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  • Writer's pictureMegan Birot

Compare Home Loan Rates Australia (May 2024)

Updated: May 1

Key takeaways about home loans in Australia


  • The interest rate displayed alongside a home loan is expressed as a percentage per annum (p.a.), indicating how much interest you'll be charged in a year.

  • When comparing home loans, look at both the interest rate and the comparison rate, which reflects the total annual cost of a mortgage — including interest and fees.

  • Depending on your loan term, you might pay up to 50% of your total mortgage amount in interest over time.

  • According to the Australian Bureau of Statistics (ABS), the average new mortgage size in Australia is $598,624. 


When will home loan interest rates go down in 2024?

Australia's big four banks predict interest rates will remain stable for most of this year, and anticipate the first rate cut could happen in November 2024. However, some economists suggest we won’t see any rate cuts until 2025 as inflation remains stubbornly above the RBA's target range of 2-3%.


Home loan interest rates: Fixed vs variable

The interest rate on a home loan is either fixed, variable or split (a hybrid of the two).


Variable rate home loan: The interest rate will fluctuate in line with the market throughout the life of the loan. This means you can have lower repayments when interest rates drop, but higher repayments if they go up. A variable home loan provides flexibility and extra features like making additional payments to pay off your loan faster, and offset and redraw facilities.


Fixed rate home loan: The interest rate on the loan is fixed for a period, ranging from one to five years. Your repayments will be fixed during the fixed rate period, protecting you from rate rises, although you won’t benefit from lower repayments when rates drop. A fixed rate home loan may not have additional features like redraw and you may not be able to make extra repayments without penalty.


Split home loan: This is when you split your home loan into two parts — one with a fixed rate and one with a variable rate. This option provides both the flexibility of a variable rate loan and the certainty of a fixed-rate loan. You can choose your split, whether it's 50/50, 60/40, or 70/30.


Using calculator for LVR


How is interest on a home loan calculated?

Interest on a home loan is calculated daily based on your outstanding loan balance, but charged monthly with your repayments. 


Here’s what the calculation would look like if your loan balance was $600,000 with an interest rate of 6.00% p.a. 


  • 600,000 x 0.0600 ÷  365 = $98.63 daily interest

  • $98.63 x 30 days = $2,958 monthly interest 


If you’re making weekly or fortnightly repayments, divide this amount accordingly.


  • $98.63 x 14 days = $1,380 fortnightly interest 

  • $98.63 x 7 days = $680 weekly interest 


Your mortgage repayments will include a principal (what you borrowed) and interest component. Initially, a larger portion of your repayments will go towards paying off the interest, and over time, more of your repayments will go towards reducing your principal. That's because the interest is calculated based on the remaining balance of your mortgage, which decreases as you repay more principal over time.


Home loan interest rates example comparison

The higher your interest rate, the higher your mortgage repayments will be and vice versa. A slightly lower interest rate can result in significant savings throughout your mortgage.


Let's compare the difference in monthly repayments and total interest paid on a $600,000 home loan with an interest rate of 6.00% vs 6.25% over a 30-year term (with principal and interest repayments). 


Interest rate - 6.00% p.a. 

Interest rate - 6.25% p.a. 

Home loan

$600,000

$600,000

Loan term 

30 years 

30 years

Monthly repayments

$3,597 (save $97 per month)

$3,694

Interest over the loan term

$695,029

$729,949

Difference

Save $34,920

Nil 

As shown, you could end up paying up to 50% or more of your total mortgage amount in interest over time, depending on your loan term. 


How your LVR impacts your home loan interest rate 

One of the biggest factors that will impact your interest rate is your loan-to-value ratio (LVR) — this is your loan amount as a percentage of your property's value. LVR is calculated by dividing your loan amount by the property's value. 


Here’s an example calculation: If you have a 20% deposit of $120,000 to purchase a $600,000 property, your loan amount would be $480,000.


  • ($480,000 loan ÷ $600,000 property value) x 100 = 80% LVR

  • In other words, you’re borrowing 80% of the property’s value. 


Lenders consider your LVR when assessing your risk as a borrower and, therefore, your interest rate. That's why when you see a lender's advertised rate, you'll often see 'based on an LVR of X' next to it. The lower your LVR, generally the lower your rate. 


Lenders consider an LVR above 80% (when your deposit or equity is less than 20%) as riskier and usually charge lender's mortgage insurance (LMI) to offset that risk, along with a higher interest rate. Here's an example of how LVR impacts home loan interest rates. 

LVR

Interest rate 

Comparison rate

80% LVR or less

7.24% p.a.

7.24% p.a.

LVR above 80%


7.44% p.a.


7.44% p.a.

Source: ANZ Standard variable home loan. Rates are current as of March 2024.


Home loan repayments: Principal & interest vs interest-only

Your home loan repayments have a principal and interest component. Your principal is the loan amount you’ve borrowed from the bank and the interest is the cost of borrowing. So, a home loan comes with one of two repayment options: 


Principal and interest repayments (P&I): Your repayments include both your loan principal and interest. In this case, your regular payments are higher, but you'll pay less interest over the life of the loan. This is the most common type of loan repayment structure for owner-occupiers.


