Home loan comparison

What is a home loan?

A home loan is the money you borrow to buy a property. You save a deposit first, which is usually around 5-20% of the property's value. Then you borrow the rest. This is your loan amount, or your loan principal.

Your lender charges you interest based on the loan principal and your home loan's interest rate. The higher the home loan interest rate, the higher your repayments will be.

Learn more: What is a home loan?

Interest rate and repayment types

You can choose between a fixed interest rate and a variable rate loan. Fixed rates don't change but are often slightly higher, and less flexible (harder to exit the loan or make extra repayments).

Variable rates can change at any time but it's easier to switch to a new loan or pay it off faster.

Repayment types

Most borrowers choose home loans with principal-and-interest repayments. This means you borrow money and pay it back plus interest, at the same time.

Some borrowers go for home loans with interest-only repayments instead. With these loans you avoid paying the loan principal back for a few years. But you have to pay it off later, which costs you more.

How do I compare home loan interest rates?

A good home loan comparison starts with a careful look at interest rates. The interest rate is a key component of any home loan. The lower the rate, the lower your repayments will be. It's as simple as that.

Here's the difference in repayments between a 3.50% and a 3.00% interest rate (on otherwise identical loans with 20% deposits, and principal and interest repayments).

Over 30 years, that little 0.50% difference in the interest rate could save a borrower an enormous $39,600 in interest charges.

Check out Finder's lowest monthly mortgage rate tracker

What counts as a competitive mortgage rate? It can be hard to judge, especially with rates changing so often. Luckily, Finder has made it easier for you.

Every month, we analyse all the loans in our database and find some of the lowest home loan rates. The graph below shows the lowest fixed and variable rates for home buyers and investors.

The graph clearly shows the current historic low in home loan interest rates. This is due to multiple factors, including successive cuts to the official cash rate in 2019 and 2020, plus the economic impact of COVID-19.

Learn more about finding a cheap home loan

How do I compare mortgage fees and features?

Beyond the interest rate, comparing home loans means looking at the fees and various features that mortgages come with. A loan with the right features gives you more control over your money and unlocks new ways for you to use your mortgage to your advantage.

Comparison rate

The comparison rate does what its name suggests: It helps you compare a home loan against others. This rate is the home loan's interest rate plus the cost of its fees. It is a legal requirement to be displayed on all loans. But it's only a hypothetical calculation (and not necessarily that helpful).

The comparison rate is a useful reminder to always consider the cost of fees and to keep in mind that interest rates will change over the life of a home loan.

Features

Not every home loan comes with the same features, but here are the most common and useful ones:

• Offset account. A 100% offset account is a bank account that's attached to your home loan that lets you save and spend money like a normal savings account. However, any dollar saved in the account temporarily offsets your loan amount, meaning you are charged less interest. This allows you the flexibility of saving your cash while getting a similar benefit that you'd see from making extra repayments. If this feature is important to you, make sure your loan has one, as it is not available with every loan.
• Extra repayments. If your loan allows you to make extra repayments then you can pay it off faster. This will save you in interest charges. These days, most variable rate loans allow extra repayments, although some fixed-rate loans don't.
• Redraw facility. A redraw facility is common on home loans that allow extra repayments. Redraw allows you to withdraw extra repayments from your loan and spend them if you need to. It's a helpful way to access some money, but less flexible than an offset account. Some lenders charge a redraw fee or restrict how much of your repayments you can access.
• Portability. If your loan is portable it means that you can sell your property and buy a new one with the same home loan. You won't need to refinance, which makes life easier.
• Split facility. Some loans allow you to split your mortgage into both fixed and variable portions. This lets you create a flexible loan that offers the best of both a fixed and variable rate.

Loan-to-value ratio (LVR)

The loan-to-value ratio (or LVR) is another way of defining the minimum deposit. Most loans have a maximum LVR of 80%, meaning you need a 20% deposit.

However, many loans also have a maximum insured LVR of up to 95%. This means that you can get the loan with a smaller deposit, but you will need to pay lenders mortgage insurance (LMI) if your deposit is under 20%.

Fees

You're unlikely to go through the mortgage process without paying some fees. You should always factor fees into your home loan comparison. Examples of home loan fees include:

• Application fees. This one-off fee can run as high as $600.
• Ongoing fees. Some loans come with a monthly or annual fee. This can cost around $120 a year or $10 a month. Package loans often have an annual fee of up to $500.
• Valuation fees. This covers your lender's cost to have your property valued by an expert. It can cost several hundred dollars.
• Discharge fees. A discharge fee is only charged when you end a home loan, either by refinancing or paying off the loan.

Home loan comparison tips from the experts

We spoke to some industry experts for more inside tips on getting a good home loan.

Is there a big difference between lenders?

There are many lenders in the Australian mortgage market. Most of them are regulated as banks, and all of them must follow the National Credit Code.

