
It’s important to look beyond the headline rate when considering a loan. Most loans have upfront fees, ongoing fees and discharge fees associated with them that can cost thousands.
When comparing loans it's a good idea to look at fees and rates together. Some loans may have low interest rates but high ongoing fees, as is the case with most package loans. These home loans charge an annual fee of $200 - $400 per year but offer discounted interest rates and upfront fee waivers.
A great way to understand these costs is to look at the comparison rate.
What’s a comparison rate?
A comparison rate gives borrowers an idea of the true cost of a loan. It takes into account both the loan’s interest rate and any associated fees and charges, and expresses this as a single percentage figure. Remember, a low advertised rate might not seem so low when fees and charges are taken into account.
Watch this video to learn more about comparison rates
It's simple: the faster you pay off a home loan, the less interest you pay over time. So even though the repayments for a 25 year home loan might look high compared to those of an identical 30 year home loan, the savings would be higher.
Check out the difference in the total cost of two loans below:
Why does this happen? With a longer loan term a borrower will be paying interest for longer. This makes the total cost of a loan much higher.
A 20 year home loan vs a 30 year home loan
$400,000 loan with an interest rate of 5%
- Repayments. $2,147.29 per month
- Total interest payable over 30 years. $373,023.14
- Repayments. $2,639.82 per month
- Total interest payable over 20 years. $233,557.51
As you can see, in this example, repayments on a shorter term loan would be just under $500 more each month, but would save $139,465.63 in interest payable over that time.
See how much you could save by shortening your loan term
There's a reason why banks advertise home loan features like offset accounts, interest only payments and loan portability. This is because they're popular features which can save savvy borrowers money. Here are a few common features offered on home loans:
- Offset accounts. An offset account is a transaction account linked to the home loan which reduces the amount of interest payable. For example, if you have a $200,000 loan and $10,000 in a 100% offset account, you will only pay interest on $190,000. You can use the offset account funds if you need to spend them, but then you'll have to pay interest on the full amount. Look out for monthly offset account fees, although most lenders don't charge them.
- Loan portability. This feature lets you move your loan to a new property without the high costs of exiting a loan and taking out a new one.
- Interest only payments. This can reduce your repayments because you only have to pay off the interest of the loan and not the principal. The downside of this is it can extend the loan term, potentially making the loan more expensive in the long run.
- Unlimited extra repayments. Some lenders charge penalty fees when you make extra repayments. But the most affordable home loan could be the one that lets you pay it off in your own way, so watch out for repayment fees. Note that while most lenders allow you to pay variable rate home loans off early with no problem, fixed loans will charge a penalty fee known as break costs.
Cheapest doesn't always mean best. And your personal circumstances and goals matter just as much as the loan itself. These are the things you need to look for when comparing cheap home loans.
- Know your needs. Before making any decisions you really need to look at how much you can afford to borrow and repay, what kind of purchase you're making and what kind of features or rate types will benefit you. You might value the stability of a fixed interest rate, for example. Or you might benefit from a shorter loan with flexible, no-fee repayments.
- Read your key facts sheets. Every lender must supply you with a key facts sheet. You can easily generate your own on a lender's website. The key facts sheet gives you a clear breakdown of your fees, charges and estimated costs over the course of the loan.
- Compare, compare, compare. The home loan market is highly competitive. And a home loan is probably the largest amount of money you'll ever borrow. Do your homework and compare as many loans as you can.
- Use a home loan calculator. Using finder's home loan calculator you can get a pretty good idea about your monthly repayments and how much a loan will cost over time. You can also calculate how much you can borrow, your stamp duty costs and switching costs.
Who are the cheapest home loan providers?
Online lenders traditionally have the lowest home loan rates. They have lower costs because they don't operate branch networks. But today many traditional banks can match or even exceed the competitive home loans offered by these cheaper home loan providers, so it pays to look at all lenders when seeking a cheap loan.
I'm a first home buyer, is there any help out there to make my loan cheaper?
Some lenders offer special loans tailored for first home buyers that are worth checking out. You can learn more about getting a loan as a first home buyer with our comprehensive guide.
And don't forget about first home buyers grants offered by many state and territory governments.
I want a cheap home loan but I need to save a deposit first. How do I save that much money?
Saving up your home loan deposit is a serious challenge for everyone. But there are ways to trim your expenses, build your deposit and find home loans that don't need large deposits. To master the art of home loan deposit saving you should look at our in-depth, six-part guide to home loan deposits.
I'm a pensioner. Do you have any advice for me about getting a cheaper home loan?
Pensioners can face challenges finding a home loan but there are plenty of options out there. You may face stricter lending criteria and need to provide extra documentation when applying for a loan.
A mortgage rate I've seen looks too good to be true! How can I know I can trust the lender?
You should always be comfortable with the lender you're planning on going with. If you're not aware of a lender, try calling them up to find out about them and their service level before lodging an application. Speak to previous customers or read customer reviews on sites like Product Review.
Keep in mind that little-known lenders might be funded by a larger bank, as is the case with NAB backing UBank, or Firstmac backing loans.com.au.
Are fixed rates cheaper than variable rates or vice versa?
This depend on the specific loan. The major cost difference between a fixed and variable loan is the possibility of having to pay break costs if you try to leave a fixed rate loan before the term ends. If you don't leave a fixed rate home loan early this won't be a factor to consider.
Another difference between the two loans is that variable rates can fluctuate, meaning they could go lower or higher than a fixed rate depending on the economic factors.
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