How does the interest rate on your mortgage compare to Australia’s average home loan interest rate?
Choosing a home loan is probably the most important financial decision you will ever make. A home loan will cost you hundreds of thousands of dollars and affect your financial future for years to come, so it’s essential to make sure you get the best deal available.
The interest rate is a crucial factor in determining the true value of a home loan, and finding a lower rate can save you tens of thousands of dollars over the life of the loan. So let’s look at the average home loan interest rate in Australia and how that compares to any loans you may be considering.
Compare some of today's home loan rates
Rates last updated May 25th, 2017.
- Australian Unity Kick Starter Home Loan
Interest rate now 3.79%
May 4th, 2017
- Newcastle Permanent Building Society Fixed Rate Home Loan - 2 Year Fixed (Owner Occupier Special Rate, P&I)
Interest rate is now 3.79%
May 8th, 2017
- Newcastle Permanent Building Society Fixed Rate Home Loan - 3 Year Fixed (Owner Occupier Special Rate, P&I)
Interest rate is now 3.89%
May 8th, 2017
Why do I need to know the average home loan interest rate?
When you borrow money to finance the purchase of a home, banks don’t just hand the funds out for free. Not only will you have to pay back the money you borrow, but you’ll also have to repay the interest that accumulates on that principal amount.
Your lender sets the rate at which interest accumulates on the money you borrow. There can be substantial interest rate differences from one lender to the next, and they have a huge impact on the overall cost of your mortgage.
When comparing home loans, it is often quite difficult to wrap your head around all the facts and figures available to determine which loan offers the best value for money. But checking out the current average home loan interest rate on this page gives you a quick and easy way to compare rates for different mortgages on the market at any given time.
This information can then be used to help you make an informed decision about which home loan is right for you.
How much difference does a higher or lower interest rate make?
Even a slight variation in interest rates can make thousands of dollars of difference over the life of a home loan. For example, let’s consider a $500,000 home loan with principal and interest repayments and a loan term of 25 years. The table below shows the overall cost of this loan with an interest rate of 3.75% p.a. and 4.00% p.a.
|Loan A||Loan B|
|Interest rate||4.00% p.a.||3.75% p.a.|
|Monthly repayment amount||$2,639.18||$2,570.66|
|Total cost of loan||$791,755.26||$771,196.80|
|Total interest paid||$291,755.26||$271,196.80|
As you can see, the 0.25% p.a. lower interest rate of Loan B results in a saving of more than $20,000 across the 25-year loan term. That clearly demonstrates just how important it is to get a competitive interest rate. Use our home loan repayment calculator to see how a higher or lower interest rate could affect your mortgage repayments.
What other factors affect home loan affordability?
While interest rates are undoubtedly important, they’re not the only factor that determines whether a home loan meets your needs. Other issues to consider include:
- Fees. These include application fees, loan establishment fees, legal fees, ongoing fees, additional repayment fees and more.
- Loan to valuation ratio (LVR). This refers to the amount of money you are allowed to borrow relative to the value of the property you want to buy. It has a direct affect on the amount of deposit you will need to have saved in order to qualify for a loan.
- Repayment flexibility. As well as choosing a repayment schedule to suit your budget, some loans also allow you to make additional repayments at any time so you can pay your loan off quicker.
- Loan features. Some features you might like to take advantage of include a redraw facility to access your extra repayments, and an offset account to reduce the amount of interest you need to pay.
Compare your mortgage interest rate with the average home loan interest rate in Australia to determine whether your home loan offers value for money. Just remember to consider a host of other features and factors before choosing the loan that’s right for you.