Home loan comparison made easy
These days there are a tonne of home loan options out there on the market, which means there’s sure to be an option that suits your needs - but that it can seem like a huge job to find it! That's where Mozo’s simple comparison tools come in.
We compare home loans from lenders all over Australia to help you sniff out the best mortgage rates, whether you’re buying your first family home, investing in your fifth rental property or refinancing a mortgage you’ve already had for a decade.
Home loan comparison is not all that different from comparing a new phone or dishwasher. Essentially, you're after the best priced loan with all of the features you need. Like purchasing a new phone or dishwasher, you may also want to take out your home loan with a brand that you can trust and has good customer service.
Let's break down the top three steps to comparing home loans in a bit more detail...
3 step checklist for comparing home loans
1. Home loan interest rates
With a home loan, the best price really comes down to the interest rate, so that's where to start your comparison. Fees like upfront fees and ongoing fees do come in to it, but the interest rate is usually the biggest factor in determining the overall cost of the loan. A good way to kick off your comparison is to start with the lowest rate home loan in the table and review the features it offers. The lowest mortgage rates rates on the market are usually offered by smaller lenders such as online lenders and smaller banks.
Taking out a home loan with one of these lenders can be far cheaper than going with a big bank as the interest rates on offer can be over 1% lower, but you'll also need to weigh up what sort of features are on offer for the price and whether you're even eligible.
2. Home loan eligibility
These days, the best home loan rates are often reserved for the best quality borrowers, but how does a lender determine whether you're good quality or not? Much of it comes down to what type of borrower you are and how much deposit you have. Owner occupier borrowers looking for a principal and interest loan can generally access the lowest rates. By contrast, investor borrowers and those after an interest only home loan may find they have to pay higher interest rates.
Many lenders also offer lower rates to borrowers with lower loan to value ratios. As an example, say you're looking to refinance your current home loan and you have 30% equity in your property, that means you have a loan to value ratio (or LVR in industry speak) of 70% and may be able to access cheaper rates than a borrower with a higher LVR of say 90%.
3. Home loan features
Important features to consider when comparing home loans include extra repayments, redraw, offset account and split loan functionality. Basic features like the ability to make free extra repayments and free redraws are pretty standard these days, even with the cheapest home loans on the market. However, if you want an offset account you may find your choice of home loan more limited. Some low interest rate loans do offer offset accounts, but by no means all.
Offset accounts can be great tools for reducing the amount of interest that you pay on your home loan, so it's worth shopping around for this feature if you think you can make good use of it by depositing your salary in the offset account in month. An offset account functions just like a normal transaction account, but the money in it is offset against your loan balance to reduce your interest bill.
Now that you’ve read our 3 step checklist to comparing home loans, scroll back up to the top of this page to start your comparison. If you’d prefer to first learn a bit more about the different types of home loans available in Australia, keep on reading.
Types of home loans in Australia
1. Variable rate home loan
This is the most common type of home loan in Australia as historically variable rates are lower than fixed. With a variable rate home loan, your repayments can be affected by your interest rate going up or down when the Reserve Bank changes the cash rate or if your bank decides to be generous (or greedy) during your loan term. These loans suit borrowers who want flexibility such as the ability to make extra repayments and who aren't concerned by the possibility of their interest rate going up or down over the course of the loan.
2. Fixed rate home loan
A fixed rate means that your repayments are locked in for a fixed term (usually 1 - 5 years). At the end of the fixed term you will get the option to refix your loan at a new market rate or switch to a variable rate. Budgeting is made easier on a fixed rate home loan as you don't have to worry about your rate or repayments changing for the fixed loan term. The main drawback of a fixed rate loan is you won't benefit from any rate drops while you're on the fixed term, but the upside is that you're also protected from rate increases. Fixed rate loans can be less flexible than variable loans with limited ability to make extra repayments and if you pay out the loan early, you could be up for high fees and penalties.
3. Split rate home loan
A split rate home loan is when your lender splits your home loan so that a portion of the borrowed amount is on a variable rate and the remainder is on a fixed rate. This is a popular loan option as borrowers have the flexibility to make extra repayments and redraw on the variable portion of the loan, but are less exposed to rate increases and budgeting uncertainty by having part of the loan fixed.
More home loan FAQs
Am I eligible for a home loan?
There are heaps of home loans on offer these days, designed to cater to a wide variety of borrowers and their needs. That means that if you’re over 18 years old and an Australian citizen or resident, chances are you’ll be able to find a mortgage suitable for you.
The best home loan rates are often reserved for the best quality borrowers, but how does a lender determine whether you're good quality or not? Much of it comes down to what type of borrower you are and how much deposit you have. Owner occupier borrowers looking for a principal and interest loan can generally access the lowest rates. By contrast, investor borrowers and those after an interest only home loan may find they have to pay higher interest rates.
Lenders also look at a number of factors including your credit history, your income, your regular expenses and other financial commitments and how much you’re hoping to borrow when deciding whether you’re a reliable borrower.
How much money will I be able to borrow?
Buying a home is exciting, but before you get carried away dreaming about seafront mansions, it’s a good idea to come down to earth and crunch the numbers on just how much you can borrow.
