Using some average data from Finder's database and the ABS, we've calculated that an Australian borrower could save around $6,264 with a better rate.
*These rates and averages are current as of 11 April 2024. Finder's lowest rate is for an owner-occupier loan with 80% LVR and may not be the lowest rate across the entire market.
David Smith, chief customer officer of mortgage broking firm Aussie, says when you're deciding which home loan to get, it pays to keep in mind that every borrower is different.
"The first consideration you should make when choosing a home loan is to understand how much you can afford," Smith explains. "That doesn't just mean the maximum amount you can borrow – it also means the maximum you're prepared to pay each month for your loan repayment."
From there, you can plan a budget with your home loan repayments in mind.
"Don't forget, when you purchase a property, there are a number of other upfront costs to cover, including stamp duty – so make sure you factor those extra costs in too," Smith says.
Here are some examples of typical borrowers. While all borrowers are looking for the best home loan to suit them, they all need something a little different.
Our hypothetical first home buyers Sarah and Ted are in their late 20s and are currently renting. They've squirrelled away their money for 4 years and they've saved up $100,000, but because they live in Sydney, this isn't a very big deposit.
The best home loan for this young couple will ideally be one with the following:
With these criteria, Sarah and Ted find a low rate loan with a high LVR. They ask their lender if it accepts guarantors, which it does. Sarah's parents guarantee 15%, so they only need a 5% deposit and they can avoid paying lenders mortgage insurance. The loan they choose does come with a hefty application fee, but they decide it's worth paying because everything else about the loan is perfect for them.
In our hypothetical example, Margaret is currently paying off her home. She wants to buy a unit as an investment. She has $400,000 in equity and will use a line of credit loan to cover her deposit. But she'll need an investment loan to buy the unit. She is less concerned with fast capital growth and more concerned with long-term income from rent.
The best loan for Margaret will be one with the following:
Margaret talks to a mortgage broker who helps her organise the line of credit loan and an investment loan.
David is paying off a $1 million mortgage with a 30-year loan term. He has been repaying the loan for 10 years. David hadn't looked at his interest rate in a while and was shocked to learn that the rate is above 6.30% – when he sees advertisements for other banks and lenders that offer extra features and lower rates.
David wants to refinance to a loan that has the following:
David finds a low-fee variable rate home loan that has a 100% offset account. While his previous rate was around 6.50%, his new rate is 5.99%. He's now paying less interest each month.
There are 3 things every borrower needs to look at when hunting for the perfect home loan: rates, fees and features.
The interest rate determines your borrowing costs, and the lower the rate, the less interest you pay each month.
Let's say your loan amount is $500,000. You choose a variable rate with a 30-year loan term and principal-and-interest repayments (this means you repay the loan amount plus interest at the same time).
The best home loan will always have a lower interest rate because it lowers your monthly loan repayments:
| Interest rate | Monthly repayment |
|---|---|
| 5.50% | $2,839 |
| 5.75% | $2,918 |
| 6.00% | $2,998 |
| 6.25% | $3,079 |
| 6.50% | $3,161 |
| 6.75% | $3,243 |
But there's more to a good home loan than the interest rate.
Look for a loan that doesn't charge many fees. While home loan fees seem small in comparison to your repayments, they do add up.
Home loans with added features can offer you more flexibility in how you repay and manage your loan:
We've explained what the average borrower needs to do to find a great home loan. But every borrower's needs are slightly different. The best home loan for each borrower depends on their short- and long-term plans, and the reason they're buying a property in the first place.
Here are some examples of quite specific borrowers and what they'd need to look at to find the ideal home loan.
A property investor with a mortgage on the family homePlenty of investors haven't paid their own home loans off yet. While this means having 2 loans at the same time, it opens up some unique opportunities too.
For this type of borrower, the best approach could be as follows:
This is just one approach for a property investor to take. Another is to look for a home loan bundle or pivot loan that lets you combine your 2 loans, with a higher rate on your investment loan and a lower rate on your home loan. This can be effective for tax purposes.
A cautious home buyer with plenty of extra money in savingsLet's say you have a 20% deposit and you're looking for a home loan. Obviously, the best loan for you has a low interest rate. But let's say you also have a lot of extra money sitting in your bank account earning very little interest.
And let's say you don't have any desire to invest that money. You want to play it safe. In this case, the best home loan really is one with a 100% offset account.
This means you can park your savings in the home loan and still access it whenever you need it. But by saving the money there, you're cutting down the amount of interest your lender charges you.
You've signed a contract to buy and you're running out of timeIf settlement day is fast approaching and you haven't got a home loan approved, the best home loan is the one that a lender will approve quickly.
This could mean a few things. You might abandon the hunt for a better deal and just talk to your own bank. But banks can be slow. You might get faster loan approval with an online lender.
And if you're stuck, a mortgage broker will know which lenders can process your application faster. They can be a real lifesaver when you're running out of time.
If you haven't got the time or energy to do it yourself, talk to a broker. Mortgage brokers are professionals who have access to a panel of lenders. They can find you a product that matches your financial needs and also help with your application.
Talk to a qualified mortgage broker today.
Compare more home loan options here
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If my loan is around $240k, can I still get the cashback offer for the bank when I refinance?
if not, can I increase my loan to $250k to make myself eligible for the cashback?
Hi Budi,
It might be possible but you’d need to check with the lender specifically before applying.
Kind regards,
Richard
Do any lenders in Australia offer a variable rate home loan with a cap, ie; the rate can fall with the market but it can’t increase above a certain rate? Thanks
Hi John,
If you’re referring to capped rate home loans, at this time your options may be limited. These products are not common in the Australian lending market. It would be ideal to consult a mortgage broker to help you look for a suitable home loan.
Kind regards,
Richard
Hi
My fixed rate loan finishes on June 3rd.
I’ve been given the option of a variable rate of 2.59%, which apparently is 1.03% less than the advertised rate, for being a valued customer or I can go on a 2 year fixed rate of 3.49%.
Can you give any recommendations?
Regards
Martin
Hi Martin,
Unfortunately, we can’t give any personal financial advice or recommendations. A lower interest rate usually saves you money, but a fixed-rate loan won’t change during the fixed period.
If you need more guidance you could also speak to a mortgage broker.
Regards,
Richard
Inquiry regarding a first home loan for a person 44yrs of age receiving a disability support pension and presently paying a rent of $270 per week.
He is seeking his first home in an area close to Brisbane as possible on the Northern side priced at between $230,000 to $250,000 and has an available cash deposit of $150,000 to $200,000.
Hopefully you can assist with this matter
Regards,
Robert Benson
Hello Robert,
At Finder we don’t lend to customers, we just provide information to our readers. You should approach a lender or mortgage broker to get a home loan.
Kind regards,
Richard
Refinancing have to choose Athena or Aussie with Adelaide bank.
Which one better.
Hi Julian,
We can’t make this choice for you. It depends on your goals and needs. To help you decide which one to choose, you can view our guide on Refinancing Home Loans.
It’s worth seeking professional advice from a mortgage broker to get personalized advice and options.
Don’t forget to check the product terms and conditions, and eligibility requirements to make sure that it would suit your needs.
Regards,
Richard