How to Find a Home Loan with a Good Interest Rate
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How to Find a Home Loan with a Good Interest Rate

Katie Douglass

Katie Douglass

26/03/2021 • 6 minute read

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If you’re looking into home loan interest rates then you’re not alone! Buying a house has long been considered part of the great Australian dream. According to data from a Commonwealth Bank survey, more than 70% of Aussies consider owning a property to be the ultimate goal. If you think this dream is dying with the young though, well think again! In a 2020 report from illion, almost 20% of all new home mortgages in the last two years were taken out by Aussies under 30.

Since one of the most common ways to achieve home ownership is by taking out a loan, buying property can be one of life’s biggest decisions. So, let’s get stuck into interest rates and how you can find a home loan with a good one!

What is a home loan?

In a nutshell, a home loan otherwise known as a ‘mortgage’ is the money you borrow from a bank or financial lender to purchase a property. You repay this money plus interest through regular repayment instalments, which usually spans over a period of between 25 to 30 years. The interest rate is the cost of borrowing the loan. Usually, the best home loans will have the lowest interest rates. Typically, the lower the rate, the less interest you have to pay for each instalment.

COVID-19 and interest rates

As of August 2020, the Reserve Bank of Australia has set the cash rate at a historic low of  0.25% for several months as a result of the COVID-19 pandemic and its impact on the Australian economy. It has meant the Reserve Bank is unlikely to increase the interest rate for a long period of time. An upside to this is that the record low interest rate could be good news for home loan interest rates, especially for those who have a variable interest rate!

Types of interest rates

Before comparing home loans, it’s important to decide which type of interest rate you want. There are several types but the most common are variable rates and fixed rates.

Variable rates

A variable rate means your home loan interest rate will vary depending on the current loan market. This type of interest rate could provide more flexibility as the rate can go up or down at any time. One of the advantages of variable rates is that you may be able to make extra repayments to help pay off the loan sooner. However, variable rates are uncertain and can make budgeting a little tricky, especially if the interest rate increases.

Fixed rates

Fixed rates let you set an agreed-upon interest rate that will not change during a fixed period of time, usually between one to five years. One of the advantages of fixed rates is that it lets you know exactly how much your repayments will be. This allows you to organise your budget more easily knowing it won’t change during the fixed loan period. It also means that if the interest rate rises, it won’t affect the amount of interest you have to pay.

On the other hand, if the interest rate goes down, you may be paying more interest than someone else who is paying a variable interest rate. It’s also important to note that a fixed rate can be less flexible, especially if you want to refinance during the fixed period. If you want to switch from a fixed to a variable interest rate, there may be a break fee.

Determining which rate works for you

Deciding which type of interest rate you want is dependent on your own financial situation and budget needs. The following table is by no means comprehensive, but it does provide a good overview of some of the key pro’s and con’s of each rate type:

Pro’s Con’s
Fixed Rate
  • Interest rate won’t change during the fixed period, so you don’t have to worry about your rate changing
  • There’s fewer features but you don’t always need these under a fixed rate
  • Often have higher exit fees
  • Harder to refinance because of break fees
  • Less likely to have offset accounts or redraw facilities features
Variable Rate
  • Often come with lower fees
  • Easier to refinance
  • More likely to have redraw facilities and offset accounts features
  • Flexible repayment options
  • Many don’t charge for extra repayments which allows you to pay your loan faster
  • Interest rate can be changed at any time by your lender
  • Need to keep an eye on your interest rate for budgeting

Base vs. comparison rates

Base interest rates describe the percentage of your loan that is being charged in interest. While a comparison rate includes the base interest rate plus any additional regular fees. There are a number of factors that may be taken into account when calculating the comparison rate including the interest rate, fees, loan term, loan amount, and the frequency of payments. Make sure to check with your lender if there are any fees not included in the rate before choosing a home loan.

Comparing home loan interest rates

When comparing home loans in Australia, the interest rate is important considering the long-term nature of a home loan. Before comparing the home loan interest rates on offer, here are a few questions to ask:

  • Does it have an introductory rate? Some ‘low rate’ loans may have introductory rates with higher revert rates.
  • If it’s a fixed rate, is there a break fee? How much is the break fee? If you want to refinance from a fixed rate home loan, it can be expensive so check the break fee before signing.
  • Can you make extra repayments?

The lowest home loan interest rates in Australia

Please note, the information shown in the following table reflects the current rates offered by financial providers. Products are ranked by their lowest advertised interest rate as of August 2020. Ensure you check upfront with your loan provider to further understand if their product meets your needs.

Provider Advertised rate p.a. Comparison rate p.a. Application Fee
Tic:Toc – Live-in Variable P&I 🔥 2.19% 🔥 2.20% 🔥 $0 🔥
UBank UHomeLoan Variable Rate 2.49% 2.49% $0
Macquarie Bank Basic Home Loan 2.59% 2.59% $0
Virgin Money Reward Me Variable Home Loan 2.60% 2.77% $300
St.George Basic Home Loan 2.64% 2.66% $500 (except for loans above $150,000)
HSBC Home Value Loan 2.65% 2.66% $0
Suncorp Back to Basics Home Loan 2.78% 2.79% $0
Heritage Bank Discount Variable Home Loan 2.78% 2.80% $600
Westpac Basic Variable Rate Home Loan 2.79% 2.80% $0
Greater Bank Great Rate Discount Variable 2.94% 2.95% $0
Athena Variable Home Loan 3.09% 2.74% $0
Bankwest Complete Home Loan 3.32% 3.76% $0

*Rates are subject to change over time.

Ready to purchase your dream home?

We hope this article helped you find out what you need to know about home loans and interest rates. If you want to learn more about personal finance, make sure to check out other articles on Oiyo.

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Other helpful resources:

  • MoneySmart | www.moneysmart.gov.au/home-loans
  • National Housing Finance and Investment Corporation | www.nhfic.gov.au
  • First Home Owner Grant | www.firsthome.gov.au

Oiyo is a consolidated online resource, we are not financial advisors. We work with a range of industry professionals and compliance check our articles to ensure factual accuracy. However, we do not provide professional financial advice. Consider seeking independent legal, financial, taxation or other advice to check how the information and ideas presented in this article relate to your unique circumstances.


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Katie Douglass

Written by Katie Douglass

Katie Douglass is the Communications Manager at Oiyo and a writer. In recent years, Katie's work has appeared in publications such as Marie Claire, InStyle, and THE ICONIC. She has a Bachelor of Creative Industries in Fashion Communication & Journalism from the Queensland University of Technology. At Oiyo, Katie is responsible for overseeing editorial strategy.

More about Katie Douglass

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