Want to save thousands of dollars over the life of your loan? Here are five ways to find a cheaper* home loan.
By looking carefully at your home loan's interest rate, fees, features and repayment structure, you can find many ways to save. This page will give you general advice on getting the cheapest loan for your situation. You can also start comparing loans for yourself in the table below.
Home Loan Offer
With the loans.com.au Essentials Variable Home Loan, you can enjoy a home loan with no application or ongoing fees as well as a competitive interest rate. You can borrow up to 80% of the property's value. This loan is for owner-occupiers and comes with principal and interest repayments only.
- Interest rate of 3.64% p.a.
- Comparison rate of 3.66% p.a.
- Application fee of $0
- Maximum LVR: 80%
- Minimum borrowing: $50,000
- Max borrowing: $2,000,000
Start your search for a cheaper home loan now
Compare cheap home loans
- Tic:Toc Live in Loan Variable Rate - Principal & Interest: 3.53% p.a. comparison rate. Competitive variable rate from a 100% online lender.
- Yellow Brick Road Rate Smasher Home Loan: 3.58% p.a. comparison rate. A sharp interest rate and low fees.
- Westpac Flexi First Option Home Loan - 2 Years Introductory Special Offer (New Owner Occupier, P&I): 4.42% p.a. comparison rate. Discounted, competitive variable rate with flexible repayments.
- IMB Budget Home Loan - Special LVR <=90% (Owner Occupier, P&I): 3.69% p.a. comparison rate. A low rate loan available with only a 10% deposit.
Getting a lower interest rate is one of the best ways to save on your loan. Even a difference of a few basis points saves you thousands over a 30-year mortgage. Here are some tips to help you compare rates:
- Variable versus fixed rates. Variable loans usually have lower rates and offer more flexibility than fixed loans. But you can find very competitive fixed rate loans too. If rates rise while you're still on a fixed loan, you may end up with a more competitive rate.
- Introductory rate discounts. Look out for loans with discounted introductory interest rates. These might be some of the lowest loans on the market. Just watch out for fees and be ready to switch if your rate jumps up.
- Non-bank lenders. Loans from smaller, non-bank lenders are more likely to have lower rates. But the mortgage market is so competitive that even the big banks are offering comparably low rates.
- Negotiating. Once you've chosen a mortgage you can ask for a discount. It never hurts to ask.
Most mortgages come with fees. These are separate from the interest rate and your repayments, but they are calculated into a loan's comparison rate.
Upfront, one-off fees (like application fees) can seem expensive, but smaller, ongoing fees can cost you more in the long run.
So should I avoid fees at all costs?
Not always. You need to crunch the numbers and work it out for yourself. If a loan has a low rate and features you need (like an offset account), then it might be worth paying the fee.
Some fees only come at the end of the loan or when switching lenders. Keep this in mind if you're planning to refinance (which you probably should).
Home loans with the lowest interest rates often have fewer features. But the right features can help you get more out of your home loan and save you money. It depends on your strategy.
- Offset accounts. An offset account is a transaction account linked to your home loan. It reduces the amount of interest you're repaying. For example, if you borrow $200,000 and save $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.
- 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.
- Unlimited extra repayments. Some lenders charge penalty fees when you make extra repayments. 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.
The bigger your deposit, the less you have to borrow. This makes for cheaper repayments. In some cases, a bigger deposit unlocks lower rates. Most mortgages require a deposit between 5% and 20% of your property's value. If you borrow with a deposit that is less than 20% of your property's value, you will need to pay lenders mortgage insurance on top of your loan.
Having at least 20% of your property's value as a deposit saves you money. If you have a 30% deposit, you could get an even lower interest rate, but that's unrealistic for many home buyers.
Your repayment structure has a big effect on the cost of your loan. Principal and interest loans result in bigger monthly repayments but are cheaper in the long run. Interest-only loans have much cheaper repayments during the interest-only period but higher repayments afterward. This costs you more over time.
Shorter loan periods
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:
A 25-year mortgage has higher repayments, but works out to be cheaper in the long run because you pay less interest.