The Big Four banks

The Big Four are the dominant players across Australian banking. Most customers stick with Commonwealth Bank, NAB, Westpac or ANZ. They all offer banking apps, large customer service teams, extensive branch and ATM coverage, and lots of mortgages to choose from. You won't get the absolute lowest rates on earth with the Big Four, but they are always competitive.

Other banks

There's more to mortgages than the biggest players, of course. Most Australian cities and regions have smaller local banks with a range of home loans to consider, and they often cover large areas of the country, think Bank of Melbourne, Bank of Queensland or Bendigo Bank. There are also large lenders with nationwide service and international banks operating locally in Australia. Some of the bigger ones you may be familiar with include AMP, HSBC, ING and Citibank.

Credit unions and non-bank lenders

There is an enormous number of Australian credit unions, non-bank lenders, building societies and other institutions that are member-owned. This means they work for their members and don't pay dividends to shareholders. They're often regional and may not have a presence in every state or territory. Some you may know include: Bank Australia, ME Bank and Australian Unity.

These lenders are usually members of the Customer-Owned Banking Association (COBA), which lists 63 member institutions.

Digital banks, fintechs, neo-banks and online lenders

There are lenders that do business entirely online (with phone support). Lenders such as loans.com.au, Tic:Toc and UBank are examples of online lenders with competitive rates. Some newer players in the market include neobank or fintech lenders like Athena and 86 400, which use apps and big data to offer customers a convenient online mortgage experience.

Specialist lenders

Borrowers in unique circumstances may need finance from a specialist lender. This includes bad credit home loans for borrowers with poor credit histories, and bridging finance and reverse mortgages for older borrowers.

How to compare lenders

Your choice of lender really depends on which one is offering a competitive home loan that suits your needs. It also means finding a lender that is willing to lend to you.

Every lender is taking a risk by lending you money, and every lender has a different appetite for risk, depending on the borrower's financial history and ability to pay back the loan.

Here are some ways that lenders differ when assessing loan applications:

• Property type. Some lenders aren't comfortable lending to people buying apartments in postcodes with a high number of apartment buildings. They see it as a higher risk. They might only lend you 70% of the property value or reject your application.
• Location. Many lenders only lend to borrowers in specific states, while smaller online lenders may specify something like "metro and regional cities only".
• Deposit size. If your deposit is below 20%, you'll find that some lenders will look at your application more closely or simply reject your application. Others will happily lend you 90% or more.
• Borrowing power. Every lender calculates your borrowing power slightly differently. You may find a lender willing to lend you tens of thousands of dollars more than another. Most lenders have borrowing power calculators that you can use to get a better sense of how much they can lend you.

The best way to work out if you have a good chance of being approved is to ask questions before submitting a full application. Let your prospective lender know the postcode you're buying in, your property type and your deposit size (you can provide estimates if you haven't found a place yet but know roughly where and what you are looking for).

If the lender offers pre-approval, then this can be a good way to get a clearer sense of what the lender can offer you before submitting a full application.

More home loan questions answered

• What's the difference between a home loan and a mortgage?

  To the ordinary person looking to buy a property, there's usually no actual difference between the words "mortgage" and "home loan". They are used interchangeably to mean the money you borrow to buy a property.

  However, if you want to get very technical, a home loan refers to the money you borrow. The mortgage is a legal document that ties you and your property to the lender. In the event you cannot repay the home loan, the mortgage acts as the lender's security and gives it the right to sell your home to recover your debt.

• How long does it take to get approved for a home loan?

  Home loan approval times vary from lender to lender and also depend on how complex your borrowing situation is.

  A lender may be understaffed or very busy when you apply, and an approval might take several weeks. Some online lenders have developed faster digital approvals that allow them to process an application in a matter of days. A big bank may take weeks to approve a loan.

  If you have all your loan paperwork, financial information and identity documents organised, the approval process might be faster.

• Which bank has the best home loan?

  The best home loan looks a little different for every borrower, but it always means a combination of 3 things: a low interest rate, loan features you actually need (such as an offset account) and low fees.

  If you want a loan with flexible options that's easy to refinance, then you probably want a variable interest. If you prefer to know exactly how much you'll be repaying every month without worrying about rate rises, then a fixed interest rate is best for you.

  Every month at Finder, we analyse the home loans from our commercial partners through a strict methodology that includes fees, features and how low the loan's interest rate is. We use this to determine our top picks for the best home loans for investors, refinancers and first home buyers.

• How do I find the cheapest home loan?

  The cheapest home loan essentially means the lowest home loan rate you can qualify for. But it's important to factor in the cost of fees too. And if you want to put some extra savings into an offset account attached to the loan, you can end up paying even less interest. This makes the loan even cheaper.

  And if you really want lower repayments right now, an interest-only loan might be cheaper for you in the short term. However, in the long run, these loans are more expensive because you have to pay back all the interest later.

More helpful home loan guides

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