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You’d think it was as simple as looking at the lowest number in the table, right? Well, it can be. But there are some things to watch out for that could make your cheap home loan…not so cheap.
The starting point is to always look at the rate. The lower rate, the lower your repayments.
Some loans lure you in with a cheap attractive rate, but then you find it piles on a huge fee to apply and another fee to pay each month as well. Your cheap rate now costs you more per month than the slightly higher interest rate with no fees.
Comparison rates are normally based on loans of $150,000 so they’re not always helpful. But if the comparison rate is much higher than the actual interest rate, you can bet there are other costs driving your repayments up.
It’s all well and good getting a low interest rate but if you’re sacrificing access to features that could save you money in the long run, it’s not worth it. Take an offset account, for example. Using an offset account will mean you pay down the loan faster because it reduces the amount of interest you need to pay.
The number one factor in determining a cheaper home loan is a low interest rate.
Let's compare 2 otherwise identical home loans with slightly different interest rates.*
| Interest rate | 6.46% | 4.99% |
|---|---|---|
| Loan amount | $693,802 | $693,802 |
| Loan term | 30 years | 30 years |
| Monthly repayment | $4,368 | $3,721 |
| Monthly saving | N/A | $647 |
| Annual saving | N/A | $7,764 |
As you can see, with the lower interest rate, you save $647 a month – or $7,764 a year.
*We're using the average owner-occupier home loan size from the ABS, the average variable rate loan in Finder's database of the full market and the lowest variable rate.
How much can you save with a cheaper home loan?
We calculated this by using our loan repayment calculator. Try it out for yourself and see how much you could save.
Every month, we analyse the rates in our database to create a list of the market's cheapest loans.
The lowest variable interest rate in Finder’s database is 4.99%
The lowest fixed interest rate in Finder’s database is 4.64%
Interest rates can change depending on your circumstances, but as a guide, here are the cheapest home loans from the big 4.
| Bank | Cheapest Fixed Rate | Cheapest Variable Rate |
|---|---|---|
| ANZ | 5.19% | 5.5% |
| CBA | 5.34% | 5.34% |
| NAB | 5.19% | 5.69% |
| Westpac | 5.24% | 5.64% |
"I wanted to make sure I have one of the cheapest home loans on the market. So I found an online lender with a consistently low interest rate (I should know, I check rates every month). But I also made the sure the loan had an offset account. For me, being able to build up savings in the offset account speeds up my loan and cuts down my overall interest charges dramatically. This makes the loan much cheaper in the long run."
At a very basic level, the cheapest home loan is the one with the lowest rate. But every borrower has different needs. So beyond a low rate, you need to get a loan that actually helps you achieve your property goals and financial needs.
Home loans are normally taken out for 30 years, but the sooner you can repay the more you'll save! Most variable rate home loans allow you to make extra repayments and pay the loan early.
Fixed rate loans are less likely to allow extra repayments and will probably charge a break fee if you do repay early.
The cheapest home loans are likely owner-occupier loans, but if you're buying an investment property they won't help you. You might also want an interest-only loan for the tax benefits if you're an investor.
The money you'll save by using an offset account may very well mean you end up paying less than if you went for a lower rate without an offset account. Check out our guide on offset accounts to see if it could help you.
"If I had to credit just one thing with helping me repay my home loan in just 7 years, I'd say it was an offset account. This is a debt-busting secret weapon. You should keep every cent to your name in one of these – we're talking your savings for everything, your emergency cash stash and even your salary. You'll likely save tens of thousands of dollars and shave years off your time in debt."
Most borrowers choose 30-year loan terms.
If you picked a shorter loan term your monthly repayments would be higher, but you'd pay off your loan 5 years earlier, saving thousands in interest.
Let's look at 3 examples where the loan term changes:
| Loan term | 30 years | 25 years | 20 years |
|---|---|---|---|
| Interest rate | 5.50% | 5.50% | 5.50% |
| Loan amount | $600,000 | $600,000 | $600,000 |
| Monthly repayment | $3,407 | $3,685 | $4,128 |
| Total cost* | $1,226,425 | $1,105,358 | $990,558 |
*Total cost here refers to the amount of interest you pay over the life of the loan, plus the principal.
Some lenders charge multiple loan fees that can add up to hundreds of dollars. But other lenders charge basically no fees at all (you still have to pay government fees like a mortgage registration fee).
If 2 loans have identical interest rates and features, the one with fewer fees will be the cheapest home loan.
Easier said than done, of course. But saving a bigger deposit means borrowing less money. And that instantly makes your home loan cheaper.
It saves you money in other ways too:
Let us do the talking - we spoke to heaps of experts, brokers, banks and real humans to put 20+ hours into this guide. Our editors regularly talk to buyers, refinancers, investors and every one in-between to keep this information useful.
Rates obsessed - We track big banks, small banks, credit unions and digital banks because even 1 decimal place could save you big bucks (without getting annoying calls!).
Ready when you need it - Lending rates verified from 180+ products day and night. Whether you've remembered you need to refinance at 3am or live at an auction - our rates are up-to-date.
The Finder Score crunches 7,000 home loans across 120+ lenders. It takes into account the product's interest rate, fees and features, as well as the type of loan eg investor, variable, fixed rate - this gives you a simple score out of 10.
To provide a Score, we compare like-for-like loans. So if you're comparing the best home loans for cashback, you can see how each home loan stacks up against other home loans with the same borrower type, rate type and repayment type. We also take into consideration the amount of cashback offered when calculating the Score so you can tell if it's really worth it.
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