Interest-only repayments: You only pay the interest portion of your home loan for a set period (up to five years). This reduces your mortgage repayments during that period, but you'll pay more interest over the life of the loan. Interest-only loans are commonly used for investment properties to keep costs down. Investors don’t mind the extra costs as they can claim a tax deduction on the interest repayments.


Couple comparing home loans

Explained: Home loan features 


Offset account

An offset account is a transaction account linked to your home loan. Every dollar in that account offsets the amount owing on your mortgage and your interest. So, if you have a $600,000 mortgage and $50,000 in your offset account, you'll only be charged interest on $550,000.


This is the best home loan feature to reduce your interest payable. An offset account works similarly to a regular transaction account, allowing you to use your debit card for payments and to transfer funds in and out as needed.


Extra repayments

Many home loans offer the option of making extra payments in addition to your regular minimum mortgage repayments. Making additional repayments helps you pay down your loan principal faster and lowers your interest charges. 


Redraw facility

Allows you to redraw any extra repayments you've made on your home loan. You can withdraw additional repayments for any reason. A redraw facility isn’t an account but a feature attached to your mortgage. 


Portability

Portability is a home loan feature that allows you to transfer your mortgage to another property without incurring fees. This is done by changing the property securing the mortgage from your current property to a new one. This means you can avoid refinancing (and its associated costs) or keep your fixed rate without break costs.


Repayment holiday

A repayment holiday allows you to temporarily pause or reduce your home loan repayments if your financial circumstances change (e.g. parental leave, if you’re moving from a double to a single-income household, etc). Some lenders only offer this option if you’ve made enough additional repayments before the repayment holiday period.


Remember, this will lead to higher future repayments because the accrued interest will be added (capitalised) to your home loan balance, or the lender might extend your loan term, resulting in paying more interest overall.


Cashback offers

Cashback offers are incentives some lenders offer to attract new customers, typically refinancers (people looking to switch their home loan to a new lender). 


Home loan fees

Home loans come with hefty fees, which can range from 1-3% of your mortgage amount. Common fees charged by lenders include (but are not limited to):


  • Establishment fee: $150 - $750

  • Document processing fee: $100 - $600

  • Valuation fee: $100 - $500 

  • Settlement fee: $150 - $300

  • Security guarantee fee: $200 - $300 (if you have a guarantor)

  • Monthly loan service fees: $8 - $10

  • Annual package fee: $300 - $500

  • Loan feature fees: $10 - $50 

  • Progressive drawdown fee: $50 - $100 (construction home loans)

  • Exit or switching fee: $100 - $300

  • Mortgage discharge fee: $350 - $500 


Types of home loans in Australia

Owner-occupier home loan

A home loan to buy a property you intend to live in. Owner-occupier home loans typically have lower interest rates than investor home loans.


Investment home loan

Refinance home loan

Home equity loan

Low deposit home loan

Guarantor home loan

Self-employed (low doc) home loan

Bad credit home loan

Construction home loan

Bridging loan

SMSF loan

Reverse mortgage


Couple working with a mortgage broker

Tips from a mortgage broker: How to compare home loans 


  1. Choose the right mortgage broker. Work with a mortgage broker who understands your financial situation and property goals to compare and pre-select home loan options with your desired features. They should be able to offer you a good spread of different lenders to choose from and explain how each loan works and what it costs (including interest and fees). They should also help you structure your home loan to help to pay it off faster.

  2. Look at both the interest rate and the comparison rate. While the interest rate shows the percentage of interest you'll pay on your home loan, the comparison rate reflects the total annual cost of a mortgage — including interest and fees.

  3. Look for the lowest interest rate. A home loan is a long-term debt, so finding the lowest interest rate can save you thousands of dollars over time. 

  4. Compare loan options from at least three lenders. Review rates, home loan features, and fees from at least three different lenders as a way to benchmark their home loan offerings in the marketplace. Does any lender stand out for having a particularly good deal?

  5. Ask your lender for a Key Facts Sheet (KFS).  This document outlines important details about a home loan you're considering, such as the interest rate, fees and terms. It also includes a personalised comparison rate, an estimate of the loan’s total cost, and a breakdown of your monthly and yearly repayments.


How to reduce your interest & pay off your mortgage faster


Make weekly or fortnightly repayments

Switching your repayment frequency to fortnightly or weekly can shave years and tens of thousands of dollars in interest off your mortgage. For example, by making fortnightly repayments, you effectively make an additional month's repayment each year.


Use your offset account

Deposit your salary and savings in your offset account to reduce your interest payable. For example, if you have $30,000 in your linked offset account on a $600,000 mortgage with a rate of 6.00%, you could shave more than three years off the life of the loan and save $131,00 in interest.


Increase your repayments by 5%

For example, by increasing your weekly repayment on a $600,000 home loan with an interest rate of 6.00% over a 30-year term by just 5% ($41), you could save around $96,000 and shave three years off your home loan.


Refinance every 2-3 years 

Keep up with the market and aim to refinance to a lower interest rate every 2-3 years, while also reducing your loan term by one year each time. This can save you tens of thousands of dollars throughout your mortgage. Keep in mind that you’ll need at least 20% equity in your home, or you’ll need to pay LMI on the refinance. 


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