How much a bank will lend you will depend on a number of different factors, and the end figure might be a lot different to what you’re expecting. We’ve made it easy to see what kind of budget you might have, with our home loan borrowing calculator. So take it for a spin before you set your heart on a property.
How much should I save as a deposit?
Saving up a deposit is the first hurdle to buying your home - but how much do you need? As a rule of thumb, you should aim to save at least 20% of the property’s value as your deposit. This gives you a loan-to-value ratio (LVR) of 80%, which is pretty standard for home loans, and often means you can score some of the best interest rates around.
To help borrowers get into the market quicker, there are also home loans available for borrowers with deposits of 5% or 10% of the property’s value. But if you have a smaller deposit like this, remember that you will need to pay Lenders Mortgage Insurance (LMI) on top of your loan, which can add thousands of dollars to your total cost.
How are monthly home loan repayments calculated?
There are two different types of home loan repayments: interest-only and principal and interest. Which one you choose will make a difference to your monthly repayments.
An interest-only home loan is just what it sounds like - your monthly repayments will only be paying off the interest you owe, and not chipping away at your principal loan amount. While this means your monthly repayments will be lower, keep in mind you’ll also wind up with the lump loan amount to pay off at the end.
The other thing to remember is that usually, an interest-only term lasts for up to 5 years - after that, your lender may let you roll over into another interest-only term, or you might have to start making principal and interest repayments.
Principal and interest loans
This is what’s called an amortizing loan, which means your bank has done the math so that if you pay the same amount each month of your loan, by the end of the loan term, you’ll have paid off all the interest, along with the initial loan principal.
This means that your monthly repayments will be a bit higher than with an interest-only loan, but the good news is you won’t have a lump sum to pay off at the end.
What home loan features will help me save money?
A home loan is a huge financial commitment, so every dollar you can save makes a difference! Apart from finding an offer with a killer interest rate, there are a few money-saving home loan features that you can look for when choosing a mortgage.
- Free extra repayments. One of the most common features included with home loans is the chance to make free extra repayments. By using any spare cash you have to pay a bit more off your loan, you’re lowering your loan amount quicker, and therefore saving on interest. Check out our extra repayments calculator to see how much of a difference it will make.
- Redraw facility. While having access to a redraw facility won’t necessarily save you money, it is handy to have. If you’ve been making extra repayments and find you need that money back for an unexpected bill, you can get it through the redraw facility.
- Offset account. An offset account is a great, low effort way to save on interest. It works more or less like a normal bank account, except that every dollar in your account is offset against your loan amount, so that you pay less interest.
- Split rate option. Another common feature is the option to have half of your loan on a fixed rate, and the other half on a variable rate. This means you can get the best of both worlds - the certainty of fixed rate repayments, combined with the flexibility (and often lower interest rate) of a variable loan.
One last thing to remember - variable rate loans usually come with more features and flexibility than fixed rate options, which might not include any of these features.
What home loan fees will I need to budget for?
There are a number of fees that may apply to your home loan and which you’ll need to budget for. These include:
- Application fee. This is an upfront fee that you pay in order to first apply for a home loan.
- Service fee. This might be charged monthly or annually, and covers the cost maintaining your loan. Generally, the more bells and whistles included in your loan, the more likely it is to include a service fee.
- Legal, valuation and settlement fees. Other fees you may pay upfront, these cover the cost of legal paperwork, as well as the cost for someone to value your property and be present at the settlement of your loan.
- Discharge fee. You might wind up paying a discharge fee when you pay your loan off in full.
- Feature fees. You may also pay a fee for certain features included in your home loan, such as extra repayments, a redraw facility or an offset account. Not all home loans charge fees for these, so make sure you’re not paying a fee when you don’t have to.
What is the comparison rate?
The comparison rate is shown next to the interest rate in our table and is designed to help you get an accurate idea of the ‘true’ cost of a home loan. It takes into account both interest and guaranteed fees that apply to a loan.
There are a lot of different home loans options out there, but when you compare based on the comparison rate, you know you’re looking at different options on equal footing.
One thing to remember is that the comparison rate can’t reflect things like offset accounts or other features that might save you money, so while it’s an important part of home loan comparison, it’s not the only thing you need to consider.
You should also keep in mind that the comparison rates shown in Mozo’s tables are based on a specific example of a secured loan of $150,000 with monthly principal and interest repayments over 25 years, just to help you compare your options. You’ll likely have a different loan amount or loan term, so your personal comparison rate may be considerably different to what’s shown here.
How much stamp duty will I need to pay?
I’m still stuck - where should I start?
Right here at Mozo! We’ve got heaps of resources set up to help you work out which home loan is best for you, no matter which stage of the journey you’re at.
If you want some more background on the nitty gritty of borrowing, head over to our home loans guides section where we’ve covered everything from a step-by-step look at buying your first home to how to work out what monthly repayments you can afford.
Or, if you’re trying to sort your budget out, take our home loan calculators for a whirl. You’ll be able to work out what your monthly repayments might be, how much you should budget for stamp duty and how a rate rise will affect your bottom line, no head scratching maths required!
For refinancers, make sure you check out our Switch and Save calculator to see just how much you could put back in your pocket by snagging a better deal.
And if you’re ready to dive right in, then our home loan comparison table above is the perfect place to start your home loan search.